Out with Lonergan, In with Spearin: Texas Legislature Provides Contractors with Limited Protection for Defective Plans and DesignsAs of September 1, 2021, in a change to Texas caselaw that had been in place for over a century, Texas contractors now have protection in certain circumstances from liability for defective plans and specifications provided to the contractor by someone else. In the 1907 Texas Supreme Court case Lonergan v. San Antonio Loan & Trust, the court held that it was the contractor’s responsibility to reconstruct a collapsed building even though the collapse was due to a defect in the design plans and specifications prepared by the architect hired by the project owner and provided to the contractor by the project owner. In 2012, in El Paso Field Services v. Mastec, the Texas Supreme Court reaffirmed its decision in Lonergan.

In contrast, in 1918, the United States Supreme Court ruled on a question similar to the Lonergan case in United States v. Spearin and came to a different conclusion, holding that it is not the contractor’s responsibility to determine the sufficiency of plans and specifications provided to it by the project owner. Since the Spearin decision in 1918, 36 states and the District of Colombia have followed the Spearin decision of not holding the contractor liable for defective plans and specifications provided to the contractor by someone else.

New Statutory Protections for Texas Contractors Related to Defective Plans/Specifications/Design Documents

In an effort to bring Texas in line with the jurisdictions that follow Spearin, the Texas Legislature added a new chapter (Chapter 59) to the Texas Business and Commerce Code titled “Responsibility for Defects in Plans and Specifications.” Chapter 59, which became effective on September 1, 2021, applies to contracts for the construction or repair of an improvement to real property and provides that:

  • A contractor doing work in Texas is not responsible for the consequences of design defects in plans/specifications/design documents and may not warrantthe accuracy, adequacy, sufficiency, or suitability of plans/specifications/design documents provided by a person other than the contractor’s agents, subcontractors, fabricators, suppliers, or consultants.
  • If a contractor learns of a defect, inaccuracy, inadequacy, or insufficiency in the plans/specifications/design documents, the contractor must, within a reasonable time, disclose in writing to the person with whom the contractor entered into a contract the existence of any known defect in the plans/specifications/design documents or any defect that reasonably should have been discovered by the contractor using ordinary diligence, before or during construction.
  • Chapter 59 provides that “ordinary diligence” means the observations of the plans/specifications/design documents that a contractor would make in the reasonable preparation of a bid or fulfillment of its scope of work under normal circumstances. “Ordinary diligence” does not require the contractor to engage an engineer or architect to review the plans/specifications/design drawings.
  • If the contractor fails to disclose a defect as described above, the contractor may be liable for the consequences of defects that result from the failure to disclose.

Texas contractors should also be aware that the provisions of Chapter 59 cannot be waived by the parties and any purported waiver of Chapter 59 is void.

Exceptions to Chapter 59

Notably, Chapter 59 does not apply to construction or repairs to a “critical infrastructure facility,” which is defined in the statute as including but not limited to the following: petroleum or alumina refineries, electrical power generating facilities, chemical manufacturing facilities, water treatment plants, liquid natural gas terminals, telecommunications systems, ports, rail yards, gas processing plants, oil/gas pipelines, oil/gas drilling sites, or airports.

Chapter 59 also does not apply to construction work done under a design-build contract or an EPC contract in situations where the part of the plans/specifications/design drawings that is alleged to be defective is the contractor’s responsibility.

Finally, Chapter 59 does not apply to portions of contracts between an owner and contractor under which the contractor agrees to provide input and guidance on plans/specifications/design drawings, where the contractor’s input and guidance are provided as the signed and sealed work product of a licensed, registered engineer or architect, and that work product is incorporated into the plans/specifications/design documents used in construction.

Architect’s/Engineer’s Standard of Care

In addition to adding Chapter 59 to the Texas Business and Commerce Code, the Texas Legislature also revised Chapter 130 of the Civil Practice and Remedies Code to require that construction contracts for architectural or engineering services or a contract related to the construction or repair of an improvement to real property that contains architectural or engineering services as a component part must require that the architectural or engineering services be performed “with the professional skill and care ordinarily provided competent architects or engineers practicing under the same or similar circumstances and professional license.”

If one of the above-described contracts contains a different standard of care than that established by the statute, the provision containing the different standard of care is void and unenforceable and the standard of care established by the statute applies.

Infrastructure Bill Appropriates Funds to Disadvantaged Business EnterprisesH.R. 3864, the Infrastructure Investment and Jobs Act or Bipartisan Infrastructure Bill (BIB), passed a vote by the U.S. House of Representatives on November 5, 2021, and will soon become law upon signing by President Biden. Certain provisions of the Surface Transportation division (Division A) of the BIB will be of particular interest to Disadvantaged Business Enterprises (DBEs) pursuing contracts with the federal government.

At Sec. 11101(e) of Division A, the BIB addresses appropriation of funds to DBEs. It provides, in part, that “10 percent of the amounts made available for any program under Division A (other than section 14004), Division C (Transit), and 23 U.S.C. 403 shall be expended through small business concerns owned and controlled by socially and economically disadvantaged individuals.” The BIB adopts the definition of a “small business concern” from 15 U.S.C. 632 and excludes “any concern or group of concerns controlled by the same socially and economically disadvantaged individual or individuals that have average annual gross receipts during the preceding 3 fiscal years in excess of $26,290,000, as adjusted annually by the Secretary for inflation.” For the definition of “socially and economically disadvantaged individuals,” the BIB utilizes the meaning given in 15 U.S.C. 637(d) and “relevant subcontracting regulations issued pursuant to the [Small Business] Act, except that women shall be presumed to be socially and economically disadvantaged individuals for purposes of this subsection” of the BIB.

The BIB also places increased emphasis on enforcing compliance with the disadvantaged business enterprises prompt payment rule codified at 49 CFR § 26.29, including requiring the Secretary of the Department of Transportation to increase the ability of the department to track and keep records of complaints and to make that information publicly available. Implementation of this requirement will be important for all government contractors to monitor, regardless of whether they qualify as a DBE.

Given the size and scope of the BIB, Sec. 11101(e) likely appropriates tens of billions of dollars to DBEs on federal transportation and transit projects. Understanding the qualification requirements under the BIB and the Small Business Act will be important for interested DBEs to seek out and get awarded these projects.

If you have any questions about the BIB or generally about navigating federal regulations intended for the benefit of DBEs and other small business concerns, please contact Aman Kahlon, Aron Beezley or Nathaniel Greeson.

Bid Protests in AlabamaBradley has been publishing an ongoing survey of state-level bid protest processes and procedures (see, e.g., our post on “Bid Protests in New York”). For the next state in this ongoing series, we focus on the bid protest procedures in the State of Alabama.

Who May Protest and When?

a. Administrative Protests – Division of Purchasing

The Alabama Administrative Code provides that the “Division of Purchasing shall provide a notice of intent to award of all contracts let by competitive bid by electronic posting to the Division of Purchasing website,” and that “[a]ny bidder adversely affected by an intent to award a contract let by competitive bid shall file with the Director of Purchasing a notice of protest within five (5) calendar days after the notice of intent to award is electronically posted” (Ala. Admin. Code § 355-4-1-.04(14)). The notice of protest – which may be filed by mail, by hand delivery, by email or by facsimile – must be filed with the Director of Purchasing by 5 p.m. CDT on the fifth calendar day after the notice of intent to award is electronically posted.

A formal written protest shall then “be filed within seven (7) days, excluding Saturday, Sunday, and State holidays, after the notice of protest is filed.” The formal written protest may be filed by email in PDF format or by mail or hand delivery, and must be filed with the Director of Purchasing by 5 p.m. CDT on the seventh day after filing the notice of protest. The bidder or its legal representative must sign the formal written protest “or it will not be accepted.” Failure to file either the notice of protest or the formal written protest within the time limits prescribed herein “shall constitute a waiver of any protest of the award of contract.”

b. Requests for Proposals – Goods and Services

Currently, for certain Requests for Proposals or procurements for goods or services issued by agencies directly (as opposed to through the Division of Purchasing or Department of Finance), the only form of bid protest is a suit for injunctive relief under Ala. Code Sections 41-16-31 & 61. Both sections provide that “[a]ny taxpayer of the area within the jurisdiction of the awarding authority and any bona fide unsuccessful bidder on a particular contract shall be empowered to bring a civil action in the appropriate court to enjoin execution of any contract entered into in violation of the provisions of” the applicable procurement law. There is no set time limit for filing an action under these code sections.

c. Requests for Proposals – Public Works Projects

Similarly, for public works projects under Title 39 of the Alabama Code, “[t]he Attorney General, a bona fide unsuccessful or disqualified bidder, or any interested citizen may maintain an action to enjoin the letting or execution of any public works contract in violation of or contrary to the provisions of [Title 39] or any other statute and may enjoin payment of any public funds under any such contract” (Ala. Code § 39-5-4). Such an action must be commenced within 45 days of contract award.

What Must a Protest Contain?

The Alabama Administrative Code simply provides that “[t]he formal written protest shall state with particularity the facts and law upon which the protest is based” (Ala. Admin. Code § 355-4-1-.04(14)). Accordingly, most bid protests in Alabama take the form of a letter that sets forth in detail both the relevant facts and law.

For suits for injunctive relief, the protester must file pleadings with the court stating a basis for relief grounded in improper application of law or improper influence.

When Will a Decision on the Protest Be Issued?

Within 30 calendar days of receipt of the timely filed, formal written protest, the Director of Purchasing shall issue a written decision with respect to the protest (Ala. Admin. Code § 355-4-1-.04(14)).

For suits for injunctive relief, there is no set time for a decision to be issued.

Are There Any “Appeal” Procedures?

The Alabama Administrative Code states that, “[s]hould the decision by the Director of Purchasing be adverse to the bidder, the bidder may seek relief in accordance with section 41-16-31 of the Code of Alabama” (Ala. Admin. Code § 355-4-1-.04(14)).

For suits for injunctive relief, the protester may appeal to a court of appropriate jurisdiction, such as the Alabama Supreme Court or Civil Court of Appeals for Alabama.

Of note, Alabama’s Competitive Bid Law is repealed as of October 1, 2022, and will be replaced as set forth in 2021 Alabama Laws Act 2021-296. Alabama Code Section 41–4–161 provides a revised statutory protest process for certain procurements. We will provide an update on these new procedures in a forthcoming blog post.

Wait, I Have More Questions!

If you have any questions about bid protests in Alabama – or about state-level bid protests generally – please do not hesitate to contact Aron Beezley, Sarah Osborne, or Gabby Sprio.

Aron Beezley is licensed to practice law in Colorado and the District of Columbia, and Sarah Osborne and Gabby Sprio are licensed to practice law in Alabama.