Although it took well over 100 years to do so, the Texas Legislature has finally addressed court precedent that was seemingly unfair to contractors who relied on owner-provided designs in construction. Previously, contractors could be held liable for design defects, even when they did not design the project on their own. Now, the Texas Business and Commerce Code releases a contractor from liability for owner-provided designs when the contract is silent on the issue.
The Previous Law Placed Texas in the Minority
In 1907, the Texas Supreme Court handed down a ruling in the case of Lonergan v. San Antonio Loan & Trust Co. The Court held that if the owner or their architect provides a building design, the contractor would still be responsible for a building collapse even though they did not design the building themselves. According to the Court, the contractor was in the best position to know whether the design was defective. The only way the contractor could avoid liability was if the contract directly addressed the matter through an express warranty from the owner that the building design was sufficient. Otherwise, the contractor bore the risk of the owner’s mistakes.
This rule placed contractors in a difficult position when they were working with designs provided by others. In addition, the rule in Texas was the minority rule. Most other states in the country followed the rule established by the U.S. Supreme Court case of U.S. v. Spearin that the owner makes an implied warranty to the contractor when they provide their own specifications or design if the agreement between them requires the contractor to build according to what was given to them.
Section 59 Amends the Contractor’s Potential Liability
Finally, the Texas Legislature entered the fray with a new section of the Texas Business and Commerce Code that largely overturns Lonergan. Senate Bill 219 went into effect on September 1, 2021, and it now places Texas in the majority of states that follow Spearin.
On the surface, Section 59, which covers this issue, removes the disadvantage that contractors faced under Lonergan. The law applies to a contract for the construction or repair of an improvement to real property. The main crux of the law is in Subsection B, which clarifies the contractor’s responsibility. However, this law does not completely relieve contractors of all responsibility when the owner provides the design or specifications.
WITH REGARD TO A CONTRACTOR’S LIABILITY, THE LAW ESSENTIALLY STATES TWO THINGS:
- Contractors are not legally responsible for designs provided by anyone other than their agents, contractors, fabricators, suppliers, or consultants.
- Contractors cannot provide a warranty for the accuracy, adequacy, sufficiency, or suitability of plans, specifications, or other design documents provided by anyone other than their agents.
Exceptions To Chapter 59
There are several “howevers” provided by the law. For one, when a contractor learns of a potential defect, they cannot keep that knowledge to themselves. They must notify the contractual counterparty when learning of “any known defect in the plans, specifications, or other design documents.” This notification must be in writing and provided within a reasonable amount of time. If the contractor learns of a defect, and does not disclose it within a reasonable amount of time, they can become liable for the defect.
The contractor also cannot remain willfully blind to learning of defects during construction. Even though they do not have to hire someone to search for defects, they must use ordinary diligence to discover them during construction. In addition, the contractor is not absolved of liability when the contract requires they provide input or guidance on the design, so long as the defect is in the portion of the project they worked on. This covers a contractor’s input into design-build contracts.
The Law Imposes a Standard of Care on the Contractor When the Law Does Not Apply
In addition, the new law imposes a standard of care on the contractor in design-build and critical infrastructure projects (which are excluded from the new Section 59). These services must be “performed with the professional skill and care ordinarily provided by competent architects or engineers practicing under the same or similar circumstances and professional license.” Even still, this is an ordinary care standard that does not go above and beyond anything required in an architectural or engineering services contract.
The new law applies to contracts signed after the effective date of the statute. It does not apply retroactively to agreements signed before the law was enacted. Either a project falls under the rule in Lonergan or under the new Section 59.
Further, contractors cannot waive the protections of this law in an agreement with the owner, even if they wanted to as part of a negotiation. The provisions of this law are mandatory.
Important Takeaways for Contractors
For contractors, this new law represents a more favorable situation, but it does not completely absolve them of responsibility for design defects. Even with the previous law, it was possible for contractors to negotiate contractual provisions that protected them from liability since the rule in Lonergan only applied when the contract was silent.
Under the new law, any gray areas are eliminated, and contractors have more certainty. However, they must still work to detect defects on their own and report them when they do occur. Nonetheless, this is an improvement from the previous legal regime that imposed liability on contractors for the conduct of others.