Legislative Issues for 2017 - 85th Legislative Session

 Lien Law Modernization 

HB 3065 by Rep. Joe Deshotel (D-Beaumont)

SB 1506 by Juan "Chuy" Hinojosa (D- McAllen) - Refer to text HB 3065 



 Responsibility for Defective Plans & Specifications

HB 2170 by Rep. Kyle Kacal (R-College Station)

SB 1215 by Senator Bryan Hughes (R-Mineola)

 

Priority Retainage

HB 2668 by Rep. John Wray (R-Waxahachie)

SB 2073 by Senator Jose Rodriguez (D- El Paso) 


Right to Repair

HB 2343 by Rep. Paul Workman (R-Spicewood)

 

 

Statute of Repose

HB 1053 by Rep. Morgan Meyer (R-Dallas)


School Background Checks

HB 3270 by Rep. Dwayne Bohac (R-Houston)

 

  

 

Legislative Issues for 2015 - 84th Legislative Session

Prior to the start of the 84th Legislative Session of the Texas Legislature in 2013, TCA and other construction industry associations again had a very ambitious agenda to be addressed by the Legislature, as had been the case in previous sessions.  In line with those previous sessions, TCA began the 84th Session with another strong agenda in 2015 that included four high priority issues and several additional construction-related issues.

 

When the Legislature adjourned sine die on June 1, 2015, it had addressed a number of construction-related issues that had a significant impact on the industry.  A discussion of those issues can be found below.

 

Consolidated Insurance Programs.  The Insurance Code was amended to require the principal of a Consolidated Insurance program (CIP) to provide certain information about the CIP to a contractor who is to be enrolled in the CIP not later than 10 days before the date the contractor enters into a construction contract.  This information allows the contractor to compare the coverage provided by the CIP to the contractor’s own insurance and allows the contractor to make an informed decision on whether or not to enter into the construction contract.  Read SB 1081 text.  SB 1081 was effective on January 1, 2016.

 

Public-Private Partnerships (P3).  Legislation was passed that established a center for alternative finance and procurement within the Texas Facilities Commission to consult with government entities regarding best practices for procurement and financing of qualifying P3 projects.  Read HB 2475 text.  HB 2475 was effective on September 1, 2015.

 

Pre-Litigation Requirements for Condominium Owners’ Associations in Defect Cases.  Condominium units owners’ associations that have eight or more units will be restricted from filing lawsuits or initiating arbitration proceedings to resolve a claim relating to the construction or design of a unit on behalf of all of the owners unless the owners’ association obtains a written report from an independent third-party report identifies and describes the condition of the specific units or common elements that are subject to the claim and obtains the approval of owners holding at least 67 percent of the total votes in the association at a special meeting in order to file a lawsuit or initiate arbitration proceedings.  Read HB 1455 text.  HB 1455 was effective on September 1, 2015.

 

Workforce and Education Legislation.  TCA supported several workforce and education bills that addressed needs in the Texas public education system to better serve career path development and support.  Some of the bills that passed were:  College and Career Readiness for School Counselors and Lifting the Cap on Dual Credit Courses.

 

Lender Notice of Default.  A lender should be required to give notice to contractors who in turn would give notice to subcontractors, that the lender has determined that it will no longer disperse funds that are part of the loan for the construction project.  Legislation that was filed would have allowed the contractor and subcontractors the opportunity to stop working on a project when this notice is given.  Read HB 1208 text.  HB 1208 died in the House Calendars Committee.

 

Retainage Trust Fund.  A project owner should be required to set aside in a separate trust account the retainage amount not paid each month to contractors and subcontractors for construction costs during the life of a project to ensure that those contractors and subcontractors will be paid the retainage to which they are entitled.  In the alternative to setting aside the retainage in a trust account, the owner could purchase a retainage bond.  Read HB 1966 text.  HB 1966 died on the House Calendar.

 

Worker Classification.  On their first offense, an employer who misclassifies an employee should be fined $100 per employee not properly classified.  If the employer would again be found to be in violation of the law, the Texas Workforce Commission should fine that employer up to $1,000 per employee. Read HB 434 text.  HB 434 died in the House Business and Industry Committee.

 

 

Issues from the 83rd Legislative Session (2013)

In 2011, TCA and other construction industry associations went into the Regular Session of the Texas Legislature with a very ambitious legislative agenda that included six major issues to be addressed.  Despite significant opposition to those initiatives, subcontractors and suppliers were successful in passing legislation on four of those major issues.  Not wanting to let up its advocacy efforts, TCA embarked on another ambitious agenda in 2013 that included four high priority issues and three additional construction-related issues.

In addition to TCA’s priority issues and other construction-related issues, there was one major issue the TCA Board of Directors believed was paramount to any other advocacy work in 2013—to preserve the success and progress that was gained in 2011 and not allow those gains to be diminished through legislative action.  None of those gains were lost or diminished.

When the 83rd Texas Legislature adjourned on May 27, 2013, it had addressed several issues that had a significant impact on the construction industry.   In addition, one of those issues addressed in 2013 came under the purview of the Texas Comptroller. Those issues are listed below, along with a link to the bills dealing with each of them.

Franchise Tax.  Effective June 5, 2013, the Texas Comptroller revised Franchise Tax Rule §3.588 concerning the Cost of Goods Sold (COGS) deduction.  Under the revised rule, taxpayers may now include as COGS both direct labor costs and those indirect labor costs, other than service costs, that are subject to capitalization under Internal Revenue Code (IRC) §263A and its regulations.(http://info.sos.state.tx.us/pls/pub/readtac$ext.TacPage?sl=T&app=9&p_dir=F&p_rloc=162138&p_tloc=14787&p_ploc=1&pg=2&p_tac=&ti=34&pt=1&ch=3&rl=588)

In addition, you may want to go to http://www.window.state.tx.us/taxinfo/franchise/faq_cogs.html to see frequently asked questions regarding Franchise Tax Rule §3.588.

State Breach of Contract.  The state’s immunity in construction contract disputes has now been waived.  For disputes of $250,000 or more, state district court will be an option for resolution of the claim.  For disputes under $250,000, the state office of administrative hearings, commonly known as SOAH, will be the venue.  Read HB 586 text.  HB 586 was effective on September 1, 2013, and applies only to a claim arising out of a contract executed on or after September 1, 2013.

Career and Technical Education Programs in Public Schools.  High school graduation requirements now have curriculum flexibility to allow training and preparing public school students for various certifications and careers in the different segments of the construction industry as well as in other Texas industries, professions and careers.  Read HB 5 text.  Some portions of HB 5 were effective June 10, 2013, with other provisions effective September 1, 2013.

Worker Classification Under Government Contracts.  Employers awarded a contract for public works must ensure that any individual performing services under that contract for that employer is properly classified as an employee or independent contractor.  An employer who misclassifies is now subject to a $200 fine for each individual misclassified.  Read HB 2015 text.  HB 2015 became effective on January 1, 2014.

Exclusion of Certain Flow-Through Funds from the Franchise Tax.  Subcontractor payments related to real property improvements and remediation projects can now be excluded in determining the taxable entity’s total revenue for purposes of the franchise tax.  Read HB 2766 text.  HB 2766 became effective on January 1, 2014.

Retainage Trust Fund.  A project owner should be required to set aside the retainage amount not paid each month in a separate trust account for the benefit of construction firms that provide labor and materials to a project.  HB 3316 was the legislation that dealt with this issue.  Read HB 3316 text.   HB 3316 died on the House floor.

Lender Notice of Default.  A lender should be required to give subcontractors and prime contractors notice of an owner’s default on a construction loan.  This notice will allow for work to be suspended until the default is cured.  This will reduce the construction team’s exposure to enriching a lender without hope of getting paid.  SB 295 and its companion legislation, HB 2180, dealt with this issue.  Read SB 295 text.  SB 295 died in the Senate Business & Commerce Committee.

Lien Law Reform.  Texas lien laws are considered by many to be the most burdensome and complex in the country.   There are a number of requirements in the laws that trip up subcontractors and suppliers and, in effect, result in the loss of certain lien rights available to them.  SB 1281 and HB 3553 would have simplified the processes and procedures for perfecting and maintaining one’s lien rights.  Read SB 1281 text.  SB 1281 died in the Senate Business & Commerce Committee.

Worker Classification.   An employer working on a private construction project is required by law to classify individuals working on the project as employees or independent contractors.  The current laws provide minimal penalties to employers who violate the law related to properly classifying individuals working on a construction project.  HB 1925 would have strengthened the penalties for misclassification of employees working on construction sites.  Read HB 1925 text.  HB 1925 died in the House Calendars Committee.

Issues from the 82nd Legislative Session

The 82nd  Texas Legislature adjourned its Regular Session on May 30, 2011. During the 140-day Session, legislators addressed a number of TCA high priority issues set by the Board of Directors for the Texas Construction Association. Those issues are listed below, along with a link to the bills dealing with each of them. In addition to passing TCA's priority bills, the 82nd Legislature passed several other bills affecting the construction industry directly. 

Broad Form Indemnification.  ​A clause found in construction contract provides that the subcontractor indemnifies the general contractor or owner for the general contractor's or owner's wrongdoing even though the subcontractor may have done nothing improper. These clauses, known as broad form indemnity clauses, and certain additional insured endorsements should be made void and against the public policy of Texas. These indemnification clauses are in direct conflict with the concept that the company should be responsible for its negligent acts. SB 361 & HB 2010 were the original bills filed to address these issues, but the language from SB 361 was later amended into HB 2093, which was passed by both the House and Senate and signed by Governor Perry. Read HB2093 text. HB2093 was effective on January 1, 2012.

Consolidated Insurance Program (CIPs). Known typically as Owner Controlled or Contractor Controlled Insurance Programs, the use of these "Wrap-Up" programs are increasing in Texas. While possibly a money saver for the Owner, CIPs are plagued by poor adminsitration, gaps in coverage or lack of coverage, insufficient limits, questionable safety and back to work programs, and auditing practices that cause subcontractor's retainage to be withheld even longer than usual. In many cases, the exposure a subcontractor faces working on a CIP is unknown. The Legislature should establish minimum standards for CIPS. HB 2093 &1337 were the original bills filed dealing with CIPs, but late in the session, HB2093 became the "vehicle" for the indemnification bill (SB 361). Read HB 2093 text. HB2093 was effective on January 1, 2012.

Lien Law Reform. Texas has the most complicated lien laws of any of the 50 states. Our lien laws should be reformed to make them much less complicated and much more user friendly. The lien law issues which should be addressed include the following:

-Lien Wavers. Prohibit the waiver of a person's lien rights prior to getting paid for work performed or materials supplied. HB1456 is the lien waiver bill passed by the legislative and signed by the governor. Read HB 1456 text. HB 1456 was effective on January 1, 2012.

-Retainage Lien. The process to establish a lien for retained funds should be revised to provide a less onerous system for subcontractors, general contractors, and owners. HB 1390 is the retainage lien bill passed by the Legislature and signed into law by Governor Perry. Read HB1390 text. HB1390 was effective on September 1, 2011.

Retainage Trust Fund. Require retainage to be held in trust for the benefit of construction firms that provide labor and materials to a project. HB1425 was the bill that dealt with this issue, but it did not pass. Read HB 1425 text. HB 1425 died in the House Calendar Committee.

Loan Default. A lender should be required to give subcontractors and prime contractors notice of an owner's default on a construction loan. This notice will allow for work to be suspended until the default is cured. This will reduce the construction team's exposure to enriching a lender without hope of getting paid. Read HB 3040 text. HB3040 died in the House Calendar Committee.