Construction / 3 min read
On February 18, 2025, House Bill 2960 (HB 2960) was introduced in the Texas Legislature, seeking to limit certain provisions in construction contracts for Texas-based projects that designate governing laws, litigation forums, or arbitration hearing locales outside of Texas. In essence, this bill aims to reinforce the application of Texas laws and venues in construction-related disputes, safeguarding the interests of local contractors and stakeholders in the process.
Currently, Section 272.001 of the Texas Business and Commerce Code provides that any clause in a construction contract for a construction project located in Texas that subjects the agreement or arising conflicts to the laws or courts of another state is considered "voidable" by the obligated party. The underlying rationale was to protect Texas-based contractors from being compelled to resolve disputes in unfamiliar jurisdictions under unfamiliar law, which could impose additional burdens and costs. At least one intermediate appellate court that has recently interpreted the statute has drawn a distinction between a "voidable" provision and one that is "void," holding that "under section 272.001, a forum-selection clause is valid until a party obligated under the contract exercises its right to void the provision." Various trade groups have taken issue with that determination, with one group explicitly noting a legislative priority to "[r]everse the 14th Court of Appeals ruling allowing for waiver of the statute classifying out of state law and venue contract clauses as voidable upon signing a contract with such a clause or incorporating by reference another contract with such a clause."
HB 2960 proposes several key modifications to the existing statute. First, there is a terminology change. Section 272.001 would no longer be entitled "Voidable Contract Provision" and would be amended to be "Certain Contract Provisions Void." While perhaps subtle, this amendment would be a significant alteration, emphasizing the absolute nullification of such provisions. Second, while the current statutory provision allows for the obligated party to void an out-of-state clause, HB 2960 would render any provision that mandates the application of another state's law, litigation in another state's courts, or arbitration in another state as automatically void against public policy. This change would eliminate the need for the obligated party to take action (i.e., exercise its right) to void such provisions. Third, if a venue provision is voided, "unless the parties stipulate to another venue after the dispute arises, an action arising out of the contract shall be brought only in this state in the county in which the property that is the subject of the litigation is located." This would ensure that legal disputes are addressed within the local jurisdiction, theoretically offering convenience and relevance to the parties involved. The amended language would "apply only to a contract that is entered into or renewed on or after the effective date of this Act," defined as "immediately if it receives a vote of two-thirds of all the members elected to each house" or, if not, on September 1, 2025.
If implemented, HB 2960 would have several implications for stakeholders in the Texas construction industry, including enhanced certainty concerning the application of governing law and trial and hearing locations, reduced costs (e.g., eliminating out-of-state travel cost, out-of-state attorney costs, etc.), and eliminating tactics where choice of law and forum clauses are used as a barrier to efficient and effective resolution as to the merits of a dispute. Despite its potential benefits, enforcement may be tricky in the arbitration arena, where it may run into conflicts with the Federal Arbitration Act, to the extent applicable, and preemption issues. Nevertheless, keeping disputes within the state may be viewed as serving an overriding public policy interest of the state, or the provisions of the amended statute could remain intact as to the other area that it addresses (i.e., choice of law, litigation venue, arbitration not governed by the Federal Arbitration Act).
Given its recent filing, HB 2960 has a lengthy process ahead of it. However, given its focus on protecting Texas-based contractors and ensuring that disputes stemming from Texas-based construction projects are settled under Texas law and within Texas, the bill may benefit from substantial support from in-state construction stakeholders. It is certainly a bill to watch.