United States: SB 807 Will Allow More Texas Construction Disputes To Remain In Texas

On June 9, 2017, Texas Governor Greg Abbott signed SB 807 into law. In doing so, it will cause more litigation related to Texas construction projects to remain in Texas.

SB 807 amends Chapter 272 of the Business & Commerce Code. It provides an extremely broad definition of a construction contract including "a contract, subcontract, or agreement entered into or made by an owner, architect, engineer, contractor, construction manager, subcontractor, supplier, or material or equipment lessor for the design, construction, alteration, renovation, remodeling, or repair of, or for the furnishing of material or equipment for, a building, structure, appurtenance, or other improvement to or on public or private real property, including moving, demolition, and excavation connected with the real property. The term includes an agreement to which an architect, engineer, or contractor and an owner's lender are parties regarding an assignment of the construction contract or other modifications thereto."

Section 272.001 (b) provides that if a construction contract "or any agreement collateral to or affecting the construction contract" requires "any conflict" which arises out of the contract to be subject to another state's law, litigation in the courts of another state, or arbitration in another state," such a provision is voidable by any party obligated under the contract.

Therefore, such a provision is not automatically void, but if a party to "any conflict" is faced with a contract that requires it to either prosecute or defend a matter in another state, or based on another state's laws, that entity can instead chose to have the matter dealt with in Texas.

The statute makes clear that it only applies to contracts "concerning real property located in" Texas. As a result, it appears that two parties who execute a construction contract in Texas for a Louisiana project, for example, could not take advantage of this new law.

The statute also makes clear that it does not apply to construction contracts that are (1) partnership agreements or other agreements governing an entity or trust; (2) to provide loans or other avenues of credit related to a construction project; or (3) related to the management of real property.

This new law goes into effect on September 1, 2017, and only applies to construction contracts entered or effective on or after September 1, 2017.

Part of the reasoning behind this statute may be the general Texas pride in keeping things in Texas. However, similar to the anti-indemnity statute that went into effect on January 1, 2012, this statute appears to again benefit subcontractor and lower-tier contractors by allowing them to avoid pursuing or defending conflicts out of state where they often do not have offices, attorneys, or familiarity with the venues. Although the national general contractors may be better equipped to handle litigation across the country, this change will be of benefit to the smaller firms around Texas who contract with out-of-state owners.

Below is a complete reading of the statute. I have also provided a link to the Texas Legislature's Online History of the bill which provides the prior versions of the bill, as well as its journey through Austin.

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