Owners & Developers
From the first concept to the finished project, we handle the details so our clients can focus on the big picture.
Pending Bill Could Shift Liability for Defects in Plans & Specs between Owners and Contractors
Proposed legislation in Texas may shift the default responsible party between owners and contractors for defects in construction plans and specifications.
House Bill 2170 (currently parked in the House Ways & Means Committee), proposes to clarify whether the contractor or owner provides an implied warranty that construction plans and specifications are sufficient.
That’s a jumble of lawyer words, so here’s how this plays out in the real world. Assume an owner hires an architect to design a building. The architect does the job and provides the owner with a set of plans and specifications for the project. The owner then needs to hire a contractor to actually build it. Eventually the owner and contractor run into issues because of a defect in the plans. So, who’s on the hook for the defect assuming the contract is silent on that? If the contractor requests a change order because of a design defect, should the contractor cover that cost or does the owner?
Absent any new law from the Texas Legislature, the answer is complicated. According to a 110-year-old Texas Supreme Court case (Lonergan1), when a contractor accepts design plans, he is essentially promising that the project can be built as designed. In practice, unless the contract says otherwise, the contractor is responsible to deliver the structure, even if a design error makes the completion more expensive.
Since 1907, the story has evolved quite a bit. The U.S. Supreme Court has said that if the owner requires the contractor to build per plans and specifications, the contractor is not responsible for defects in the design, and several other state and federal courts outside of Texas have agreed. Under that line of cases, the owner would be liable for the design defect (e.g. the owner would likely have to increase payment to the contractor as a result of the change order due to design defect). Even some lower Texas Courts have gone this route. However, as of this writing, Lonergan is still standing as Texas Supreme Court precedent on this matter.
As a practical matter, most modern construction contracts include language that clarifies whether the owner or contractor warrants the sufficiency of the design plans. Parties are currently free to negotiate the risk of defective plans and write their agreements accordingly. Given the uncertainty in Texas law on this question, such specific contract language is probably the current best practice for owners and contractors.
This is where HB 2170 enters the game. HB 2170 could shift Texas law away from the Lonergan standard where a contractor is on the hook to the owner for design defects. The as-filed version of the bill states that anyone (other than design professionals like architects or engineers) who provides plans and specifications to a construction contractor warrants that those plans are sufficient. This language could act as a Legislative overruling of Lonergan, clarifying the uncertainty as to whether Lonergan is still widely-accepted law.
However, HB 2170 goes an important step further by limiting parties’ ability to contract around the new law. Under HB 2170, any contract term waiving the law would be void. This could fundamentally change how construction contracts have operated, as the parties have historically been free to specify risk as they saw fit.
Currently, HB 2170 is still in the House Ways & Means Committee, and it is unclear whether it has a realistic chance of becoming law this session. In any case, the debate over Longergan is far from over and the legislation could be picked back up in future sessions. Owners and contractors should keep an eye on the debate, as it continues to materially affect how risk for design defects is allocated between parties to construction contracts.
1 Lonergan v. San Antonio Loan & Trust Co., 104 S.W. 1061, 1067 (Tex.1907).