Effective Sept. 1, 2021, changes to the Texas Business & Commerce Code clarify, in statute, that contractors are not responsible for damages due to defective design documents provided to them by someone other than their subcontractors. These amendments were part of S.B. 219 from the 87th Legislative Session last Spring and are a giant leap forward for the Texas construction industry. Texas will now join 48 other states in appropriately apportioning responsibility for construction and design damages. However, there are a few provisions in the fine print of S.B. 219 that all contractors need to know.
First, there is a duty for contractors to notify the general contractor or owner, in writing, of a design defect discovered before or during construction. This duty is one of ordinary diligence which the statute defines as follows:
In this subsection, ordinary diligence means the observations of the plans, specifications, or other design documents or the improvement to real property that a contractor would make in the reasonable preparation of a bid or fulfillment of its scope of work under normal circumstances. Ordinary diligence does not require that the contractor engage a person licensed or registered under Title 6, Occupations Code, or any other person with specialized skills. A disclosure under this subsection is made in the contractor's capacity as contractor and not as a licensed professional under Title 6, Occupations Code.
Second, the law includes some exceptions, the most expansive of which is for the construction or repair of “critical infrastructure”. The definition of critical infrastructure includes:
(A) a petroleum or alumina refinery;
(B) an electrical power generating facility, substation, switching station, or control center;
(C) a chemical, polymer, or rubber manufacturing facility;
(D) a water intake structure, water treatment facility, wastewater treatment plant, or pump station;
(E) a natural gas compressor station;
(F) a liquid natural gas terminal or storage facility;
(G) a telecommunications central switching office or any structure used as part of a system to provide wired or wireless telecommunications services;
(H) a port, railroad switching yard, trucking terminal, or other freight transportation facility;
(I) a gas processing plant, including a plant used in the processing, treatment, or fractionation of natural gas;
(J) a transmission facility used by a federally licensed radio or television station;
(K) a steelmaking facility that uses an electric arc furnace to make steel;
(L) a dam that is classified as a high hazard by the Texas Commission on Environmental Quality;
(M) a concentrated animal feeding operation, as defined by Section 26.048, Water Code;
(N) any portion of an aboveground oil, gas, or chemical pipeline;
(O) an oil or gas drilling site;
(P) a group of tanks used to store crude oil, such as a tank battery;
(Q) an oil, gas, or chemical production facility;
(R) an oil or gas wellhead;
(S) any oil and gas facility that has an active flare;
(T) pipelines and pipeline appurtenances or facilities, including pipes, valves, meters, pumps, compressors, treating and processing facilities, cathodic protection facilities, and any other equipment, facilities, devices, structures, and buildings used or intended for use in the gathering, transportation, treating, storage, or processing of CO2, oil, gas, or other minerals, and the liquefied or gaseous substances, constituents, products, or mixtures derived from those minerals through refining, processing, or other methods;
(U) utility-scale equipment or facilities to transmit or distribute electricity;
(V) utility-scale water or wastewater storage, treatment, or transmission facilities;
(W) facilities used to manufacture or produce transportation fuels and similar products, including gasoline, kerosene, distillate fuel oils, residual fuel oils, lubricants, asphalt, propane, ethanol, biodiesel, and renewable diesel; and
(X) commercial airport facilities used for the landing, parking, refueling, shelter, or takeoff of aircraft, maintenance or servicing of aircraft, aircraft equipment storage, or navigation of aircraft.
Third, exceptions also include design-build contracts, EPC contracts and contracts that require input or review of the design documents and the contractor provides design input that is incorporated into the project plans.
Finally, and most importantly, the law expressly states that this limitation of a contractor’s liability cannot be waived. Any purported waiver is void.
These changes apply to all contracts entered on or after Sept. 1, 2021. To determine whether your contract falls into one of the exceptions noted above, contact your attorney.