Construction / 1 min read
As mentioned above, this month’s enactment of House Bill 3485, amending Chapter 28 of the Texas Property Code, gives general contractors the right to refuse performance of owner-directed additional work on private and public projects. This applies when the general contractor does not have a fully executed change order for the additional work and the total value of all unexecuted change orders for this work exceeds 10% of the contract amount. Further, the general contractor cannot be liable for the associated damages if it decides not to proceed with the additional work. The law similarly applies to subcontractor work and is not waivable by contract.
The primary intent behind HB 3485 is to provide general contractors the assurance of a fully executed change order before proceeding with substantial owner-directed changes to the scope and cost of their work. Importantly, Section 28.0091 requires that the change orders relate to owner-directed work.
While providing additional payment assurances to general contractors and subcontractors, House Bill 3485’s broad language also creates a myriad of uncertainties, specifically regarding cost modeling protocol. This, in turn, has the potential to create more uncertainty for contractors at the litigation stage.
The newly added Section 28.0091 assumes a cut-and-dry determination regarding change-order pricing and that there is a black-and-white distinction between a 9% and 10% change in the contract value. Given day-to-day fluctuations in change order pricing this black and white distinction is nonexistent, especially among owners and general contractors. Owners may use this ambiguity to circumvent the provision’s application by keeping proposed changes below 10% of the contract value.
Although the core of HB 3485 gives general contractors the right to refuse performance without an executed change order, there will be many questions regarding the real-life implications of the provision. Owners and general contractors are likely to dispute how the provision is to be interpreted, including whether a change is truly owner-directed and how the cost impact of the potential change orders should be calculated.