Currently, Texas is one of only two states where a contractor may be held liable for defects related to construction designs, plans, or specifications – even if provided by the hiring party (i.e., the owner, owner’s agent or design professional). However, new legislation in Texas (SB 219 and HB 1418) has been filed to square Texas in line with other states, to grant contractors protection, and to reverse, in part, the 2012 Texas Supreme Court holding in El Paso Field Services, L.P. v. MasTec North America, which led to this current situation.
The Texas Supreme Court, in MasTec, held that parties enter into contracts freely and voluntarily, and risk of any construction defect should be allocated pursuant to the agreement between the parties. The Court further held that if it chose to become involved in the dispute between the contractor and hiring party, it would essentially render the applicable risk allocation agreement pointless, and essentially prevent sophisticated parties from apportioning risk as they saw fit. As a result of this holding, contractors have been held responsible for the defects that resulted from work performed in accordance with designs, plans, and specifications provided by the hiring party.
This new legislation would effectively overrule the Court’s holding in MasTec. More specifically, SB 219 and HB 1418, would relieve a contractor of responsibility for the consequences of defects in plans, specifications, or other design or bid documents provided to the contractor by the person with whom the contractor entered into the contract. The bill specifies further that the contractor does not warranty the accuracy, sufficiency, or suitability of such plans. The bill requires the contractor to disclose in writing the existence of any known defect discovered by the contractor before or during the construction or lose the liability protection for the consequence of known, undisclosed defects. This protection cannot be waived by contract. It should be noted that similar legislation failed to pass in 2017 and 2019 over opposition from owners, designers, and architects.