Ben L. Aderholt & Jarett Dillard 2015-08-26 00:41:47
Construction law was left generally unaffected by new legislation. There had been much discussion and study of an overhaul of the lien and bond statutes, but action was deferred until the next session. On the other hand, during the past year the Texas appellate courts handed down major opinions concerning wide topics that significantly affect the construction law practice. On the business side, the construction industry may see increased funding for public projects. In HB 1, the Legislature put about $1.2 billion from gas tax money into road construction. It elected to fund the Texas Department of Public Safety from general revenue rather than the state highway fund and by allocating about $2.5 billion from funds raised through the 2014 constitutional amendment that dedicates a portion of tax revenue collected from increased oil and gas taxes to road construction. The Legislature also authorized $3 billion in tuition revenue bonds for capital expenditures for higher education. Public Projects. HB 20 imposed additional restrictions on the use of design-build for highway construction under Section 223.242 of the Transportation Code. The current statutory limitation of three design-build projects per year was extended beyond August 31, 2015, and the threshold for design-build projects was increased. SJR 5 is a proposed constitutional amendment that will go to the voters on November 3, 2015. It would require the comptroller to deposit to the dedicated state highway fund the first $2.5 billion of any net revenue from sales and use taxes (under Chapter 151 of the Tax Code) that exceeds $28 billion in any given fiscal year and an amount equal to 35 percent of the net revenue from motor vehicle taxes under Chapter 152 that exceeds $5 billion. These deposited funds could only be appropriated to construct or maintain public roadways. Chapter 176 of the Local Government Code was amended to provide for the disclosure of business relationships between local government officials and “vendors” entering into contracts for the sale or purchase of real property, goods, or services. New Section 2252.098 of the Government Code requires all persons contracting with a governmental entity (including an institution of higher education) having a contract value of at least $1 million or requiring an action by the governmental entity’s governing body to submit a “disclosure of interested parties” on a form prescribed by the Texas Ethics Commission. The “disclosure of interested parties” must state those persons who have a controlling interest in the contract or who actively participate in negotiating the contract on behalf of the contractor, including brokers, advisers, and attorneys. Chapter 2261 of the Government Code was amended to require a state agency to post on its website a list of each contract that the agency enters into—including those procured without inviting, advertising for, or otherwise requiring “competitive bidding” before selection of the contractor—and statutory authority for entering into each respective contract that was procured without complying with the competitive bidding procedures. State agency employees involved in procurement or management of contracts for an agency are subject to strict conflict of interest prohibitions and disclosure requirements. HB 2475 establishes the center for alternative finance and procurement within the Texas Facilities Commission to assist governmental entities in the receipt of proposals, negotiation of agreements, and management of qualifying public-private partnerships under Chapter 2267. Section 2269.252 of the Government Code was amended to prohibit a governmental entity’s project architect or engineer from also serving as a construction manager at risk for that project. Under current law, the project architect or engineer could be part of the construction manager at risk “team” provided it was selected under a separate selection process. Chapter 501 of the Local Government Code was amended to expand the authority of “economic development corporations” to undertake projects for transportation facilities, including airports, hangars, rail and marine ports, rail and cargo facilities, and parking located at an airport or railport facility. An economic development corporation will also be authorized to own and operate such a facility as a “business.” Section 271.102(a) of the Local Government Code was amended to expand the authority of “cooperative purchasing programs” to include local government entities and local cooperative organizations of other states. Indemnities. Section 271.904 of the Local Government Code was amended as to limitations on the rights of local governmental agencies to require architects and engineers to indemnify and defend the agency against liability caused by the negligence of the architect or engineer. Currently, local governmental entities are permitted to require architects and engineers to indemnify and defend governmental entities for liability caused by the negligence of the architect or engineer. But, there is no determination of fault at the time the obligation to defend arises, and professional liability insurance policies may not provide a defense to third parties such as local governmental agencies. Section 271.904 was amended to remove the obligation to “defend” and to limit the obligation to indemnify to those damages to the extent caused by the negligence of the architect or engineer. A new subsection (b) is added that spells out a prohibition on the obligation to defend (the prohibition is not absolute; it only precludes an obligation to defend a claim based on the negligence of the governmental agency or other entities over which the agency exercises control other than the architect or engineer). A contract may provide for the reimbursement of a governmental entity’s attorneys’ fees in proportion to the engineer’s or architect’s liability. A new subsection (c) permits the governmental entity to require that it be named as an additional insured on the architect or engineer’s general liability policy and provide a defense. New subsections (d) and (c) establish a standard of care for architects and engineers to perform services with the professional skill ordinarily provided by engineers or architects practicing in the same locality under similar circumstances. Contractual requirements that attempt to establish a different standard of care are void and unenforceable. These apply to contracts with a municipality, county, school district, conservation and reclamation district, hospital organization, or other “political subdivision” of the state. Residential Condominiums. New Sections 82.119 and 82.120 of the Property Code impose conditions precedent on actions brought by unit owner associations for construction defect or design claims for condominiums with eight or more units. Developers and their design professionals questioned whether Chapter 27 of the Property Code (the Residential Construction Liability Act) provided sufficient protection from frivolous suits brought by unit owner associations that initiate claims without fully obtaining the informed consent of the individual unit owners. New Section 82.119 requires an independent thirdparty report from a licensed professional engineer as a precondition to filing any legal action; will mandate a procedure for inspection and opportunity to cure those conditions set out in the report; and will mandate a procedure for holding a meeting of the unit owners to authorize any legal action (approval must be obtained from unit owners holding more than 50 percent of the total votes allocated under the declaration) before filing any legal action. At least 30 days prior to the date for the meeting of the unit owners, a written notice must be provided to the unit owners describing the nature of the claim, the relief sought, the anticipated duration of prosecuting the claim, and the likelihood of success. The notice must also include: (a) a copy of the engineer’s report; (b) a copy of the contract with legal counsel selected to pursue the claim, along with a description of attorneys’ fees for which the association may be liable; (c) a summary of the steps previously taken to resolve the claim; (d) a statement that initiating a suit or arbitration may affect the market value, marketability, or financing of units while the claim is prosecuted; and (e) a description of the manner in which the association proposes to fund the cost of prosecuting the claim. The notice must be prepared and signed by a person who is not the attorney or employed by the attorney who represents the association in the prosecution of the claim. The period of limitations for filing suit or an arbitration proceeding is tolled until the first anniversary of the date that the procedures are initiated by the association, provided that the procedures are initiated during the final year of the applicable period of limitation. New Section 82.120 authorizes condominium declarations to mandate binding arbitration for the resolution of construction defect and design claims and will limit the ability of the unit owners to amend the condominium declaration to modify mandatory arbitration requirement for claims based upon acts that occurred prior to the amendment. Grateful recognition is given to Robert C. Bass of Winstead who compiled much of this information.
Published by State Bar of Texas. View All Articles.
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