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79R14464 E
By: Madden, Raymond H.B. No. 974
Substitute the following for H.B. No. 974:
By: Nixon C.S.H.B. No. 974
A BILL TO BE ENTITLED
AN ACT
relating to resolution of disputes arising under certain
construction contracts.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Title 7, Civil Practice and Remedies Code, is
amended by adding Chapter 160 to read as follows:
CHAPTER 160. DISPUTE BOARDS
UNDER CERTAIN CONSTRUCTION CONTRACTS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 160.001. DEFINITIONS. In this chapter:
(1) "Construction contract" means a contract between a
governmental entity or a private real property owner and a
contractor for the construction, repair, or improvement of real
property in this state the value of which is at least $1 million.
(2) "Contractor" means a person contracting with a
real property owner directly or through the owner's agent.
(3) "Dispute board" means a dispute resolution board,
dispute review board, dispute adjudication board, or combined
dispute board.
(4) "Governmental entity" means a governmental or
quasi-governmental authority authorized by state law to make a
public work contract, including:
(A) the state, a county, or a municipality;
(B) a department, board, or agency of the state,
a county, or a municipality; and
(C) a school district or a subdivision of a
school district.
(5) "Public work contract" means a contract for
constructing, altering, or repairing a public building or carrying
out or completing any public work.
Sec. 160.002. NONAPPLICABILITY TO CERTAIN RESIDENTIAL
CONSTRUCTION AND PUBLIC WORK CONTRACTS. This chapter does not
apply to:
(1) a contract for the improvement of residential real
property that consists of four or fewer dwelling units; or
(2) a construction manager-agent contract entered
into by a school district under Section 44.037, Education Code.
Sec. 160.003. METHOD OF ADOPTION. A dispute arising under a
construction contract may be submitted to a dispute board in
accordance with this chapter if the contract includes language that
reflects the intent of the parties to use one of the processes
provided by this chapter. The parties may modify any provision of
this chapter other than Sections 160.053 and 160.054.
Sec. 160.004. USE OF CHAPTER IN PUBLIC CONSTRUCTION
CONTRACTS. (a) Each construction contract entered into by a
governmental entity that does not provide for submission of
disputes arising under the contract to a dispute board under this
chapter must contain a provision stating that the use of dispute
resolution under this chapter was actively considered. A
governmental entity is not required to use this chapter.
(b) A public work contract may not provide for disputes to
be submitted to a dispute adjudication board under Section 160.157
or a combined dispute board under Section 160.158.
[Sections 160.005-160.050 reserved for expansion]
SUBCHAPTER B. DISPUTE BOARDS
Sec. 160.051. COMPOSITION AND SELECTION OF BOARD. (a) A
dispute board consists of one, three, or a greater odd number of
persons selected in accordance with this section.
(b) If the board is to be composed of a single member, that
member shall be selected by mutual agreement of the parties within
15 days of the date of execution of the contract, unless such
deadline is extended by mutual agreement of the parties. If the
parties are unable to select a single dispute review board member in
the time allotted, the dispute review board shall consist of three
members, as hereinafter set forth.
(c) On or before the 15th day after the date a construction
contract subject to this chapter is executed, each party to the
contract shall select one nominee qualified to serve as a board
member under this chapter and communicate the name and
qualifications of the nominee to the other party for approval.
(d) A party may accept or reject the other party's
nomination on or before the seventh day after the date the party
receives notice of the nomination. If the nominee is not rejected
during that period, the nominee is considered accepted.
(e) Except as provided by Subsection (g), if a nominee is
rejected, the party who nominated the person shall nominate another
qualified person.
(f) Once two board members nominated by the parties are
accepted, those board members shall nominate a third qualified
person to be chairperson of the board. Each party may accept or
reject the nomination on or before the 15th day after the date the
party receives notice of the nomination. If the nominee for
chairperson is not rejected by one of the parties in the time
prescribed by this subsection, the nominee is considered accepted.
Except as provided by Subsection (g), if the nominee is rejected by
a party, the two approved board members shall make additional
nominations for chairperson until a nomination is accepted by the
parties.
(g) If a party does not nominate a board member in the time
prescribed by Subsection (c) or rejects two nominations for board
member or three nominations for chairperson, any party may apply to
the district court of the district in which the work under the
contract will be performed for the appointment by the court of a
qualified person as a board member or chairperson, as applicable.
Sec. 160.052. DISPUTE BOARD AGREEMENT. Not later than the
15th day after the date all parties have received notice of the
appointment of the chairperson, each party and each member of the
board shall execute and comply with the dispute board agreement.
Sec. 160.053. QUALIFICATIONS OF BOARD MEMBERS. (a) A board
member selected by a party to the construction contract must have:
(1) at least three years of professional, technical,
academic, or managerial experience in engineering, construction,
architecture, or law; and
(2) experience in:
(A) one or more of the general types of
construction involved in the contract;
(B) the interpretation of construction contract
documents; and
(C) the analysis and resolution of construction
issues.
(b) The chairperson of the board must have:
(1) at least five years of experience in the person's
profession;
(2) at least five years of experience in:
(A) construction dispute resolution;
(B) adjudication;
(C) arbitration;
(D) service as a judge;
(E) service as an executive officer of a
contractor, design professional, or project owner;
(F) service as a faculty member in an institution
of higher education in architecture, engineering, or construction
science; or
(G) work as a construction manager-agent; and
(3) competence in the interpretation of construction
contract documents and the analysis and resolution of construction
claims.
(c) Each person who serves on a board must have:
(1) experience serving on a dispute board or as a
construction arbitrator, adjudicator, construction mediator,
judge, or construction manager-agent; or
(2) 40 hours of classroom training in the mechanisms
of dispute boards, construction adjudication, construction
arbitration, or construction mediation in courses conducted by an
alternative dispute resolution training organization accepted by
the parties or by the court that appoints the board member, as
applicable.
(d) The qualifications prescribed by this section may not be
waived for a board member or board chairperson who serves on a board
under a public work contract.
Sec. 160.054. CONFLICTS OF INTEREST; NEUTRALITY. (a) A
member of a dispute board may not have any current or prior
involvement in the contract or construction project that is the
subject of the dispute that could compromise the person's ability
to review the dispute impartially. The board member shall comply
with the American Bar Association Code of Ethics for Arbitrators in
Commercial Disputes standards regarding board member neutrality,
independence, and impartiality.
(b) Except for providing services as a dispute board member,
dispute resolution advisor, arbitrator, or mediator on a matter
involving the owner or contractor, a board member may not, at the
time of service on the board or during the two years before the
person begins serving on the board, without disclosure to, and
consent by, all parties, have:
(1) employment with, an ownership interest in, or an
existing business or financial relationship, including the
provision of fee-based consulting services, with:
(A) a party to the contract under which the
dispute arises;
(B) a third-party construction manager for the
contractor;
(C) any subcontractor or subconsultant to the
contractor; or
(D) another contractor or construction manager
for the owner;
(2) a financial interest in the contract;
(3) direct involvement in the preparation of the
successful bid documents for the contract or a successful bid by any
bidder for the invitation to bid for the contract; or
(4) involvement in the management or administration of
the contract.
(c) Except for participation in the board's activities as
provided by the construction contract and the board's contract
entered into under Section 160.055, the owner or contractor may not
solicit advice from or consult with the board or individual members
of the board on matters related to the conduct of the work under the
construction contract or resolution of problems under the
construction contract that might compromise the board's integrity.
(d) A board member may not advocate for a party to the
construction contract.
(e) A board member has a duty to the public and the parties
to be fair, impartial, independent, and neutral. Each board member
or potential board member shall disclose to the parties and the
other board members any business, professional, social, or
financial relationship that may give rise to an appearance of
impropriety or a suspicion of partiality. A board member has a
continuing duty to avoid conflicts of interest and shall promptly
disclose to the parties and the other board members any matter that
could reasonably give rise to a perception of partiality or
non-neutrality. A board member should refrain from later acquiring
or entering into any interest or relationship that might reasonably
create the appearance that the person had been influenced by the
anticipation or expectation of the interest or relationship.
(f) After an otherwise qualified board member or potential
board member discloses all matters that could reasonably give rise
to a perception of partiality or of possible conflict of interest,
the parties may waive objection to the matter disclosed and permit
the person to serve as a board member.
Sec. 160.055. CONTRACT WITH BOARD. (a) On or before the
15th day after the date the board chairperson is selected, the board
members and the parties to the construction contract shall execute
a standard three-party agreement in which the board members agree
to:
(1) endeavor to assist the parties in preventing and
resolving disputes during the term of the construction contract;
(2) read and become familiar with all the contract
documents, including the specifications, plans, addenda, progress
schedule and updates, weekly progress reports, minutes of progress
meetings, change orders, and other documents relevant to the
performance of the contract and necessary to the board's work;
(3) visit the construction site as soon as practicable
after selection of the board and reserve at least one day each month
for project site visits and visit the site at least bimonthly, or
more frequently if beneficial, or at such other interval as the
parties may agree on; and
(4) keep abreast of the construction activities and
become familiar with the work in progress.
(b) The frequency, time, and duration of visits required
under the board's contract must be mutually agreed on by the board,
owner, and contractor, or if the parties and the board do not agree,
scheduled by the board.
(c) The board shall also agree to consider, fairly and
impartially, each dispute referred to the board by a party to the
construction contract and provide written recommendations or
decisions to the owner and contractor based on the relevant
provisions of the construction contract, any applicable law, and
the facts and circumstances involved in the dispute. The board's
recommendations or decisions shall express, clearly and
completely, the logic and reasoning leading the board to the
recommendations or decisions so that all the parties fully
understand and can use the recommendations or decisions to assist
them in negotiating a resolution of the dispute. The board's
recommendations or decisions may address issues of entitlement,
quantum, or unjust enrichment.
[Sections 160.056-160.100 reserved for expansion]
SUBCHAPTER C. DUTIES OF PARTIES TO CONSTRUCTION CONTRACT
Sec. 160.101. OWNER DUTIES. The owner shall:
(1) provide each board member with a copy of all
contract documents, including the specifications, plans, addenda,
progress schedule and updates, weekly progress reports, minutes of
progress meetings, change orders, and any other documents relevant
to the performance of the contract and necessary to the board's
work; and
(2) provide the board with:
(A) conference facilities at or near the
construction site; and
(B) secretarial and copying services.
Sec. 160.102. CONTRACTOR DUTIES. The contractor shall
provide each board member with relevant documents prepared by the
contractor, such as progress schedules, to supplement the documents
provided by the owner.
[Sections 160.103-160.150 reserved for expansion]
SUBCHAPTER D. OPERATION OF BOARD
Sec. 160.151. BOARD ACTIVITY AND EXPENSES. (a) The board
shall be active and available throughout the term of the
construction contract. The cost of the board's activity must be
included as a capital expense of the project.
(b) The total cost of a qualified minority or historically
underutilized dispute board administrative organization, including
the expense of the board members, counts toward meeting all
minority set-aside goals or provisions required by law.
(c) The board shall begin operation on the written
authorization of the owner received after the board's contract
under Section 160.055 is executed and may end operation at the end
of the term of the construction contract after the final payment due
under the construction contract has been made, unless a party to the
contract requests that the board continue to operate.
Sec. 160.152. IMMUNITY. (a) Each board member, in the
performance of the member's duties on the board, acts in the
capacity of an independent agent intended to facilitate the
resolution of disputes and not as an employee of the owner or the
contractor.
(b) To the fullest extent permitted by law, each board
member is entitled to judicial immunity for an action, decision, or
recommendation associated with the resolution of a dispute referred
to the board. Each board member shall be held harmless for any
personal or professional liability arising from or related to board
activities.
(c) To the fullest extent permitted by law, the owner and
contractor shall indemnify each board member for claims, losses,
demands, costs, and damages, including reasonable attorney's fees,
for bodily injury, property damage, or economic loss arising out of
or related to the member's carrying out of board functions.
Indemnification provided under this subsection is a joint and
several obligation of the owner and the contractor.
Sec. 160.153. INFORMAL PROCEEDINGS AND RECOMMENDATIONS.
(a) The owner and contractor may agree, with respect to any issue,
claim, or dispute, to request that the board act in an advisory
capacity to assist in resolution of the issue, claim, or dispute at
an informal hearing before the board.
(b) For the purposes of an informal proceeding under this
section, each party shall submit a written submission not longer
than two written pages to the board. To the extent possible, the
parties shall also submit to the board written questions for the
board agreed to by the parties.
(c) On submission of an informal proceeding to the board
under this section, either party may request an opportunity to give
an oral presentation to the board, and the board may request an oral
presentation by the parties. An oral presentation under this
subsection must take place during a regularly scheduled meeting of
the board. Unless a time limit for oral presentations is agreed to
by the parties, the board shall establish a time limit for oral
presentations.
(d) The board shall present its advisory recommendation to
the parties orally not later than four hours after the conclusion of
any oral presentation by the parties.
(e) The parties and the board are not bound in any way by the
advisory recommendation, and the same matter may be heard again in a
formal hearing before the board.
(f) The parties shall agree that an advisory recommendation
is not admissible in any administrative, arbitral, or judicial
proceeding for any reason and may not offer or move for admission of
an advisory recommendation.
Sec. 160.154. FORMAL FINDINGS AND RECOMMENDATIONS. (a) On
the request of either party, the board shall conduct a formal
hearing in accordance with this section.
(b) The hearing shall be conducted by the board chairperson
in accordance with any dispute board rules and hearing procedures
established by the board and with all members of the board present
and participating.
(c) The board shall allow each party to present the party's
position on the dispute, with the contractor presenting first.
(d) The board may ask any questions of the parties that the
board considers appropriate.
(e) The board may schedule continuations of the hearing from
time to time. The board may not accept any further submissions or
evidence from a party after the conclusion of the hearing unless the
submission or evidence is expressly requested by the board.
(f) After the hearing concludes, the board shall meet to
formulate its findings and recommendations for resolution of the
dispute. The board's deliberations shall be conducted in private
and are confidential.
(g) The board shall base its findings and recommendations on
the contract provisions and the facts and circumstances of the
dispute.
(h) The board shall make a concerted effort to reach a
unanimous decision but may issue its findings and recommendations
with the agreement of two members. The findings and
recommendations must be signed by all board members.
(i) A dissenting member shall clearly indicate the member's
dissent on the findings and recommendations and provide clearly
identified separate dissenting findings and recommendations, which
must be included as part of the board's findings and
recommendations.
Sec. 160.155. TIME FOR ISSUING FORMAL FINDINGS AND
RECOMMENDATIONS. The board shall issue its findings and
recommendations to the owner and the contractor on or before the
21st day after the date the hearing concludes or as otherwise
determined by the board and agreed to by the parties.
Sec. 160.156. EFFECT OF FINDINGS AND RECOMMENDATIONS. (a)
Although the purpose of the board findings and recommendations is
to assist the parties in negotiating a resolution of their
disputes, the written findings and recommendations shall be
admitted into evidence in any subsequent judicial, arbitral, or
administrative proceeding, unless otherwise agreed by the parties.
(b) A board member or other participant in a board hearing
may not be required to testify as to what was said or presented at a
board meeting or any hearing, conference, or other proceeding of
the board.
Sec. 160.157. OPERATION AS DISPUTE ADJUDICATION BOARD. (a)
A dispute adjudication board issues decisions.
(b) A dispute board shall act as a dispute adjudication
board only if the construction contract that creates the board:
(1) specifically states that the board is a dispute
adjudication board;
(2) adopts an International Chamber of Commerce
Dispute Adjudication Board Clause under which the parties to the
contract agree to the administration of the board by the
International Chamber of Commerce; or
(3) provides that the board has the authority to issue
a decision or determination that the parties are required to comply
with on receipt.
(c) In making and issuing a decision, the board shall follow
the procedures in Section 160.154 for formal findings and
recommendations.
(d) After receiving the determination, the parties must
comply with the board's decision without delay, unless on or before
the 30th day after the date a party receives the decision, the party
notifies the board and the other party in writing of the reasons for
the party's dissatisfaction with the decision. If a notice of
dissatisfaction is not submitted during that time, the parties are
bound by the decision, waive any right of recourse they may have
against the decision, and consent to the summary enforcement of the
decision by a court as if the decision is a partial final
arbitration award.
(e) Unless otherwise agreed, if a party submits a written
notice of dissatisfaction that complies with Subsection (d), or if
the board does not issue the board's decision on or before the 30th
day after the date the hearing on the dispute concludes, the dispute
shall be finally settled by arbitration, if the parties agree, or by
a court. Until the dispute is finally settled, the parties are
bound to comply with the decision.
Sec. 160.158. OPERATION AS COMBINED DISPUTE BOARD. (a) A
combined dispute board issues a recommendation under Sections
160.154-160.156, unless, for a particular dispute:
(1) the parties jointly request a decision under
Section 160.157; and
(2) except as provided by Subsection (d), the combined
dispute board decides to issue a decision under this section.
(b) A dispute board shall act as a combined dispute board
only if the construction contract that creates the board:
(1) specifically states that the board is a combined
dispute board;
(2) adopts an International Chamber of Commerce
Combined Dispute Board Clause under which the parties to the
contract agree to the administration of the board by the
International Chamber of Commerce; or
(3) provides that the board has the authority to issue
either a recommendation or a decision.
(c) In making a recommendation or decision, the combined
dispute board shall follow the procedures in Section 160.154 for
making and issuing formal findings and recommendations.
(d) If a party requests a decision with respect to a given
dispute and no other party objects, the combined dispute board
shall issue a decision.
(e) If a party requests a decision and one or more parties
objects to the request, the combined dispute board shall determine
whether the board will issue a recommendation or decision. In
making that determination, the board shall consider whether, due to
the urgency of the situation or other relevant considerations, a
decision would facilitate the performance of the contract or
prevent irreparable loss or damage to any party, whether a decision
would prevent disruption of the contract, whether a decision is
necessary to preserve evidence, and any other factors the board
considers relevant.
(f) A party referring a dispute to the board may request a
decision by the board only if the request is made in writing in the
notice to the other parties and the board of referral of the
dispute. Another party may request a decision by the board only if
the request is made in writing before or at the same time the party
submits a written response to the request for board action.
Sec. 160.159. DISCLOSURE OF RECORDS. The records of a
dispute board are not records of any government agency and any
records, notes, or drafts taken or made by a board member are not
subject to disclosure under any freedom of information law.
SECTION 2. This Act takes effect September 1, 2005.