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Inside this edition of Capitol Roundup:
Committee Primer: Capitol Roundup takes an inside look at three key AGC-TBB bills that appeared before the House Judiciary & Civil Jurisprudence Committee.
The three measures address issues surrounding lawsuits against contractors and design professionals for alleged construction defects in school buildings and other public projects.
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Quote of the Week
"We shouldn't dictate everything we do by a poll, but if we completely divorce ourselves from public perception, we'll end up being more divisive than we need to be."
-Rep. Joe Moody
State Rep. Joe Moody (D-El Paso) made the comment in response to a poll released earlier this month by the University of Texas and the Texas Tribune. The poll covered issues ranging from gun control and paid sick leave to abortions and legalized marijuana.
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Contracting industry stakeholders testify on behalf of construction defect bills in House committee
Contractors and industry stakeholders testified on behalf of three key bills supported by AGC Texas Building Branch in a meeting of the House Judiciary & Civil Jurisprudence Committee earlier this month.
In this edition of
Capitol Roundup, we summarize what these bills will accomplish for the contracting industry, and we provide a look into committee testimony from the
March 11 public hearing.
We will continue to track the progress of these critical pieces of legislation and update members as the bills move through the legislative process. We also want to thank the bill sponsors for their work on the issues and the stakeholders who testified in support of the bills.
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| Stephanie Cook, attorney at Cokinos Young, testified before the House Judiciary & Civil Jurisprudence Committee on March 11. |
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House Bill 1734 - construction defects in school buildings
The Issue: A handful of contingency-fee trial attorneys in Texas have begun pursuing lawsuits on behalf of school districts against contractors, architects, and engineers over alleged construction defects before actually notifying the parties of the defects or giving them a chance to inspect or fix them. In many cases, settlement funds awarded to the school
districts
are not actually being used to repair the defects. Most of the bill is already contained in state law as applied to Chapter 46 districts.
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Rep. Justin Holland
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The Legislation: The bill would require school districts to spend funds awarded from a verdict or settlement regarding construction to repair those defects. The bill also requires the districts to notify the Texas Education Agency (TEA) of the suit once it has been filed or face dismissal, and they would need to itemize any repairs made to the agency. The bill gives the Attorney General enforcement authority.
The Testimony: Most of the committee's questions concerning HB 1734 focused on the requirement that districts notify TEA within 10 days of filing suit as well as ensuring that districts could make repairs in the interim while potential claims are worked out. Stakeholders ensured the committee that nothing precludes the schools from making those interim repairs, and they expressed a willingness to amend the notice requirement. Here are the highlights:
Rep. Justin Holland
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In many cases the settlement funds obtained are not actually used to make the repairs to the alleged defects but rather to plug one time budget or spending deficits. This bill enforces accountability and requires districts to spend money obtained from a verdict or settlement regarding alleged construction defects to repair those defects"
Tom Kader
, SEDALCO, Inc.
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This has created this open opportunity for school districts to carry on a lawsuit against contractors for ten to twelve years after a project is completed. We want school districts to be able to have their due process if they have a legitimate problem, but we need a reasonable way to resolve them."
Others testifying on behalf of the bill
Stephanie Cook (self); Luis Figueroa and Daniel Hart (Texas Society of Architects); Liz Lonngren (Texas Architects); Will Hodges (Self); Corbin Van Arsdale (AGC Texas Building Branch)
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House Bill 1737 - statute of repose
The Issue: Under Texas law, building owners have 12 years to file suit against architects, engineers, and contractors for defects. This 12-year time period - 10 years to identify defects and file suit and an additional two years if a valid claim is filed - is known as the "statute of repose." This lengthy period is unreasonable because most defects manifest themselves in the first five years. As time passes, the defects are more likely to arise not from mistakes made by contractors or design professionals but rather from a lack of proper maintenance.
The Legislation: The bill would shorten the time to identify defects and file suit from 10 years to eight years for latent defects (defects not readily apparent) and to four years for patent defects (defects visible or obvious). Note that 22 states have statutes of repose ranging from 4-8 years, including two Texas neighbors - Arkansas and Louisiana - which allow for a five-year window.
The Testimony: Most of the committee's questions concerning HB 1737 focused on differences between defects due to poor design/construction and defects due to improper maintenance. The committee also heard testimony about lawsuit abuse under this lengthy 10-year window and about rising insurance costs associated with the inherent vulnerability under the current law. Furthermore, current law puts contractors in an unfair position as they must track down subcontractors and insurances companies 10 years after project completion.
Chuck Greco, Linbeck Group
"Most building issues after the time frame are from a lack of maintenance or expectation of performance not provided for in the design nor paid for in the construction cost...it l
eaves open the potential for lawsuit abuse because the plaintiffs attorney industry knows these obstacles and potential costs we face in defending the claim."
Jose Villarreal, Vaughn Construction
"It's an issue of responsibility. There is a duty to maintain the building once it's turned over. These are million dollar buildings...It's like buying a Ferrari and balking at the three to four thousand dollar oil change and having Bob's garage down the street change the oil instead. These are sophisticated, complicated buildings."
Others testifying on behalf of the bill
Stephanie Cook (self); Tom Kader (self); Jennifer Fagan (Texas Construction Associates); Tom Kader (self); Corbin Van Arsdale (AGC Texas Building Branch)
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House Bill 1999 - right to repair alleged defects in public buildings
The Issue: This issue is similar to the ones addressed in HB 1734, in that some attorneys in Texas have developed a cottage industry around getting local governments (mostly school districts) to sue contractors, architects, and engineers for alleged construction defects before actually notifying the parties of the defects or giving them a chance to inspect or fix them. These lawsuits quickly round up several insurance policies to effect a quick, nuisance settlement. Like the school construction defect lawsuits, there are many cases where the funds obtained are not actually used toward making repairs.
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Rep. Jeff Leach
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The Legislation
: The bill would allow those involved in
designing or constructing a public, commercial building a chance to inspect and repair alleged defects before being sued. The measure also provides that a licensed engineer complete an inspection and provide a report. The bill does not remove the right for anyone to file litigation. Note that this bill is based on the 2017 session's HB 2343, which passed committee on a 7-0 but ultimately failed to pass as the Legislature ran out of time. State lawmakers previously passed into law the right to repair ADA defects (2017) and condo defects (2015).
The Testimony: The testimony largely focused on how the bill will help contractors and local governments work more closely and more cooperatively in addressing potential defects. Stakeholders pointed to rising insurance rates as cause for concern, and they identified the provisions in the bill as common-sense solutions that create more transparency and clear expectations about potential damages and solutions to defects.
Jerry Hoog, Bartlett Cocke General Contractors
"For 50 years we didn't have a lawsuit with an owner or an architect. Until last year...and we got two of them."
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I'm in favor of this bill because I think it's common sense. All we want as contractors is a chance to fix a problem that we know about. You guys can figure out the language. That's fine. We just want to have a chance to fix them."
"We have to have repeat work to survive. We have to do a good job to get repeat work. We want to do a good job. But when you get these lawsuits thrown in your face you don't have a chance. To me, it's pretty simple."
Gutierrez, Albert, AGC San Antonio
"I truly believe that we are at a tipping point in our industry. We need to pass House Bill 1999 to control in a fair manner, for both public owners and contractors, the right to repair process."
Tom Kader
, SEDALCO, Inc.
"Constriction defects rarely can be identified with absolute specificity. And the longer the problem goes on, the less the specificity can get. It becomes extremely subjective."
"If we're
really
trying to solve the problem, why would anybody be against the right of the contractor that was contractually bound to the project to fix the problem?"
Others testifying on behalf of the bill
Stephanie Cook (self); Luis Figueroa and Daniel Hart (Texas Society of Architects); Jennifer Fagan (Texas Construction Associates); Jay Farwell (Self, AGC San Antonio); Doug McMurry (San Antonio Chapter of AGC); Darrell Pearson (PBK Architects); Corbin Van Arsdale (AGC Texas Building Branch)
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