The Texas House has given initial approval to a signficant change in how risk is allocated in commercial construction contracts. SB 219 by Senator Bryan Hughes (R-Mineola) and Rep. Jeff Leach (R-Plano) adopts the so-called “Spearin” rule, which generally assigns liability for a defect in plans and specifications to the designer rather than the contractor that builds the design. Under current Texas law, the “Lonergan” rule, a contractor warrants the buildability of the design and may be held liable for a design defect.
Should SB 219 become Texas law, as it looks likely to, it will represent the culmination of three sessions of discussion and sometimes contentious negotiation between owners, general contractors, subcontractors, engineers, and architects over the past three legislative sessions. In broad terms, SB 219 relieves a contractor of responsibility for the consequences of design defects and prohibits the contractor from warranting the accuracy, adequacy, sufficiency, or suitability of the plans or specifications provided to the contractor by the designer. The bill further voids any contract language seeking to waive this provision.
But as a result of negotiations that commenced last session, primarily with Chairman Leach, and continuing into this session with both Chairman Leach and Chairman Hughes, SB 219 exempts an extensive list of critical infrastructure facilities from the application of the Spearin rule. This list of exempted facilities includes refineries, electric generating facilities, chemical manufacturing, water and wastewater plants, liquid natural gas terminals or storage facilities, natural gas compressors, telecommunications facilities, ports, railroad switching yards, truck terminals, gas processing plants, radio or television transmission stations, steel mills, dams, animal feed operations, above-ground pipelines, oil and gas drilling sites and wellheads, oil and gas facilities with active flares, pipelines, electric transmission and distribution facilities, transportation fuel production facilities, and commercial airports. The bill further exempts any other building, structure, appurtenance, improvement, or other facility owned by the same person that is necessary to the operation of and directly related to the critical infrastructure facility.
In addition to exempting specific types of facilities, SB 219 holds a contractor responsible under a design-build contract in which the contractor provides all or part of the plans or specifications (limited to defects in the part of the design specs provided by the contractor). Additionally, if a contractor agrees to provide input and guidance regarding the plans or specifications, and the contractor’s input is incorporated into plans provided by a registered professional, the contractor may be liable for a defective design. Finally, if a contractor learns of a design defect, the contractor must disclose in writing a known design defect that is discovered by the contractor or reasonably should have been discovered using ordinary diligence. A contractor that fails to disclose the defect may be held responsible for the consequences of the failure to disclose.
SB 219 also includes standard of care requirements for architectural or engineering services provided by a registered professional in a construction contract. The applicable standard, which may not be waived by contract, requires the same exercise of professional skill and care ordinarily provided by competent architects and engineers practicing under the same or similar circumstances with the same professional license.
While not everyone got everything they wanted in SB 219, the final product is vastly fairer to TCJL members than the original proposal. We particularly appreciate the hard work of TCJL members Texas Chemical Council, Texas Oil & Gas Association, Texas Association of Manufacturers, and Associated General Contractors-Texas Building Branch in working together to narrow differences and create common ground on the issue. TCJL also appreciates Chairman Leach’s and Chairman Hughes’s willingness to work with the stakeholders to reach a good result.