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"A Double Dose of Power"

Texas Construction Law Takes a Step Forward in Eroding the Harsh Standard of Liability Imposed on Contractors as to Owner-Furnished Design Specifications, Plans and Contracts

June 9, 2021

There is hope on the horizon for Texas contractors who for decades have borne liability for construction defects in owner-furnished contracts. Texas is the only state where a contractor may be liable for the defects that result directly from construction plans and documents prepared or procured by the owner, owner’s agent, or owner’s design professional. Construction industry professionals have long bemoaned Texas’ reliance on the Longeran doctrine, which imposes a harsh standard for liability on contractors in these instances. Senate Bill (“S.B.”) 219 would bring Texas on board with the laws of other states by limiting a contractor’s responsibility in regard to design defects and owner- furnished plans and specifications, finally providing the Texas contractor some amount of relief.

Background

Every state, except Texas, follows what is known as the Spearin doctrine. In United States v. Spearin, 258 U.S.132,39 S.Ct. 59(1918), the court found that an owner impliedly warrants the information, plans, specifications, and other construction documents that are provided to the contractor. In essence, this means that although the contractor is bound to build according to the owner-furnished plans and specifications, the contractor will not be liable for any resulting consequences caused by defects as a result of complying with such plans and specifications. Contrary to this well-established construction law case, Texas currently follows Thomas Lonergan et al v. San Antonio Trust Co., 101 Tex.63 (Tex. 1907). The Lonergan doctrine prevents a contractor from successfully asserting a claim for “breach of contract based on defective plans and specifications” unless the contract contains language that “shows an intent to shift the burden of risk to the owner.” For over a hundred years, this doctrine has held Texas contractors liable for defects caused by faulty owner-furnished plans and specifications, unless the contract between the parties specifically shifts that burden to the owner.

In recent years, the construction industry had reason to hope that this long-standing doctrine may be eroding in the Texas Courts of Appeals, but in 2012, the Texas Supreme Court reinforced that Lonergan was still the law of the land. In the case of El Paso Field Services, L.P. v. MasTec North America Inc., 389 S.W.3d 802(Tex. 2012), the court held that the contractor, and not the owner, bore responsibility for additional costs incurred by previously undiscovered foreign crossings in a pipeline construction contract. This case was a blow to the construction industry and the hope of adopting the Spearin approach, until SB 219 recently gained traction in the legislature this year. The shift began in 2019, when the Texas Legislature implemented Chapter 473 of the Texas Transportation Code. This statute allowed certain projects undertaken by the Texas Department of Transportation, and Texas political subdivisions to adopt the Spearin Doctrine in limited transportation projects.

The passage of S.B. 219 Will Further Limit the Longeran Doctrine

S.B. 219 adds Chapter 59 to the Texas Business and Commerce Code, which will (with some exceptions noted in the section below)—further erode and extinguish the viability of the Lonergan doctrine. S.B. 219 states that, “A contractor is not responsible for the consequences of design defects and may not warranty the accuracy, adequacy, sufficiency, or insufficiency in the plans, specifications, or other design documents provided to the contractor by a person other than the contractor’s agents, contractors, fabricators, or suppliers, or its consultants, of any tier.” Thus, a contractor will now enjoy more protection from liability resulting from design defects in owner-furnished plans, specifications, and other design documents.
In addition, Texas House Bill 2116,which limits a contractor’s duty to defend in construction contracts between the owner and design professionals as well as House Bill 2416 which allows parties to recover attorney’s fees as compensatory damages in breach of construction contract cases will also further alleviate contractors’ degree of risk in this arena.

New Statutory Duty for Contractors Under S.B. 219

The language of S.B. 219 contains a new requirement that contractors must disclose any, “defect, in accuracy, inadequacy, or insufficiency in the plans, specifications, or other design documents” that the contractor discovers, or should discover through “ordinary diligence.” “Ordinary diligence” is defined by S.B. 219 as “observations” that a contractor would make in “reasonable preparation of a bid or fulfillment of its scope of work under normal circumstances.” A contractor is also not required to hire an outside licensed design professional to satisfy this reasonableness requirement, but rather must only analyze the documents with the knowledge and experience of a reasonable contractor. It is imperative to note, however, that a contractor who fails to reasonably find or observe a defect may be liable for the consequences of that defect.

Important Exceptions to S.B. 219

S.B. 219 does not apply to a projects that are classified as a, “critical infrastructure facility” or, “necessary to the operation of and directly related [to a] critical infrastructure facility.” Contractors and other construction industry professionals should consult with their legal counsel to determine if a particular project may be classified as a “critical infrastructure facility” exempted from the statute.

In a second notable exception, the statute does not apply to: “(1) designs provided by a contractor under a design-build contract; (2) designs provided by a contractor under an, “engineering, procurement, and construction contract;” and (3) sections of a contract where the contractor has agreed to provide, “input and guidance” on design documents, and that, “input and guidance” are provided as the, “signed and sealed work product” of an individual licensed as an architect, engineer, or registered land surveyor, which is actually included as part of the design documents used in the construction of the real property.” Texas Construction Association Legislative Issues, 87th Legislative Session, S.B. 219.

Conclusion

S.B. 219 will bring with it long-awaited relief for construction professionals in Texas. Limiting contractor risk for owner-furnished design defects is arguably overdue. The Texas Legislature has sent Senate Bill 219 to the Governor for his signature. Our attorneys will keep clients updated as to the status of this important legislation.

 

 

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