Texas Construction Law Explained
Construction contracts in Texas follow the laws and cases handed down in Texas, as well as some federal laws. The Texas business code and chapters of the Texas government code provide the general rules and governing principles for construction in Texas. Cases passed down by the Texas Supreme Court and other Texas appellate courts that affect construction law within the state provide the backbone of Texas construction law.
Construction law is a specific discipline with unique features when compared to many other areas of the law. The law directly affects the way construction disputes are litigated, how contracts are executed, the relationship between contractors and subcontractors, and many other aspects of the construction industry.
The basis of virtually all construction contracts in Texas is the AIA Standard American Form of Agreement . It provides a payment process that allows parties to obtain materials and pay employees when they are doing work for another contractor down the chain, and forces general contractors to pay subcontractors on a timely basis.
One of the most important Texas construction law provisions is that construction contracts are "lump sum" contracts. This means that the parties generally agree to a price for the work, and it does not matter how much the work actually costs. For example, if a party agrees to paint a house for $10,000, and in order to do so, must spend $13,000, that party would still have an obligation to paint the house for $10,000.
Construction contracts also must include an "exculpatory clause." This clause states that the contract will not allow parties to be sued for negligent conduct that occurs while performing the terms of the contract. For example, if the contractor was negligent when doing construction work on the home, the homeowner could not sue the contractor for negligent conduct relating to the performance of the agreement.
Texas Construction Contracts
The basics of construction contracts in Texas are that the law treats a contract as it is written. If there is a signature on the document, the document will be enforced according to what the agreement states. No one, not even the Judge, allows a party to try to change the terms of the deal after the ink has dried. This is why it is so critical to make sure that the deal is written up correctly before you sign the piece of paper. The most basic requirement for a contract is that there is an offer and that the offer is accepted. If there is an offer and acceptance there is a contract – even if the contract is oral. However, oral contracts are not worth the paper they are written on. To avoid confusion, ensure that your contract is in writing. The law also requires that there be a legal purpose behind the contract in order for it to be enforceable. This means that the deal behind the contract must be legal before the courts can step in and enforce it. There is no reason and effect to signing a contract if the contract is for something illegal. Once these basic requirements are satisfied, a contractual relationship is formed. The law here becomes more complex because additional legal requirements depend on the type of contract. For example, the Statute of Frauds governs the formalities required for the following types of contracts to be enforceable:
Texas Mechanic’s Liens
For contractors and subcontractors providing labor and materials to improve real property in Texas, a mechanic’s lien is an important legal tool that allows them to collect payment from the owner of the property if the owner fails to pay. Simply put, a mechanic’s lien allows these construction professionals to place a lien on the residential or commercial property at issue to ensure they are paid for their work – which may prevent an owner from selling or refinancing the property until the debt is satisfied. To pursue the mechanics lien process, a contractor or subcontractor must typically file a statement of lien with the county clerk’s office of the county where the property is located. The filing of the lien must be done within a certain time limit – generally 4 months from the date that the materials were delivered to or the labor was performed or supplied. Failure to meet these deadlines for filing and releasing a lien can result in serious consequences for the contractor.
Texas Construction Licensing & Permits
Licenses and Permits
In line with the theme of restricting unlawful acts and ensuring the safety of Texans, various governmental entities have imposed laws, rules or ordinances requiring certain licenses to be acquired prior to commencing work. With the intent of protecting the safety and welfare of the public, most usually in the form of building permits, different types of work require different types of licenses or registrations, including, but not limited to, plumbing, electrical work, air conditioning, home improvement, utilities, alcoholic beverages, and elevators, to name a few. Simply violating the act of beginning work without being properly registered or licensed is likely to result in the assessment of a penalty, whether it be a fine, or a citation. More importantly, the violation may affect how a contract will be interpreted under the law.
In the rare, but unfortunate, event that a contract does not contain any provision affecting which party is responsible for obtaining the proper licenses, there is a possibility that a factual question will be left to a jury to determine whether the contract was unenforceable. In Alabama & Vicksburg Railroad Co. v. Sproles, 54 S.W. 1007, 1900 WL 1551 (Tex. Civ. App.—Galveston 1900, no writ), the parties had entered into a contract whereby the property owner hired a contractor to build a railroad bridge. After the contractor completed the project, he sought compensation for his work. The property owner refused to pay citing, inter alia, that contractor had violated Texas law by performing work without a license. The court held that "[i]t may be said generally, in a broad sense, that contracts which are forbidden by statutory provisions, or rendered illegal by statute, cannot be enforced." Id. (citing 1 Wharton, Crim. Law, sec. 938). Therefore, even though the contractor had completed the work, the property owner was not liable for the performance of the work. Although this appears to be a severe penalty, the court did not take into consideration whether the contractor held the state’s required license to complete the work. In fact, it appears the issue on appeal did not focus on the existence of the license, but rather the failure to obtain a license at all, prior to undertaking the contract. There are many reasons why a contractor would fail to obtain a required license or permit. In some cases, it appears the contractor was unaware of the requirements. However, as discussed below, in the vast majority of the cases, the contractor fails to obtain the proper licenses and/or permits because the property owner expressly agrees to assume responsibility. Much like the varying amounts of factors involved in determining whether the contracting party should have been aware of the laws or regulations required to obtain a license, the following are generalizations of the most common license and registration requirements, and are by no means exclusively or collectively applicable to every contracting situation. Additionally, these are only a few of the most commonly seen licenses, and many more exist.
Resolving Texas Construction Disputes
Construction disputes are an inevitable part of the lifecycle of any construction project. Conflicts related to design and construction, including issues such as delays, cost overruns, and noncompliance with contractual requirements, are all-too-common and can severely impact the behavior of the parties to a construction contract. Construction disputes can be costly to resolve. Thus, construction participants search for ways to settle disputes without litigation . These alternatives may be required under a contract. Common alternative dispute resolution (ADR) methods include mediation and arbitration, the latter of which may be required by contract. Failing those options, or resulting from a dispute that is not subject to ADR, litigation may require resolution of the construction dispute. Ultimately, contractors and project owners should assist their legal counsel in determining the optimal method for resolution of their unique construction disputes.
Texas Construction Compliance Issues
For Texas construction law attorneys, compliance with local, state and federal regulations is a crucial element of every construction project. Regulatory compliance for construction projects is of utmost importance for the reasons outlined below. With so many safety standards, environmental regulations, and employment laws governing the construction industry in Texas, it is not surprising that construction companies often require the services of experienced legal counsel to assist with their regulatory compliance efforts. When you consider the number of projects regulated by the Occupational Safety and Health Administration (OSHA), Texas’s Division of Workers’ Compensation (DWC) and the United States Army Corps of Engineers (USACE), it is easy to understand how an oversight by one of these agencies could have a devastating impact on a construction project. In fact, an agency oversight can create anything from a minor inconvenience to a major setback that could completely derail an entire job. For instance, a fine from OSHA or the DWC could lead to exorbitant costs or delays that could render a contractor’s services no longer required. USACE regulations are even more stringent, and any perceived infraction could lead to the immediate termination of a project manager’s contract with the government – not to mention full responsibility for damages, losses and legal fees incurred by the government as a result of the contractor’s alleged breach. Even if OSHA, the DWC or USACE has not yet issued any citations to a contractor working on a job site, there are still many reasons why contractors should seek the advice of an experienced construction law attorney before proceeding with a project – or continuing work on a project for which they have been hired.
Recent Developments in Texas Construction Law
One of the most significant shifts in construction law has fallen upon contractors and property owners regarding the statute of repose. Previously, a contractor could have a dispute under a written contract arising in connection with planning or design any time within ten years after substantial completion. On June 16, 2019, Texas Governor Abbott signed into law Senate Bill 1031 ("SB 1031"). This legislation now halts a statute of repose when a contractual provision that allows a project owner certification of substantial completion is not satisfied or no certificate of substantial completion is issued. Consider the following example:
In this example, of course, a certificate of substantial completion was never issued or there was some other contractual condition satisfaction prerequisite for the issuance of same. This is clearly benefitting the owner who is now granted far more time to pursue his negligence claims against the contractor. Additionally, the Texas Legislature reinstated the "pay-when-paid" provision and made it applicable to all parties in the construction chain. Pay if paid is when a contractor will only make payment to a subcontractor when the contractor is paid by the owner . Pay if paid differs from pay when paid because a pay if paid provision provides the contractor no obligation to make payment if the owner fails to pay. S.B. 2190 now provides that a pay when paid provision permits each subsequent party to the contract to defer payment that is owed until the previous party in the contractual chain is paid. Furthermore, a pay when paid provision does not shift the risk of nonpayment to the parties above the contracting parties. The chain of construction begins with the Owner and ends with the Subcontractor, so transfer of risk to a subcontractor is still excluded. Unlike other states, where certain risk of nonpayment for a contractor still exist even if the contract provided for pay when paid, the Legislature now provides greater protection to the contractor in the event there is a change or amendment in contract language exempting him from payment of certain provisions. While these legislative changes may seem small, they are not. For every bill passed, it seems there are three in the pipeline to follow suit, so construction practitioners should be aware of the significance of ever evolving statutory and case law that regulates construction in Texas.
