Construction and the Law in Texas
Asserting a claim against TxDOT can be difficult procedurally and substantively. The claim process is outlined in the Texas Administrative Code. Procedurally, claims against TxDOT involve multiple hurdles. Substantively, the claim must be fully developed and packaged for presentment prior to the adjudication of the claim itself. This creates a higher degree of administrative, financial, and legal investment at the outset of the claims process than claims in court or arbitration against other owners.
According to TxDOT’s procedures, only a prime contractor can bring a claim. That claim can be for additional compensation, a time extension, or any other remedy. If a claim is generated by a subcontractor, then the prime contractor must bring that claim on behalf of the subcontractor. However, in order to do so, the prime contractor must be liable to the subcontractor on the claim. Be aware that once a claim is files, TxDOT may make a counter-claim that implicates the prime contractor even if the asserted claim is a pass-through claim.
The procedure outlined in the Texas Administrative Code is the exclusive procedure for bringing a claim and must proceed through multiple lawyers of review before traditional legal proceedings are allowed. The multiple layers of procedure can add to the cost of claim adjudication. Initially, the claim must be presented to TxDOT’s Contract Claim Committee. Once considered, the Committee gives notice of its initial decision to the claimant and TxDOT. If the claimant does not object to the Committee’s decision, the claimant must file a written statement acknowledging the decision and waiving any objections. Once that statement is filed with the Committee, the Committee chairman presents a signed document showing the agreed resolution to the executive director. The executive director then can approve the settlement or may request the Texas Transportation Commission approve the settlement by issuing an order.
Should the claimant object to the Committee’s decision, a petition requesting an administrative hearing must be filed with the executive director no later than 20 days after receipt of the Committee’s decision. If the claimant fails to file within 20 days, all further action seeking resolution of the claim is barred. If no petition is filed, the executive director is required to implement the Committee decision – whether the decision requires payment by TxDOT to the claimant or vice versa.
Upon receipt of a petition, the case proceeds to a contested case hearing. Once a contested case hearing has occurred, the administrative law judge’s decision is submitted to the executive director for adoption. However, the executive director has the authority to change a finding of fact or conclusion of law made by the administrative law judge. Further, the executive director may vacate or modify an order of the judge. If the executive director takes any of these actions, he must issue a written explanation of his reason and legal basis for the change.
An important case is Texas v. Mid-South Pavers. In that case, the executive director revised a final order of an administrative law judge down from $1.2 million to $600,000. The executive director failed to substantiate the 50 percent reduction in a written statement supported by evidence. The Austin Court of Appeals reversed the executive director’s decision and held that TxDOT’s final order must be supported by evidence, must be free of constitutional, statutory, procedural or other legal error, and must not be arbitrary, capricious, or an abuse of discretion. This decision limits the ability of the executive director to reject or modify awards of an administrative law judge after a contested case hearing. Prior to this case, the executive director had no limits on the ability to reject or lower a claimant’s recovery.
Finally, be aware that a claimant has the right to appeal a decision by the administrative law judge or the executive director following a contested case hearing to a state district judge and appellate courts. Procedurally, this is yet another layer of the claims process.
Substantively, the claims process requires a complete compilation of the claim upon presentment to the Committee. Unlike claims in court that can progress and be developed over the course of working with scheduling and damages experts, claims under TxDOT’s rules must be fully outlined and developed prior to presentment. This requirement places a fairly high burden on a claimant to ensure the impact is concluded, the claim is fully developed, and the supporting evidence is fully compiled prior to presentment. Under the rules, claimants must file the claim after completion of the contract or when required for orderly performance of the contract. In any event, claimants have no longer than one year from a declaration of default or final completion to present. If a project is experiencing significant delays and the project is such that work is progressing in stages, then the claim process might need to be initiated a number of times as the stages progress if the impacts are sequential and repetitive.
The TxDOT claims process can be difficult and timely. However, when working for TxDOT, there is no other way to seek recourse when damages are incurred and the owner is responsible. Therefore, a basic understanding of the process is valuable for bidding, building, and closing-out TxDOT projects.
– As seen in the April 2012 Issue of Texas Contractor.