Construction and the Law in Texas
Bills From the 82nd Legislature,
2011 Regular Session
In the most recent Texas legislative session, certain key laws were enacted that will affect the construction industry. The following summary identifies each law and briefly addresses its importance:
SB 425 (Certificates of Insurance):
Senate Bill 425 requires regulatory approval of property and casualty certificates of insurance. More specifically, certificates of insurance issued to an insured must be approved by the Texas Department of Insurance. This requirement is designed to address third party requests for modified certificates. Previously, third parties would often request the insured obtain a certificate of insurance that states the third party is protected or indemnified under the insured’s certificate.
The law applies to a certificate of insurance issued on or after Jan. 1, 2012. Parties are no longer allowed to issue or modif y certificates without the approval of the Texas Department of Insurance. Third parties who request use of a non-standard form or pre-approved form must file the form with the Texas Department of Insurance and wait for approval. Any certificates not approved by the Texas Department of Insurance are considered void or of no effect.
On a practical note, a certificate of insurance is not a polic y of insurance and does not amend, extend, or alter the coverage afforded by the referenced insurance polic y. The certificate does not confer on the holder new or additional rights beyond what the referred polic y or any executed endorsement of insurance provides.
SB 1048 (Public Private Partnerships [a/k/a PPP or P3]):
This bill authorizes state and local governments to negotiate “Public Private Partnerships” for the construction, financing , and/or operation of public facilities. It also outlines the process that governmental entities must follow. Virtually all governmental entities and types of construction are included.
Notably for the heavy/highway industry, the law does not apply to the financing , design, construction, maintenance, or operation of a highway in the state highway system, or metropolitan, municipal, regional or coordinated county transportation authorities. TxDOT and transportation authorities have enjoyed the authority to enter into prior to the 2011 Legislative Session.
Now, virtually all other public entities may use the PPP process. These entities begin the process by soliciting proposals or receiving a proposal from a developer. In either case, the public entity must identif y and publish guidelines for evaluation before proceeding any further. These guidelines must include criteria for selection, evaluation of financial cost/benefit, and a timeline.
The governmental entity must provide notice of the proposals and make a copy available to the public (with the possible exception of proprietary financial information). In addition, the governmental entity must hold public hearing. The governmental entity may choose a proposal based on the “total project cost,” but may also consider other factors, including benefits to the public, the developer’s “plans to employ local contractors,” the developer’s “proposed rate of return,” and “other criteria that the responsible governmental entity considers appropriate.” The proposal that is selected is to be implemented by a “Comprehensive Agreement.”
State entities must submit proposals over five million dollars (and Comprehensive or Interim Agreements) to a newly formed “Partnership Advisory Commission.” In addition, all governmental entities considering a PPP must also develop “procurement guidelines.” These are to follow existing statutory practices for design- build projects. In addition, the construction is to be done with performance and payment bonds in place. The bill is effective on Sept. 1, 2011.
HB 2093 (Insurance and Indemnity): House Bill 2093 changes Texas law relating to consolidated insurance program (CIP) completed operations coverage, as well as indemnity, duty to defend, and additional insured requirements in construction contracts. The bill applies only to a new or renewed consolidated insurance program for a construction project that began on or after Jan. 1, 2012. The new changes in law apply only to an original construction contract with an owner that is entered into on or after Jan. 1, 2012. Additionally, the bill changes apply to any related subcontract, purchase order contract, personal property lease agreement, or insurance policy.
First, the bill provides that CIPs must provide completed operations coverage for at least a three-year period after construction. This allows subcontractors the benefit of completed operations coverage without having to pay for purchasing completed operations coverage a la carte.
Second, indemnity for the negligence of an indemnitee in a construction contract is now void and unenforceable to the extent the actor is outside the indemnitor’s control and where the claim is for negligence, breach of contract, or violation of a statute or government regulation. In lay terms, broad form indemnity is no longer permitted. Indemnity for the acts of subcontractors of all tiers and for injury or death to the indemnitor’s employee remains allowable. Notably, this limitation does not apply to contracts with municipalities. This rule replaces Section 2252.902 of the Texas Government Code entitled “Indemnity Provisions in Construction Contracts,” which related only to public projects.
HB 1390 (Lien Claims for Statutory Retainage): In Texas, contractors enjoy the right to both “statutory” and “contractual” retainage. HB 1390 makes significant changes to the deadlines for perfecting claims for both types of retainage.
Under current law, a claimant, other than an original contractor, must:
- Give notice of contractual retainage by the 15th day of the 2nd month following the month in which materials were first delivered or labor was first provided; and
- Give notice of a claim for statutory retainage within 30 days after final completion of the original contract.
Claimants often miss the early notice requirement for contractual retainage or the late notice requirement for statutory retainage.
HB 1390 changes that. For lien claims for labor or materials furnished under a subcontract where the original contract was entered into on or after Sept. 1, 2011, claimants now have a better opportunity to perfect their retainage claim with extended notice and lien deadlines.
HB 1390 extends the notice deadline for contractual retainage to the earlier of : (1) the 30th day after the claimant’s work is completed, terminated or abandoned; or (2) the original contract is terminated or abandoned. Additionally, if the claimant sends this contractual retainage notice, then the claimant is not required to file its lien affidavit in the 30-day window for perfecting statutory retainage. Rather, the claimant can wait until the 15th day of the 4th month after the indebtedness accrues to file the lien affidavit.
HB 1456 (Lien Waivers): HB 1456 mandates both conditional and unconditional standardized waiver and release forms to be used for both progress payments and final payment. The standardized form must be used for the waiver and release document to be effective. The legislation provides that lien / bond releases and waivers are unenforceable unless following this statute ; it appears that other language (reaffirming warranties or representations about known claims) should be included in a separate document. HB 1456 also expressly prohibits a contractual waiver of lien rights without evidence of payment. This bill is effective only as to contracts executed on or after Jan. 1, 2012. The bill also provides that subcontractors of any tier who provide landscaping ser vices or materials are entitled to a lien, but only for lien claims arising under or by virtue of a contract entered into on or after Jan. 1, 2012.
– As seen in the January 2012 Issue of Texas Contractor.