BILL ANALYSIS

C.S.H.B. 3485

By: Bell, Keith

Business & Industry

Committee Report (Substituted)

BACKGROUND AND PURPOSE

Under current state law, a contractor can suspend work if an owner fails to pay the contractor undisputed amounts within specified timeframes. The reason for this authorization is to provide contractors with a method to curb potential losses on a project that may not be financially sound or because of a contract dispute. However, unsigned, outstanding change orders, combined with contract clauses requiring contractors to continue to work while the change orders are pending, put contractors at risk of being uncompensated for labor and material that have been sunk into a project. C.S.H.B. 3485 seeks to address this issue by providing for an authorized election to not proceed with additional work under specified circumstances established by the bill with respect to governmental entity-directed additional work and owner-directed additional work.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

ANALYSIS

C.S.H.B. 3485 amends the Government Code to provide that a vendor may elect not to proceed with additional work directed by a governmental entity under a public work contract and that a subcontractor may elect not to proceed with additional work directed by a vendor under a subcontract, as defined by the bill, under the following circumstances:

· the vendor has not received a written, fully executed change order for the governmental entity-directed additional work or the subcontractor has not received such a change order from the vendor; and

· the aggregate actual or anticipated value of the additional work plus any previous additional work under the vendor's contract terms or the subcontractor's subcontract terms, as applicable, for which the vendor or subcontractor has not received the applicable change order exceeds 10 percent of the vendor's original public work contract amount or of the subcontractor's subcontract amount.

The bill establishes that a vendor or subcontractor who elects not to proceed with additional work under those circumstances is not responsible for damages associated with the election not to proceed. The bill defines "public work contract" for purposes of these provisions by reference as a contract for constructing, altering, or repairing a public building or carrying out or completing any public work and defines "subcontract" for the purposes of these provisions as a contract between a subcontractor and a vendor who is providing services under a public work contract.

C.S.H.B. 3485 amends the Property Code, for purposes of its prompt payment provisions, to provide that a contractor or subcontractor may elect not to proceed with additional work directed by an owner under the following circumstances:

· the contractor or subcontractor has not received a written, fully executed change order for the additional owner-directed additional work; and

· the aggregate actual or anticipated value of the additional work plus any previous additional work for which the contractor or subcontractor has not received a written, fully executed change order exceeds 10 percent of the contractor's or subcontractor's original contract amount or the subcontractor's original contract amount.

The bill establishes that a contractor or subcontractor who elects not to proceed with additional work under those circumstances is not responsible for damages associated with the election not to proceed.

C.S.H.B. 3485 applies only to a contract entered into on or after the bill's effective date.

EFFECTIVE DATE

September 1, 2023.

COMPARISON OF INTRODUCED AND SUBSTITUTE

While C.S.H.B. 3485 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill.

The introduced, in the bill's Government Code provisions, authorized a contractor or subcontractor to elect not to proceed with additional work directed by a governmental entity, under specified circumstances, but the introduced did not contain an explicit specification as to how the governmental entity-directed additional work is contracted. The substitute, however, makes the bill's authorization to elect not to proceed with additional work directed by a governmental entity explicitly applicable to a vendor and a subcontractor, under substantially the same circumstances specified in the introduced, with respect to the following:

· a public work contract, defined by the substitute by reference as a contract for constructing, altering, or repairing a public building or carrying out or completing any public work; and

· a subcontract, defined by the substitute as a contract between a subcontractor and a vendor who is providing services under such a public work contract.