Texas 2015 Legislative Update :: Construction Law

Texas Legislative session brought multiple changes to the way construction contracts and litigation will be handled in the future.

Specifically, the manner in which a construction manager-at-risks is chosen, certain procedures for condominiums to follow when filing suit, and changes in the manner information regarding consolidated insurance programs will be required to be disclosed.

These changes will take place beginning in early September and continue throughout the year into early 2016.

Construction Manager-at-Risk

(Effective September 1, 2015)

Originally, a construction manager-at-risk was allowed to serve as governmental entity’s original architect or engineer if “the architect or engineer [was] hired to serve as the construction manager-at-risk under a separate or concurrent selection process conducted in accordance with [the Code].” However, new changes to Sections (b) and (c) of Section 2269.252 of the Government Code, now state that the governmental entity’s original architect or engineer, including any related entity, can no longer serve as the construction manager-at-risk on the same project.

According to the amended law, an entity is related to the architect or engineer if the same architect/engineering company is a “sole proprietorship, corporation, partnership, limited liability company, or other entity that is a subsidiary, parent corporation, or partner or has any other relationship in which the governmental entity’s architect or engineer has an ownership interest, or is subject to common ownership or control, or is party to an agreement by which it will receive any proceeds of the construction manager-at-risk’s payments from the governmental entity.”

The amended law will only affect the contracts made for construction manager-at-risks entered into on or after September 1, 2015.

Pre-Suit/Arbitration Requirements Applicable to Condominiums

(Effective September 1, 2015)

Section 82.119 and 82.120 are new additions to Subchapter C, Chapter 82, of the Property Code, which set procedures to follow when a condominium with eight or more units seeks to file suit or initiate arbitration for claimed defects or design claims.

More specifically, before a condominium association can file a suit or start an arbitration proceeding, it must get an inspection and a written report from a third party licensed professional engineer.

The association also must obtain approval from unit owners who hold more than fifty percent (50%) of the total votes as provided in Section 82.110, in accordance with bylaws. The association must then provide written notice of the inspection by third party engineer to each party that is subject to the claim.

After the inspection has occurred, and before the meeting is held to discuss the results, the association must do then prove each unit owner and each party subject to the claim a copy of the third party report and allow each party at least ninety (90) days after the competition of the report to inspect and correct and conditions brought to their attention in the report.

No later than thirty (30) days before the meeting to discuss the results and moving forward with arbitration or filing a suit, the association must provide a written notice to each unit owner.

Most notably the above mentioned notice cannot be prepared or signed by anyone who is affiliated with the association’s law firm for the claim.

While this is a very condensed review of the changes, the reporting and notice requirements are extremely specific and must be adhered to.

Disclosures Regarding Consolidated Insurance Programs

(Effective January 1, 2016)

Sections 151.003 et. seq. are new additions to Subchapter A, Chapter 151, of the Insurance Code, which pertain to rules of disclosure for consolidated insurance programs that relate to construction contracts. The new law states that if a consolidated insurance program is required by the construction contract, the principle, “the person who procures the insurance policy under a consolidated insurance program,” is required to provide at least ten (10) days before the contract is signed, certain statutory information.

The requisite statutory also applies to any contractor that enters into a construction contract with another party that requires a consolidated insurance program. If said information is not provided to the other party within the ten (10) day period, they can elect not to enroll in the consolidated insurance program, even if previously required by the contract. The other party must inform the principle or contractor if they decide to enroll in the program no later than ten (10) days after the above information is provided.

However, if the other party elects not to enroll in the consolidated insurance program, but enters into the construction contract, the other party must obtain another form of insurance coverage for their work on the project that complies with coverage terms and liability limits, imposed for others who are working on the project but do not have consolidated insurance program. If applicable the other party may be compensated for the actual cost of their insurance coverage by the principle or contractor.

Further, if a written request for a copy of the insurance policy is made, a complete copy of the insurance policy needs to be sent to the requester no later than thirty (30) days after the request was made, or before the sixtieth (60th) day after the date the contractor’s work was covered by insurance. Unless otherwise requested a copy of the insurance policy can be sent electronically.

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