Prior to September 1, 2021, Texas remained one of the only states where a contractor could be held liable for damages resulting directly from defective construction design plans prepared by the owner, owner’s agent, or owner’s design professional. For over a hundred years, Texas courts had followed the Texas Supreme Court’s Lonergan doctrine. See Lonergan v. San Antonio Loan & Tr. Co., 101 Tex. 63, 104 S.W. 1061 (1907). The Lonergan doctrine prevented a contractor from successfully asserting a claim for “breach of contract based on defective plans and specifications” unless the contract contained language that “shows an intent to shift the burden of risk to the owner.” Id.
The doctrine essentially placed the risk of loss on the contractor for any loss resulting from a design professional’s defective design plans or specifications, unless the contract between the parties explicitly shifted that burden to the owner. The holding in Lonergan was arguably affirmed in 2012 by the Texas Supreme Court’s MasTec decision. El Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802 (Tex. 2012). In MasTec, the court again held that contractors may be liable for design defects even if the designs, plans, or specifications were provided by the owner or the owner’s design professional. Id.
Texas Senate Bill 219
The 87th Legislature recently passed Senate Bill 219 (“S.B. 219”), which went into effect on September 1, 2021. Subject to a few exceptions, the statute will effectively override the long-standing Lonergan principle that a contractor bears the risk of defective design plans. S.B. 219 falls in line with the rule adopted by nearly every other jurisdiction.
The majority rule, commonly referred to as the Spearin doctrine, recognizes that when a contractor is “bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications,” and therefore allocates the risk of defects based on faulty plans or specifications to the party who provided those plans. The United States v. Spearin, 248 U.S. 132, 39 S. Ct. 59 (1918). Subject to a few exceptions (discussed below), the law now shields a contractor from any claims based on liability for defects arising from design plans and no longer requires contractors to include language in construction contracts that allocates such responsibility to the owner.
Application and Exceptions
S.B. 219 will be codified in Chapter 59 of the Texas Business and Commerce Code (and amendments to certain portions of Chapter 130 of the Texas Civil Practice and Remedies Code relating to standards of care for design professionals). Although the law will generally shield contractors from liability arising from design defects, Section 59.051(b) provides that a contractor must, within a reasonable time of learning of a defect in the design documents, disclose in writing to the person with whom they entered into a contract the existence of the defect discovered by the contractor or that reasonably should have been discovered by the contractor using ordinary diligence, before or during construction. Section 59.051(c) provides that a contractor who fails to disclose such a defect may be liable for the consequences of defects that result from the failure to disclose.
S.B. 219 applies to contracts “for the construction or repair of an improvement to real property.” However, S.B. 219 does not apply to a project that is either a “critical infrastructure facility” itself, or that is “necessary to the operation of and directly related [to a] critical infrastructure facility.” Further, the statute does not apply to three specific situations: (1) designs provided by a contractor under a design-build contract; (2) designs provided by a contractor under an engineering, procurement, and construction contract; and (3) portions of a construction contract where the contractor has agreed to provide input and guidance regarding the plans or specifications, and the contractor’s input is incorporated into plans provided by a registered professional.
S.B. 219 applies to both private and public works projects and will be applicable to all construction contracts entered into on or after September 1, 2021. By passing S.B. 219, the Texas Legislature has brought Texas into conformity with nearly every other state in the country. The limitation on contractor risk for owner-furnished design defects will likely provide construction professionals in Texas with a long-awaited sense of relief.
Prior to September 1, 2021, Texas law required an insurance company to pay the damages, but not the attorneys’ fees, awarded as compensat...