On September 1, 2021, Texas S.B. 219 went into effect. This new law incorporates Chapter 59 into the Texas Business and Commerce Code. In short, when a client provides plans or specifications containing design defects to a contractor, Chapter 59 limits contractor liability related to those design defects. The text of the law states:
A contractor is not responsible for the consequences of design defects in and may not warranty the accuracy, adequacy, sufficiency, or suitability of 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. Tex. Bus. & Com. Code Ann. § 59.051.
This new statute applies "only to a contract for the construction or repair of an improvement to real property." Id. at § 59.002.
S.B. 219 diverges from the long-standing doctrine set out by the Supreme Court of Texas in Lonergan v. San Antonio. In Lonergan, a house collapsed before final completion as a result of a defect in the plans given to the contractor by the owner. Lonergan v. San Antonio Loan & Tr. Co.,104 S.W. 1061, 1062 (1907). Following the collapse, the contractor abandoned the project, and the owner sued the contractor. Id. The contractor argued that the collapse was not due to defects in the building materials, but rather that the defects in the original plans were to blame. Id.
Despite the contractor's argument—and the contractor's lack of liability in creating the defects—the court held that the contractor was responsible for the defects and the collapse of the property. Id. at 1066. The court also held that the owner did not guarantee the plans merely by supplying them. Id. at 1066. In assessing liability, the court reasoned that the "[l]iability of the builder does not rest upon a guaranty of the specifications, but upon his failure to perform his contract to complete and deliver the structure." Id. at 1067. Following this logic, the court rejected any alternate theory of liability and held the contractor liable. Id. at 1069.
Lonergan and its progeny established that, for an owner to be held liable for breach of contract based on a design defect in the original plans, a construction contract needed to include express language allocating risk to the owner. Id. at 1066. Without this language, a contractor would generally be held liable. Prior to S.B. 219, Texas contractors were required to specifically assign fault to another party in order to avoid liability for any subsequent defects in a project's original drawings.
As of September 1st, contractors can now enter into contracts without the need for such express language, assuming the design plans are being supplied by the client or the client's agent.
Notably, S.B. 219 also creates a new duty of disclosure for contractors. The statute states that contractors must now:
[W]ithin a reasonable time of learning of a defect . . . in the plans . . . disclose in writing to the person with whom the contractor enters into a contract the existence of any known defect in the plans, specifications, or other design documents that is discovered by the contractor, or that reasonably should have been discovered by the contractor using ordinary diligence, before or during construction. Tex. Bus. & Com. Code Ann. § 59.051(b).
Contractors that fail to make this disclosure may be liable for the consequences of any defects that result from this failure. Id. § 59.051(c).
S.B. 219 is not without exceptions. First, the new statute does not apply to "a contract entered into by a person for the construction or repair of a critical infrastructure facility owned or operated by the person . . . or other facility owned by the person that is necessary to the operation of and directly related to the critical infrastructure facility." Id. § 59.002(b). Critical infrastructure facilities include, but are not limited to, petroleum or alumina refineries, electrical power generating facilities, or chemical manufacturing facilities. Id. § 59.001(3). A full list of such facilities is laid out in the statute. Id.
Second, the statute does not apply to the construction, repair, alteration, or remolding of an improvement to real property if it was performed under either a design-build contract or an engineering, procurement, and construction contract, where the part of the plans, specifications, or other design documents for which the contractor is responsible under the contract is the part alleged to be defective. Id. § 59.002(c).
Lastly, the statute does not apply to the portion of a contract where "the contractor agrees to provide input and guidance on plans, specifications, or other design documents" and such "input and guidance are provided as the signed and sealed work product of a person licensed or registered under Title 6 of the Occupations Code," and this work product is incorporated into the plans and specifications used in the construction. Id. § 59.002(d). These persons include licensed or registered engineers, architects, or land surveyors.
S.B. 219 is a welcome change for Texas contractors who may have been previously held liable for design defects. Even with this change, the importance of careful drafting cannot be overstated. This new standard does not diminish the need to pay close attention to the terms of the controlling agreement, particularly clauses that create or assign liability. With the added support of S.B. 219, Texas contractors will now be able to confidently enter into contracts without the fear of being assigned liability for design defects that may be found before or during construction.
Authored by: Andrew D. Tingan and David Gonzalez (license pending)
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