BILL ANALYSIS H.B. 1038 By: Bailey 3-21-95 Committee Report (Amended) BACKGROUND Indemnification provisions are "exculpatory" clauses, relieving one party of liability exposure by shifting that risk to another party. As such, these provisions place undue burden on one party. Currently, municipalities have the authority to insert indemnification clauses into construction contracts. So, not only do the contractors take responsibility for their negligence, but they are forced to hold the cities harmless for the cities' sole negligence. Often, contractors' insurance companies refuse to bond contracts that contain indemnification clauses. As a result, needed infrastructure projects are not built and construction companies are planning layoffs. This clause also disproportionately hurts minority- and women-owned construction companies. PURPOSE House Bill 1038 prevents municipalities from inserting indemnification clauses into construction contracts. 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. SECTION BY SECTION ANALYSIS SECTION 1. Amends Subchapter A, Chapter 252, Local Government Code. INDEMNIFICATION PROVISIONS IN MUNICIPAL CONSTRUCTION CONTRACTS. Sec. 252.004. This section states that a construction contract with a municipality may not contain an indemnification clause. A provision in violation of this section is void. SECTION 2. This Act applies only to a contract entered into on or after the effective date of this Act. SECTION 3. Emergency clause. EXPLANATION OF AMENDMENTS Amendment #1, as amended, provides some technical changes. The changes specify that a construction contract in which a municipality is a party, may not contain a provision requiring a contractor to indemnify and/or defend the municipality for damages arising from any negligence of the municipality. SUMMARY OF COMMITTEE ACTION House Bill 1038 was considered in a public hearing on March 21, 1995. Testifying in support of the bill were Richard W. Lewis, representing himself; Don Conrad, representing Houston Contractors Association; and Dawn Agee, representing Jerdon Construction Company, Incorporated. Testifying against the bill was Cynthia Hill, representing the City of Austin and the Texas Municipal League. The Business and Industry Committee considered one (1) amendment to the bill. An amendment to amendment #1 was offered. Without objection, amendment #1 as amended was adopted. A motion to report House Bill 1038, as amended to the full house with the recommendation that it do pass and be printed carried with a favorable record vote of eight (8) ayes, zero (0) nays, zero (0) present-not-voting and one (1) absent.