HBA-EVB C.S.S.B. 629 76(R) BILL ANALYSIS Office of House Bill AnalysisC.S.S.B. 629 By: Cain Civil Practices 5/14/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Currently, unless the State of Texas has expressly given consent to be sued, it is protected by sovereign immunity. Consequently, a governmental body can sue a contractor for breach of contract, but the contractor has no legal recourse, other than a house concurrent resolution, against a governmental body's breach of contract. As a result, some contractors may not be inclined to apply for government jobs, and those that do may translate their risks into higher bids. C.S.S.B. 629 requires each unit of state government that enters into a contract to which this chapter applies to include as a term of the contract a provision stating that the dispute resolution process used by a unit of state government must be used to attempt to resolve a dispute arising under a contract. This bill also requires the attorney general to provide assistance to a unit of state government in developing the required contract provision. C.S.S.B. 629 provides regulations for a contractor to make a claim for a breach of contract against a unit of state government. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to each unit of state government with rulemaking authority in SECTION 1 (Section 2260.052, Government Code), and the chief administrative law judge of the State Office of Administrative Hearings in SECTION 1 (Section 2260.103, Government Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Subtitle F, Title 10, Government Code, is amended by adding Chapter 2260 to read as follows: CHAPTER 2260. RESOLUTION OF CERTAIN CONTRACT CLAIMS AGAINST THE STATE SUBCHAPTER A. GENERAL PROVISIONS Sec. 2260.001. DEFINITIONS. Defines "contract," "contractor," "institution of higher learning," and "unit of state government." Sec. 2260.002. APPLICABILITY. Provides that this chapter does not apply to a claim for personal injury or wrongful death arising from the breach of a contract. Sec. 2260.003. DAMAGES. (a) Prohibits the total amount of money recoverable on a claim for breach of contract under this chapter, after deducting the amount specified in Subsection (b), from exceeding the balance due and owing on the contract price, including orders for additional work. (b) Requires any amount owed the unit of state government for work not performed under a contract or in substantial compliance with its terms to be deducted from the amount in Subsection (a). Sec. 2260.004. REQUIRED CONTRACT PROVISION. Requires each unit of state government that enters into a contract to which this chapter applies to include as a term of the contract a provision stating that the dispute resolution process used by the unit of state government under this chapter must be used to attempt to resolve a dispute arising under the contract. Requires the attorney general to provide assistance to a unit of state government in developing the contract provision required by this section. Sec. 2260.005. EXCLUSIVE PROCEDURE. Sets forth that the procedures contained in this chapter are exclusive and required prerequisites to suit in accordance with Chapter 107 (Permission to Sue the State), Civil Practice and Remedies Code. Sec. 2260.006. SOVEREIGN IMMUNITY. Provides that this chapter does not waive sovereign immunity to suit or liability. SUBCHAPTER B. NEGOTIATION OF CLAIM Sec. 2260.051. CLAIM FOR BREACH OF CONTRACT; NOTICE. (a) Authorizes a contractor to make a claim against a unit of state government for breach of a contract between the unit of state government and the contractor. Authorizes the unit of state government to assert a counterclaim against the contractor. (b) Sets forth that a contractor must provide written notice to the unit of state government of a claim for breach of contract not later than the 180th day after the date of the event giving rise to the claim. (c) Sets forth that the notice must state with particularity the nature of the alleged breach, the amount the contractor seeks as damages, and the legal theory of recovery. (d) Sets forth that a unit of state government must assert, in a writing delivered to the contractor, any counterclaim not later than the 90th day after the date of notice under Subsection (b). Provides that a unit of state government that does not comply with this subsection waives the right to assert the counterclaim. Sec. 2260.052. NEGOTIATION. (a) Requires the chief administrative officer or, if designated in the contract, another officer of the unit of state government to examine the claim and any counterclaim and negotiate with the contractor in an effort to resolve them. Provides that the negotiation, except as provided by Subsection (b), must begin not later than the 60th day after the latest of the date of termination of the contract, the completion date in the original contract, or the date the claim is received. (b) Entitles a unit of state government against which a claim is filed to delay the beginning of negotiation until after the 180th day after the date of the event giving rise to the claim. (c) Requires each unit of state government with rulemaking authority to develop rules to govern the negotiation of a claim under this section. Requires a unit of state government, if that unit does not have rulemaking authority, to follow the rules adopted by the attorney general. Sec. 2260.053. PARTIAL RESOLUTION OF CLAIM. (a) Requires the parties to reduce the agreement or settlement to writing and each party is required to sign the agreement or settlement, if the negotiation under Section 2260.052 results in the resolution of some disputed issues by agreement or in a settlement. (b) Sets forth that a partial settlement or resolution of a claim does not waive a party's rights under this chapter as to the parts of the claim that are not resolved. Sec. 2260.054. PAYMENT OF CLAIM FROM APPROPRIATED FUNDS. Authorizes a unit of state government to pay a claim resolved in accordance with this subchapter only from money appropriated to it for payment of contract claims or for payment of the contract that is the subject of the claim. Authorizes the balance of the claim, if money previously appropriated for payment of contract claims or payment of the contract is insufficient to pay the claim or settlement, to be paid only from money appropriated by the legislature for payment of the claim. Sec. 2260.055. INCOMPLETE RESOLUTION. Authorizes the contractor to file a request for a hearing under Subchapter C, if a claim is not entirely resolved under Section 2260.052 on or before the 270th day after the date the claim is filed with the unit of state government, unless the parties agree in writing to an extension of time. SUBCHAPTER C. CONTESTED CASE HEARING Sec. 2260.101. DEFINITION. Defines "office." Sec. 2260.102. REQUEST FOR HEARING. (a) Authorizes the contractor to file a request for a hearing with the unit of state government, if a contractor is not satisfied with the results of negotiation with a unit of state government under Section 2260.052. (b) Provides that the request must state the factual and legal basis for the claim, and request that the claim be referred to the State Office of Administrative Hearings (office) for a contested case hearing. (c) Requires the unit of state government, on receipt of a request under Subsection (a), to refer the claim to the office for a contested case hearing under Chapter 2001 (Administrative Procedure), Government Code, as to the issues raised in the request. Sec. 2260.103. HEARING FEE. (a) Authorizes the chief administrative law judge of the office to set a fee for a hearing before the office under this subchapter. (b) Requires the chief administrative law judge of the office to set the fee in an amount that is not less than $250, and allows the office to recover all or a substantial part of its costs in holding hearings. (c) Authorizes the chief administrative law judge of the office, by rule, to establish a graduated fee scale, increasing the fee in relation to the amount in controversy. (d) Authorizes the office to assess the fee against the party who does not prevail in the hearing, or apportion the fee against the parties in an equitable manner. Sec. 2260.104. HEARING. (a) Requires an administrative law judge of the office to conduct a hearing in accordance with the procedures adopted by the chief administrative law judge of the office. (b) Requires the administrative law judge, within a reasonable time after the conclusion of the hearing, to issue a written decision containing the administrative law judge's findings and recommendations. (c) Requires the administrative law judge to base the decision on the pleadings filed with the office and the evidence received. (d) Provides that the decision must include the findings of fact and conclusions of law on which the administrative law judge's decision is based, and a summary of the evidence. (e) Prohibits a person from appealing the decision. Sec. 2260.105. PAYMENT OF CLAIM. (a) Requires the unit of state government to pay the amount of the claim or part of the claim if the administrative law judge finds, by a preponderance of the evidence, that under the laws of this state the claim or part of the claim is valid. (b) Requires a unit of state government to pay a claim under this subchapter from money appropriated to it for payment of contract claims or for payment of the contract that is the subject of the claim. Authorizes the balance of the claim, if money previously appropriated for payment of contract claims or payment of the contract is insufficient to pay the claim, to be paid only from money appropriated by the legislature for payment of the claim. Sec. 2260.106. PREJUDGMENT INTEREST. Provides that Chapter 304 (Judgment Interest), Finance Code, applies to a judgment awarded to a claimant under this chapter, except that the applicable rate of interest is prohibited from exceeding six percent. Sec. 2260.107. EXECUTION ON STATE PROPERTY NOT AUTHORIZED. Sets forth that this chapter does not authorize execution on property owned by the state or a unit of state government. SECTION 2. Amends Chapter 2008, Government Code, by redesignating Chapter 2008, Government Code (Alternative Dispute Resolution at State Agencies) as Chapter 2009 (Alternative Dispute Resolution for Use by Governmental Bodies), Government Code, as follows: CHAPTER 2009. New title: ALTERNATIVE DISPUTE RESOLUTION FOR USE BY GOVERNMENTAL BODIES. SUBCHAPTER A. GENERAL PROVISIONS. Sec 2009.001. SHORT TITLE. Authorizes this chapter to be cited as the Governmental Dispute Resolution Act. Redesignated from Section 2008.001, Government Code. Sec 2009.002. POLICY. Sets forth that it is the policy of this state that disputes before governmental bodies, rather than state agencies, be resolved as fairly and expeditiously as possible and that each governmental body support this policy by developing and using alternative dispute resolution procedures in appropriate aspects of the governmental body's operations and programs. Makes conforming changes. Redesignated from Section 2008.002, Government Code. Sec. 2009.003. DEFINITIONS. Defines "governmental body." Existing Subdivisions (2) and (3) are redesignated as Subdivisions (3) and (4), respectively. Redesignated from Section 2008.003, Government Code. Sec. 2009.004. New title: CONTRACTS; BUDGETING FOR COSTS. Redesignates Subsection (c) from existing Subsection (b). Makes conforming and nonsubstantive changes. Redesignated from Section 2008.004, Government Code. Sec. 2009.005. SOVEREIGN IMMUNITY. Redesignated from Section 2008.005, Government Code. SUBCHAPTER B. ALTERNATIVE DISPUTE RESOLUTION. Sec. 2009.051. DEVELOPMENT AND USE OF PROCEDURES. (a) Makes conforming changes. (b) Sets forth that alternative dispute resolution procedures developed and used by a state agency also must be consistent with the administrative procedure law, Chapter 2001, Government Code. Makes a conforming change. (c) Redesignated from existing Subsection (b) to make a conforming change. Redesignated from Section 2008.0051, Government Code. Sec. 2009.052. SUPPLEMENTAL NATURE OF PROCEDURES. (a) Provides that alternative dispute resolution procedures developed and used under this chapter supplement and do not limit other dispute resolution procedures available for use by, rather than at, a governmental body. Makes a conforming change. (b) Prohibits this chapter from being applied in a manner that denies a person a right granted under a local charter, ordinance, or other similar provision. Redesignated from Section 2008.0052, Government Code. Sec. 2009.053. IMPARTIAL THIRD PARTIES. (a) Provides that the governmental body's appointment of the impartial third party is subject to the approval of the parties, except that when an office administrative law judge has issued an order referring a case involving a state agency to an alternative dispute resolution procedure under Section 2003.042(a)(5) (Powers of Administrative Law Judge), rather than 2003.042(5), Government Code, the administrative law judge is authorized to appoint the impartial third party if the parties cannot agree on one within a reasonable period. Makes conforming and nonsubstantive changes. (b) Deletes text that provides that the impartial third party must possess the qualifications required under Section 154.052 (Qualifications of Impartial Third Party), Civil Practice and Remedies Code. Deletes text that also authorizes a state agency to obtain services of a qualified impartial third party through an agreement with the office. Redesignated from existing Subsection (c). Makes conforming changes. (c) Authorizes a state agency to also obtain the services of a qualified third party through an agreement with the office. (d) Provides that the impartial third party must possess the qualifications required under Section 154.052, Civil Practice and Remedies Code. Redesignated from Section 2008.0053,Government Code. Sec. 2009.054 CONFIDENTIALITY OF CERTAIN RECORDS AND COMMUNICATIONS. Provides that information in the final written agreement is subject to required disclosure, is excepted from required disclosure, or is confidential in accordance with Chapter 552 (Public Information), Government Code, and other law. Redesignated from Section 2008.0054, Government Code. Sec. 2009.055. New title: SHARING OF INFORMATION; CONSISTENCY OF PROCEDURES. Makes conforming changes. Redesignated from Section 2008.0055, Government Code. SECTION 3. Amends Section 154.073, Civil Practice and Remedies Code, as follows: Sec. 154.073. New title: CONFIDENTIALITY OF CERTAIN RECORDS AND COMMUNICATIONS. (a) Makes conforming changes. (b) Makes no change. (d) Provides that a final written agreement to which a governmental body, as defined by Section 552.003 (Definitions), Government Code, is a signatory that is reached as a result of a dispute resolution procedure conducted under this chapter is subject to or excepted from required disclosure in accordance with Chapter 552, Government Code. (e) Authorizes the issue of confidentiality to be presented to the appropriate court to determine, in camera, whether the facts, circumstances, and context of the communications or materials sought to be disclosed warrant a protective order of the court or whether the communications or materials are subject to disclosure, if this section conflicts with other legal requirements for disclosure of communications, records, or materials. Redesignated from existing Subsection (d). SECTION 4. Amends Section 2003.001(2), Government Code, to make a conforming change. SECTION 5. Amends Section 2003.042(a), Government Code, to redesignate Subdivisions (6) (as added by Section 2, Chapter 1167, Acts of the 75th Legislature, 1997) through (8) as Subdivisions (7) through (9) for the purpose of clarification. Makes conforming and nonsubstantive changes. SECTION 6. Effective date: immediately, except that Sections 2 through 5 of this Act take effect September 1, 1999. SECTION 7. Makes Chapter 2260, Government Code, as added by this Act, applicable only to a claim pending or arising on or after the effective date of this Act, without regard to whether the contract was entered into before, on, or after that date. (b) Provides that, notwithstanding Section 2260.051(b), Government Code, as added by this Act, a claimant must provide written notice to the unit of state government for a claim pending before the effective date of this Act not later than the 180th day after that date. SECTION 8. Provides that Chapter 2260, Government Code, as added by this Act, does not apply to a claim or dispute with respect to which the 76th Legislature or a previous legislature has enacted a concurrent resolution granting permission to the contractor to bring a suit against the state or a unit of state government. SECTION 9. Makes application of Chapter 2009, Government Code, as amended and redesignated by this Act, and Section 154.073, Civil Practice and Remedies Code, as amended by this Act, prospective to an alternative dispute proceeding beginning September 1, 1999. SECTION 10. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute differs from the original in the caption by relating to alternative dispute proceedings of governmental bodies, rather than to contract claims against a unit of state government. The substitute differs from the original in SECTION 1 (proposed Section 2260.001, Government Code) by providing that the term "contract" does not include a contract subject to Section 201.112 (Contract Claims), Transportation Code. The substitute differs from the original by removing text that provided that the term, "unit of state government," does not include the Texas Department of Transportation. The substitute differs from the original in SECTION 1 (proposed Section 2260.102(c), Government Code) by making a nonsubstantive change. The substitute differs from the original in SECTION 1 (proposed Section 2260.104, Government Code) by adding Subsection (e), which prohibits a person from appealing the decision. The substitute differs from the original by removing SECTION 2 of the original, which provided an effective date of September 1, 1999. The substitute differs from the original by adding new SECTIONS 2-6, 8 and 9. Please see the Section-by-Section Analysis portion of this document. The substitute differs from the original in SECTION 7 (redesignated from SECTION 3 of the original) by specifying that Chapter 2260, Government Code, as added by this Act, applies prospectively. The substitute differs from the original in SECTION 10 by replacing the short emergency clause of SECTION 4 of the original with the modified long emergency clause.