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Legislative Update

JD Holzheauser
JD Holzheauser
The 88th Legislative Session came to an end on May 29. The issues covered in this column relate to change order work, right to repair, experience modifiers, and certificates of merit. Each of these new laws applies to contracts entered into after September 1, 2023.
House Bill 3485
Most contracts allow an owner to direct changes in the work without a signed change order and allow the contractor relief at some later time. House Bill (HB) 3485 limits the amount of directed changes that can be outstanding.

The bills states that a contractor directed to proceed with additional work may elect not to proceed with that work if two conditions are met. First, there is no written, fully executed change order for the additional work. Second, the value of the additional work, plus the value of any previously directed additional work for which there is not a written, executed change order, must exceed 10 percent of the contractor’s original contract amount. If the contractor elects not to proceed with the additional work as allowed by the statute, the contractor is not responsible for damages associated with that election.

The statute applies to prime contractors and subcontractors on public and private projects. Contractors and subcontractors have essentially the same rights and protections. While the bill raises a number of practical questions, it may limit some contractors’ financing of directed changes.

House Bill 2965
This bill amends Chapter 2272 of the Government Code, which is essentially a right to repair law for public projects.

That Chapter has required a governmental entity to provide a report to the contractor of any alleged defects and allow the contractor an opportunity to inspect and correct the alleged defects before filing a claim for damages.

However, some governmental entities responded to that law by issuing contracts that included a contractor waiver of the government’s Chapter 2272 obligations. Most contractors want to know about any concerns with their work, along with an opportunity to address those concerns. Chapter 2272 provided that opportunity, but the contract waivers eliminated it. The new language added by the bill states that Chapter 2272 cannot be waived and that any contract clause to the contrary is void.

House Bill 679
HB 679 amends Chapter 2252 of the Government Code to limit the use of experience modifiers in public procurement. This law has broad application in construction contracts because the definition of a “contract” in the bill incorporates the definition of a “construction contract” in Chapter 272 of the Business and Commerce Code. The definition in Chapter 272 is broad enough to include almost any contract or agreement in a public construction project.
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Kirby Smith Machinery

Experience modifiers are a number value assigned to an employer seeking worker’s compensation insurance based on the employer’s safety record during the late four years. Essentially, experience modifiers are an actuarial tool for insurance companies. However, public entities have used baseline experience modifiers to disqualify contractors for public work. For example, owners have specified that certain experience modifier scores bar a contractor from bidding or proposing on a project.

HB 679 prohibits this practice in public contracts. It appears that it is still permissible for a governmental entity to take the experience modifier into account when determining to whom to award a contract. But the governmental entity cannot set threshold experience modifiers that eliminate a contractor’s ability to seek construction work from the government.

House Bill 2007
Chapter 150 of the Civil Practice and Remedies Code states that if a claimant asserts a claim against a licensed or registered professional, the claimant must file with its petition or complaint an affidavit of a third-party licensed or registered professional addressing the claims in the petition or complaint. The affidavit is referred to as a certificate of merit.

However the certificate of merit requirement extended to projects where a contractor had claims against its subcontracted designer on a design-build team. If that contractor were sued for damages arising out of project design, the contractor would want to include the designer for efficient dispute resolution. But its third-party action against the designer would have to include a certificate of merit, thus effectively admitting poor design.

Under HB 2007, a contractor defendant in that situation may file a complaint against a third-party subcontracted design professional from its design team without a certificate of merit.

The exception is further limited because the design-build project must be one where the owner is a government entity who contracted with the single design-build entity for the project. This exception has limited applicability but could have a major impact on dispute resolution procedures for large design-build public projects in Texas.

Law Not Passed
HB 2879 did not pass. It concerned Business and Commerce Code §272.001, which allows a performing party in a contract built in Texas to insist on Texas venue for a suit concerning that project.

This bill appeared to be in response to a recent Court of Appeals ruling that a contractor had waived the protections of Section 272.001. That case is currently on appeal before the Supreme Court of Texas, but HB 2879 would have rendered protection from out-of-state contractual venue provisions non-waivable.

If the Supreme Court agrees with the 14th Court of Appeals’ holding, a contractor should actively inform its contracting party that it is electing to void a venue selection provision that falls under the umbrella of Chapter 272. Despite the actions of the courts, you may see a version of this bill in 2025.

In 1866, a New York judicial opinion proposed that “no man’s life, liberty, or property is safe while the Legislature is in session.” More than 150 years later, legislative action continues to affect our lives, liberty and property – including contractors and their businesses. Many contractors will welcome legislation from the 88th Legislative Session, but contractors are well advised to learn more about the bills described above in order to protect their rights in this increasingly regulated industry.

JD Holzheauser is a Senior Counsel at Peckar & Abramson, P.C. He can be reached at jholzheauser@pecklaw.com and 512.236.0009

Your local Finn Corporation dealer
Romco Equipment Co
Your local Finn Corporation dealer
Romco Equipment Co
Your local Wirtgen America dealer
Kirby Smith Machinery