Legislative Update 82 nd Regular Session (2011) Construction Law Section Austin Bar Association...

Legislative Update 82nd Regular Session (2011)

Construction Law Section

Austin Bar Association

October 20, 2011

Robert C. Bass, Jr.

Winstead PC

401 Congress Avenue, Suite 2100

Austin, Texas 78701

Legislative Overview

• Pre-occupation with Budget• Other “Hot” Social/Partisan Issues• Only 24% of Bills Made It to Governor• But, still almost 1400 new laws

Including several significant Construction related bills

• Special Session(s)

Civil Justice / Dispute Resolution

• HB 274 Creighton, et al. / Huffman – reform of certain remedies and procedures in civil actions (formerly “Loser Pay”)

• Directs Supreme Court to permit “Motion to Dismiss”

• Allows Court to permit interlocutory appeals on controlling issues (without agreement of parties)

• Modifies formula for determining maximum amount of attorney’s fees recoverable after a rejected settlement offer

• Directs Supreme Court to provide expedited procedures for smaller (under $100,000) claims

• Designation of Responsible Third Parties will not extend limitations period

Civil Justice / Dispute Resolution

• HB 354 Kleinschmidt / Wentworth – Prompt Pay interest recoverable in suits for breach of contract under Local Government Code.

Criminal History Background Checks

• HB 398 Jackson, Jim / Hegar – correcting legislation requiring criminal background checks on school district construction projects.

• Identical to SB 1042• Corrects drafting error from 2009 DPS

Sunset Bill – to reference background check criteria for non-teaching personnel

Governmental Procurements

• HB 628 Callegari / Jackson – Procurements on Public Projects / Alternative Delivery Systems– 3rd Time is a Charm (or is it 4th time?)– Creates new Chapter 2267 Gov’t Code

• Moves most public procurement requirements for construction projects to new Chapter

• Includes provisions for competitive bidding, competitive sealed proposals, professional services, CM at Risk and CM Agent, Design/Build, and job order contracting for most state and local governments

• Does not apply to higher education and most TexDot / Road projects


• HB 628 Callegari / Jackson (cont’d)– Continues to bar Reverse Auctions for construction

procurements– Restricts Use of Recoveries in Construction Defect

Cases on school district projects where State Money was used for Original Construction

• Must Notice Commissioner of Education• State May Join• Net Recovery Not Used for Repair Must be

Returned to State


• HB 679 Button / Carona – Change Order Approval Requirements under Local Gov’t Code

Officials/Employees may authorize Change Orders for increase/decrease of $50,000 or less


• SB 1048 Jackson / Davis – Public / Private Partnerships (P3)– Modeled after Virginia P3 statute– Process for state and local gov’t entities to contract

with private entities to develop, construct, finance, and operate a variety of facilities

• Including ports, pipelines, parking garages, hospitals, schools, sports facilities, convention facilities, and hotels on publicly owned property

• State highway projects and telecommunication infrastructure are NOT included


SB 1048 Jackson / Davis (cont’d)– Not Exclusive Procedure (e.g., Local Government

Corporations may still use Sec. 431.110 of the Transportation Code)

– Private Developer may initiate Proposal for P3 project– Public Entity must develop Guidelines before

requesting or considering Proposal• Guidelines must include criteria for selection,

provide for financial review, and set out timelines for the Project

– Public Entity may seek additional Proposals during selection


SB 1048 Jackson / Davis (cont’d)• State procurement requirements under Chapters 2155,

2156 and 2166, Gov’t Code do not apply• But, must comply with…

– State and Local Gov’t procurement requirements for Design/Build

– Professional Services Procurement Act– Governmental Bonding requirements (Chapter 2253,

Gov’t Code)• Legislative oversight for State Projects through

Partnership Advisory Commission

Licensing / Regulatory

• HB 1711 Davis / Jackson – Disaster Remediation Contracts– Regulates Contracts for remediation/repair of improvements to

real property caused by Natural Disaster (Governor Declaration)– Contracts must be in writing– No Pre-Payment before Commencement– No Payment in excess of amount “reasonably proportionate to

work performed”– Must include Statutory Disclosure– DTPA Violation / But is Contract still enforceable (?)– TCEQ licensed Contractors exempt– Local Contractors (office in County or Adjacent County) exempt

Indemnity / Insurance

• HB 1951 Taylor / Hegar – Texas Department of Insurance Sunset Bill / Surety Requirements– Amends Sec. 3505.005 Insur. Code relating to surety

requirements for statutory bonds– For bonds not exceeding $100,000, surety must be T-

Listed or have reinsurance for risks over $ 1 Million• What does this mean?

– Reinsurer may be either T-Listed or Authorized


• HB 2093 Thompson / Van de Putte – Consolidated Insurance Programs / Anti-Indemnity– Creates new Chapter 151 Insurance Code for

“Consolidated Insurance Programs”– CIP means a “wrap” policy on construction project

covering general liability and/or workers comp– All CIP’s must include at least 3 years of completed

operations– Late in Session, was amended to include…..


• HB 2093 Thompson / Van de Putte (cont’d)

….. ANTI-INDEMNITY LANGUAGE

• After many Sessions / “Mediated Compromise” was enacted and signed by Governor

• Will go into effect for contracts where original contract entered into on or after January 1, 2012

• What does it do???


• HB 2093 Thompson / Van de Putte (cont’d)– Voids “Broad” Form (Sole Negligence) and

“Intermediate” Form (Partial Negligence) Indemnity• Extends to obligations to Defend

– Voids Additional Insured coverage for “Broad” and “Intermediate” Form Indemnity

• Current AI Endorsement Forms covering Partial Negligence will not be Enforceable

• ISO will probably develop new Texas-based AI Endorsement Forms


• HB 2093 Thompson / Van de Putte (cont’d)– Does NOT apply to:

• Indemnity for On-the-Job Employee Injury Claims (may still require Broad Form / Broad Defense)

• CIP (OCIP / CCIP) coverage and defense obligations• Indemnity obligations in loan agreements or general

indemnity agreements for bonding• Claims based upon copyright infringement• Residential Construction (single to four-plex) and related

Development projects• Municipal public works projects (are you serious???)• Joint Defense agreement after claim asserted


• HB 2093 Thompson / Van de Putte (cont’d)– What does this all mean?

• More lawyers to defend claims– But how often do carriers actually defend all

parties?• No “limited” broad form for indirect / derivative

negligence– But owners can purchase Owners and

Contractor’s Protective Liability Policy to cover Owner’s negligence in “general supervision” of Contractor


• HB 2093 Thompson / Van de Putte (cont’d)– AIA standard indemnity language will continue to work– Most “customized” indemnity clauses will have to be

changed


• SB 425 Carona / Hancock – Certificates of Insurance for Property & Casualty Coverage– All Certificates of Insurance must be on TDI approved

forms– ACCORD forms are deemed approved– Certificates may not alter or add to policy terms– Certificates may not purport to give notice rights to

persons unless• Person is named in policy or endorsement• Policy or endorsement expressly provides for

notice


• SB 425 Carona / Hancock (cont’d)– Noting in statute to prevent or restrict obtaining copy

of actual policy of insurance and endorsements– $64,000 Question…. What good do they do?

Liens / Bonds / Construction Trust Funds

• SB 539 Carona / Kleinschmidt – Attorney’s Fees in Lien and Bond Claim Proceedings– Changes “May” to “Shall” for Court’s award of

attorney’s fees in suit on lien or bond claims (Sec. 53.156, Property Code)

• Intent is to mandate an award of Attorney’s fees• But still calls for Court to determine an award that

is “equitable and just”• But, does not mandate…

– To Whom Award is to be Made– Or Amount of Award


• SB 539 Carona / Kleinschmidt (cont’d)– Court is not mandated to award fees against Owner

on residential project• What does that really mean?


• HB 1390 Deshotel / Estes –Statutory Retainage and Contractual Retainage– Major Changes to Chapter 53, Property Code for

perfection of claims for Statutory and Contractual Retainage

– Notice of Contractual Retainage – no longer “pre-notice”

– Will be required earlier of…• 30th day after claimant’s agreement is completed,

terminated or abandoned or• 30th day after original contract is terminated or

abandoned


• HB 1390 Deshotel / Estes (cont’d)– If Claimant timely sends Notice of Contractual

Retainage• Does not have to file Lien Affidavit within 30 days

after final completion to secure Lien on Statutory Retainage

• But Notice does not “Fund Trap” without Fundtrapping Language

• May wait full perfection period (15th day of 4th month after indebtedness accrues)…. Except


• HB 1390 Deshotel / Estes (cont’d)

Must file Affidavit– Within 40 days after Owner sends Affidavit of

Completion– Within 40 days after Owner sends Notice of

termination or abandonment of original contract– Within 30 days after Owner sends demand to

Claimant to file Lien


HB 1390 Deshotel / Estes (cont’d)– If Claimant fails to send Notice of Contractual

Retainage, must perfect as any other lien (monthly notice / early affidavit for statutory retainage)

– How will this impact an Owner’s decision to require strict compliance with Statutory Retainage?

– How will this impact Close-Out procedures (will it cause additional delay in making final payment)?


• HB 1456 Orr / Deuell – Statutory forms for waivers of lien and bond claims / Limitations on Waivers in advance of payment– Mandates Statutory Lien Waiver forms for

• Conditional Waivers for Progress Payments• Unconditional Waivers for Progress Payments• Conditional Waivers for Final Payment• Unconditional Waivers for Final Payment

– See Appendix for Forms


• HB 1456 Orr / Deuell (cont’d)– Conditional Waiver must be used if given in advance

of payment• But must reference payment to be made• Waiver is not enforceable until referenced payment

made– Unconditional Waiver may not waive prior to actual

payment– Forms include “warranty” that bills are paid or to be

paid / but do not constitute “Bills Paid Affidavits”


• HB 1456 Orr / Deuell (cont’d)– May not provide for “blanket waiver” of liens by

contract – except for labor and labor/material contracts on residential construction projects

– Failure to use mandated forms could cause waivers to be unenforceable

• So… does that mean you cannot combine forms (conditional and unconditional / waivers and bills paid affidavits)?


• HB 1456 Orr / Deuell (cont’d)– How will this impact Final Close-out Procedures”

• Can you Require Unconditional Waivers tendered “in trust” or in escrow?

– Can Lenders require Waiver of liens in “Consent” Agreements?

• Can Lenders require Subordination of Liens (note ambiguity in Sec. 53.287)?


• HB 1456 Orr / Deuell (cont’d)– Unrelated language added late in Session….

• Lien for Landscaping Services can now arise from written contract with Owner or Contractor or Subcontractor

– NOTE: effective date will be for Contracts entered into on or after January 1, 2012

• 8 month transition – “attempted compliance” or evidences by its terms “intent to comply”

Professional Design Issues

• HB 2284 Hardcastle / Deuell – defining practice of architecture and engineering– Agreed legislation– Better defines “common areas” and “exclusive areas”

of practice– Prohibits engineer (w/out architect) to prepare

complete, comprehensive set of building plans for building design for human use or occupancy

• Certain industrial, residential, and small commercial exempted

– Grandfather provision

UNFINISHED BUSINESS

• Immigration [E-Verify]• Sovereign Immunity [State of Texas]• Construction Trust Funds [Retainage withheld

from Loan Proceeds]• Lien on Removables [Defining Removables /

Confirming Claim for Lien]• Interim Studies

– Mechanic’s Liens– Interlocal Contracts / Transparency in

Selecting Contractors for Buy-Boards

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Legislative Update 82 nd Regular Session (2011) Construction Law Section Austin Bar Association...

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