BILL ANALYSIS

H.B. 3874

By: Hayes

Trade, Workforce & Economic Development

Committee Report (Unamended)

BACKGROUND AND PURPOSE

The bill author has informed the committee that in the construction industry, contracts often incorporate additional documents by reference, meaning that essential terms and conditions affecting contractors and subcontractors may be included in an external document that is not immediately provided to all parties. The bill author has also informed the committee that this practice can create challenges and lead to disputes, unexpected liabilities, and unfair contract terms, ultimately harming contractors and subcontractors who may be bound by conditions they were not able to review beforehand. H.B. 3874 seeks to improve transparency in construction contracts by allowing contractors and subcontractors to void contract provisions that incorporate additional documents if those documents are not provided upon request within a reasonable timeframe before contract execution.

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

H.B. 3874 amends the Business & Commerce Code to make voidable by an original contractor a provision in a construction contract between the original contractor and owner that incorporates another document that contains terms and conditions, by reference or otherwise, if, on written request, the owner does not provide a copy of the incorporated document to that contractor on or before the 10th day before the date the contract is executed. The bill establishes that this does not preclude the owner from redacting information from a document to be incorporated into the contract, provided that any redacted information may not be incorporated into the contract by reference or otherwise. The bill authorizes the owner to request the original contractor to sign, date, and submit to the owner a written statement acknowledging receipt of the copy of the incorporated document and requires that statement to be provided separately from the construction contract.

H.B. 3874 similarly makes voidable by a subcontractor a provision in a construction contract between the subcontractor and an original contractor that incorporates another document that contains terms and conditions, by reference or otherwise, if, on written request, the original contractor does not provide a copy of the incorporated document to the subcontractor on or before the 10th day before the date the contract is executed. The bill establishes that this does not preclude the original contractor from redacting information from a document to be incorporated into the contract, provided that any redacted information may not be incorporated into the contract by reference or otherwise. The bill authorizes the original contractor to request the subcontractor to sign, date, and submit to the original contractor a written statement acknowledging receipt of the copy of the incorporated document and requires that statement to be provided separately from the construction contract.

H.B. 3874 similarly makes a provision in a construction contract between a subcontractor and another subcontractor that incorporates another document that contains terms and conditions, by reference or otherwise, voidable by the subcontractor who is to furnish labor or materials to fulfill an obligation to the other subcontractor if, on written request, the subcontractor to whom the requesting subcontractor is obligated does not provide a copy of the incorporated document to the requesting subcontractor on or before the 10th day before the date the contract is executed. The bill establishes that this does not preclude a subcontractor from redacting information from a document to be incorporated into the contract, provided that any redacted information may not be incorporated into the contract by reference or otherwise. The bill authorizes the subcontractor providing the copy of the document to request the other subcontractor to sign, date, and submit a written statement acknowledging receipt of the copy of the incorporated document and requires that statement to be provided separately from the construction contract.

H.B. 3874 establishes that a provision in a construction contract made void by a party to the contract under the bill's provisions is void only to the extent of the provision's applicability to the incorporated document or a portion of the incorporated document that was not provided to the party. The bill's provisions making the three types of contracts voidable under the specified circumstances do not apply to the incorporation of a publicly available document accessible with or without charge and do not apply in an emergency if all documents incorporated by reference are provided simultaneously with the contract prior to execution. For these purposes, the bill defines "emergency" as a sudden, urgent occurrence that requires immediate action.

H.B. 3874 authorizes an owner, original contractor, or subcontractor to provide a copy of an incorporated document to the other party to a construction contract under the bill's provisions by providing a link to the document on a website or file hosting service that may be accessed by the other party free of charge for the duration of the term of the contract. The bill establishes that the version of the incorporated document that is accessible on the date the party receives the information necessary to access the document is the version of the document that is incorporated into the contract. The bill defines the following terms for purposes of provisions of state law applicable to certain construction contracts:

· "copy" as an accurate reproduction of an original document reproduced in paper form or in an electronic format that a person can access, download, save, and print for the person's own records;

· "original contract" as an agreement to which an owner is a party either directly or by implication of law;

· "original contractor" as a person contracting with an owner directly or through the owner's agent;

· "owner" as a person who owns any interest in real property or an authorized agent, trustee, or receiver of the person; and

· "subcontractor" as a person who furnishes labor or materials to fulfill an obligation to an original contractor or to a subcontractor of any tier to perform all or part of the work required by an original contract.

H.B. 3874 prohibits a person from waiving provisions of state law applicable to certain construction contracts by contract or other means and establishes that a purported waiver of those provisions is against public policy and is void.

H.B. 3874 applies only to a contract that is entered into or renewed on or after the bill's effective date.

EFFECTIVE DATE

September 1, 2025.