Construction / 2 min read
House Bill No. 3485 has successfully been added to the Government and Property Codes affecting projects with both private and governmental owners. The primary purpose of this bill is to protect the “receiving party” (the prime or sub-contractor) from excessive change orders, more specifically construction change directives (CCDs), from the “sending party” (the owner or prime contractor). As long as two criteria are met, this bill gives the receiving party the ability to reject a CCD from the sending party without being responsible for the damages associated with the rejection.
To reject a CCD, the change order must meet two conditions. First, the receiving party cannot have signed the CCD, thereby agreeing to do the work. Second, at any one time, the cumulative cost of CCDs that have not been signed by both parties cannot exceed 10% of the original contract price. Meaning, the aggregate actual or anticipated value of the additional work plus any previous change orders that have not been signed by both parties must exceed 10% of the original contract price. Essentially,
In the instance of multiple, or aggregate, change orders, if an unsigned CCD for 8% of the contract price is outstanding and unsigned, an additional CCD for 3% of the contract price can be rejected. However, if the CCD for 8% is signed by the receiving party and agreed upon, then space is “opened” up and the CCD for 3% cannot be rejected.
One very important word here is “anticipated”. CCDs often punt the issue of price until after the fact, or the included price is inaccurate, and the addition of this word protects the receiving party from work that could be anticipated to push beyond that 10% threshold. This affords additional protection to the receiving party and allows them the ability to dispute a CCD, despite the price listed, or lack thereof.
The timing of the contract is of central importance. Very simply, both additions to code took effect in the Fall of 2023, and “apply only to a contract entered into on or after [September 1, 2023]”. While simple on its face, this can cause confusion for projects which span from before to after September 1, 2023. Hypothetically, in the scenario the prime contractor and an owner entered into an agreement on August 1, 2023, and the prime contractor turned around and entered into an agreement with a subcontractor on September 1, 2023, or later, only the agreement between the prime contractor and the subcontractor is bound by this bill.
This new code has taken some control away from the owner. The contractors have been given an added layer of predictability and security, while also giving the contractor the ability to say “no” to a CCD.