Texas Legislative News – February 24, 2017
Texas Construction Association (TCA) Priority Legislation Filed
Responsibility for Defective Plans and Specifications
HB 2170 by Representative Kyle Kacal (R-College Station) was filed on February 21 and is awaiting referral to a House committee.
While it seems reasonable for a contractor to rely on plans and specifications prepared by design professionals hired by the project owner to build a project, if the work turns out to be defective due to an error in the plans and specifications, based on two Texas Supreme Court cases, the contractor bears the risk of liability for the consequences of the defective designs. Typical insurance does not cover this obligation and the possible loss may well exceed a company’s net worth.
In Texas, contractors are not licensed to prepare construction drawings, but because of the Texas Supreme Court cases, a person who is not allowed by law to prepare the documents is being required to warranty those documents. The construction team should not be liable for construction that is defective due to erroneous documents furnished by the owner.
Right to Repair
HB 2343 by Representative Paul Workman (R-Spicewood) was filed on February 23 and is awaiting referral to a House committee.
From time to time, construction defects occur on construction projects. In Texas, the property owner is not required to provide notification to the construction team prior to filing a lawsuit or initiating an arbitration proceeding for a claim that alleges a defect in construction.
Representative Workman’s bill will require that, before a suit or arbitration is filed, a person making a claim for damages caused by an alleged construction defect must 1) provide a notice to the contractor; 2) obtain an inspection of the alleged defect by a professional engineer and allow the contractor to attend the inspection; 3) obtain a written report from the engineer concerning the alleged defect; 4) allow 150 days after the date of the report to correct any construction defect identified in the report. The court or arbitrator is required to dismiss a claim if the above items are not followed by the claimant.
Statute of Repose
HB 1053 by Representative Morgan Meyer (R-Dallas) was referred to the House Judiciary and Civil Jurisprudence Committee on February 21 and is now awaiting a hearing in that committee.
The Statute of Repose is a statutory way to cut off legal rights if they are not acted on by a certain deadline. In Texas, the Statute of Repose requires a person to file suit against a contractor for a construction defect during the first 10 years after substantial completion of the project. During this 10-year period, contractors are liable for damages, injury or death which arise from a deficiency in the construction or repair of an improvement to property.
While it is important that there be a finite time limit during which a claim for a construction defect can be brought against a contractor, 10 years is a long time to have potential liability issues hanging over the construction team. The odds are low that a true defect in construction will arise after 5 years. After 5 years, the line between defect and wear and tear gets very blurry. Improper or lack of maintenance to a building also presents a complicating factor. Importantly, documents and witnesses tend to be less available and harder to produce as time goes by. Also, on projects covered by a consolidated insurance program, the state only requires coverage for completed operations (the type of insurance that may provide coverage for after construction claims) for up to 3 years. Thus, contractors on these projects most often have no insurance for the years 4-10 that the consolidated insurance program does not cover.
Furthermore, to combat the lawsuits that are manufactured by consultants in the 9th year of a 10- year statute of repose, a shorter statute period will increase the odds of a defendant being able to produce documents and witnesses with first-hand knowledge of the construction. A shorter time frame will lessen the likelihood that the case is a “shakedown” of construction companies’ insurance and instead be a true case on whether there is a true construction defect. HB 1053 will reduce the Statute of Repose in Texas from 10 years to 5 years.
Other TCA Priority Legislation to be Filed
The remaining bills that are part of the TCA legislative package to be filed soon in the Texas Legislature will address the following issues:
Lien Law Modernization
Of all the states, Texas has the most burdensome and complex lien law scheme. The Texas Constitution, as adopted in 1876, in part, states that “Mechanics, artisans and materialmen, of every class, shall have a lien upon buildings and articles made or repaired by them for the value of their labor done thereon, or material furnished therefor[e]; and the Legislature shall provide by law for speedy and efficient enforcement of said liens.” In line with the Texas Constitution, the Texas Legislature has enacted laws dealing with the statutory lien rights for people furnishing labor and material on private work.
The current lien laws are very difficult for attorneys to understand and nearly impossible for the lay person to understand. For example, the excessive amount of required notices can serve as a trap for honest mistakes which prevent claimants from protecting their lien rights. The lien law has become complex due to the various substantial changes over the past 100+ years.
The Texas lien law system needs to be modernized and simplified so that the construction team on a project will be better able to comply with the law and secure their lien rights. Some of the changes that should be considered include an early notice system that is consistent with many other states, eliminating several confusing concepts unique to Texas, and providing owners, contractors, claimants, lenders, suppliers and title companies with more timely and accessible information regarding projects via an Internet portal. The law should no longer require fund-trapping notices or retainage. This modernization will provide a more reliable close-out procedure which will result in fewer perfected lien claims on projects.
School Background Checks
Before work can begin on certain public school projects, individuals who will be working on the project are required to pass a background check. In many cases, different school districts have different background check requirements. With over 1,200 school districts in Texas, this is a significant problem. Having to comply with these different background checks is a costly process that also takes extra time to complete. This cost is ultimately borne by the school districts.
Legislation is needed to cut construction costs to school districts by creating uniformity, predictability and portability among school districts across Texas for background checks of construction workers on certain public school projects.