Texas Construction Industry Overview

Texas has one of the largest construction markets in the United States, with billions in annual activity. Understanding construction law is essential for contractors, subcontractors, suppliers, and property owners to protect their interests and avoid costly disputes.

Types of Construction Contracts

Fixed Price (Lump Sum) Contracts

Traditional approach:

Characteristics:

Single price for entire project
Owner’s budget certainty
Contractor bears cost risk
Detailed plans required
Change orders for modifications

When Appropriate:

Well-defined project scope
Complete design documents
Stable material costs
Experienced contractor
Limited owner changes expected

Cost-Plus Contracts

Reimbursement model:

Structure:

Actual costs reimbursed
Plus contractor’s fee (fixed or percentage)
Detailed cost tracking required
Less owner budget certainty

Fee Types:

Fixed fee
Percentage of cost
Guaranteed maximum price (GMP)
Cost-plus with incentive

Time and Materials (T&M)

Hourly basis:

Features:

Hourly labor rates
Materials at cost plus markup
Equipment charges
Less defined scope
Detailed record-keeping essential

Essential Contract Provisions

Scope of Work

Define project completely:

Components:

Detailed work description
Plans and specifications
Quality standards
Materials and products
Exclusions clearly stated
Change order procedures

Payment Terms

Critical provisions:

Payment Schedule:

Application for payment dates
Retention percentage (typically 5-10%)
Payment timeline
Final payment conditions
Release of lien rights

Progress Payments:

Monthly draws common
Percentage of completion
Stored materials
Retainage held back

Time Provisions

Schedule matters:

Key Elements:

Commencement date
Substantial completion date
Final completion date
Time is of the essence clause
Liquidated damages
Time extension provisions

Change Orders

Managing modifications:

Process:

Written change orders required
Price adjustment mechanism
Time impact analysis
Owner approval needed
No work without approval
Cardinal change doctrine

Prompt Payment Act

Texas Property Code Chapter 28

Statutory requirements:

Owner to Contractor:

Pay within 35 days of receipt
Interest on late payments (1.5% per month)
Attorney’s fees for violations

Contractor to Subcontractor:

Pay within 7 days of receiving payment
Interest penalties apply
“Pay when paid” vs. “pay if paid”
Conditional payment clauses

Mechanics and Materialmen’s Liens

Lien Rights in Texas

Securing payment:

Who Has Lien Rights:

General contractors
Subcontractors
Suppliers
Laborers
Design professionals (limited)

Property Types:

Residential homestead (special rules)
Commercial property
Government property (payment bonds instead)

Residential Construction

Special notice requirements:

Disclosure Requirements:

Notice of contractual relationship (before contract)
Notice to owner (by 15th of 2nd month)
Penalty for non-compliance
No lien rights if not provided

Commercial Construction

Different rules:

Notice Requirements:

Original contractor: None
Subcontractors: Notice to owner and lender
By 15th of 2nd month after first work
Substantially similar to residential

Lien Affidavit Filing

Perfecting the lien:

Timeframes:

Original contractor: 15th day of 4th month after final work
Subcontractors: 15th day of 3rd month after final work
Strict deadlines – miss and lose lien rights

Required Information:

Owner name
Property description
Contractor name
Amount claimed
Dates of work
Affidavit requirements

Lien Enforcement

Foreclosure action:

Deadlines:

Suit must be filed within 1 year of perfection
2 years for original contractor
Extensions available

Procedures:

File lawsuit
Lis pendens notice
Discovery process
Trial or settlement
Foreclosure on property

Payment and Performance Bonds

Public Projects

Required bonding:

Types:

Payment bonds: Protect subs and suppliers
Performance bonds: Ensure project completion
Amounts based on contract value

Claims Process:

Notice to surety required
Specific timeframes
Alternative to liens
Multiple claimants possible

Private Projects

Optional but common:

Benefits:

Owner protection
Payment security for subcontractors
Performance guarantee
Alternative to liens

Construction Defect Claims

Types of Defects

Common issues:

Major Defects:

Foundation problems
Structural failures
Water intrusion
Roof defects
Electrical/plumbing issues

Minor Defects:

Cosmetic issues
Warranty items
Workmanship problems
Code violations

Notice Requirements

Pre-suit obligations:

Texas DTPA Notice:

60 days before filing suit
Opportunity to inspect
Opportunity to settle
Specific notice requirements

Contractual Notice:

Often required by contract
Timing provisions
Opportunity to cure
Document procedures

Statute of Limitations

Time limits:

General Rule:

2 years for personal injury
4 years for contract claims
10-year statute of repose
Discovery rule may apply

Construction Dispute Resolution

Negotiation

First step:

Informal Resolution:

Direct communication
Document issues
Propose solutions
Cost-effective
Preserves relationships

Mediation

Facilitated negotiation:

Benefits:

Neutral third party
Non-binding
Confidential
Cost-effective
High success rate

Process:

Select mediator
Exchange positions
Joint session
Private caucuses
Potential settlement

Arbitration

Binding alternative:

Advantages:

Faster than litigation
Technical arbitrators
Less formal
Final and binding
Limited appeals

Disadvantages:

Discovery limitations
Arbitrator costs
Binding result
Limited review

Litigation

Court resolution:

When Necessary:

Negotiation failed
Legal precedent needed
Public record desired
Complex legal issues
Multiple parties

Process:

File lawsuit
Discovery
Motions
Trial
Appeals possible

Delay Claims

Types of Delays

Understanding classifications:

Excusable Delays:

Owner-caused
Weather
Force majeure
Change orders
Time extension granted

Compensable Delays:

Owner-caused
Time and money recovery
Prove causation
Document costs

Concurrent Delays:

Multiple causes
Complex analysis
Apportionment issues
Disputes common

Documenting Delays

Essential practices:

Records to Keep:

Daily logs
Weather reports
RFIs and responses
Meeting minutes
Photos and videos
Schedule updates

Safety and Workers’ Compensation

OSHA Compliance

Federal safety standards:

Requirements:

Safe work environment
Training programs
Hazard communication
Fall protection
Recordkeeping

Texas Workers’ Compensation

Injury coverage:

Texas System:

Optional for most private employers
Advantages to subscribing
Non-subscriber lawsuits
Injury reporting requirements

Insurance Requirements

Commercial General Liability (CGL)

Essential coverage:

Coverage:

Bodily injury
Property damage
Completed operations
Certificate of insurance

Builder’s Risk Insurance

Project coverage:

Protects:

Building under construction
Materials on site
Soft costs
Named insureds

Professional Liability

Design professionals:

Errors and Omissions:

Design errors
Professional negligence
Claims-made coverage
Important for design-build

Change Order Management

Proper Procedures

Avoid disputes:

Process:

Written change orders only
Price before work
Time impact addressed
Owner signature required
Update contract sum
Maintain change log

Constructive Changes

Unwritten changes:

Examples:

Defective specifications
Acceleration demands
Extra work required
Impossibility of performance

Recovery:

Document everything
Notice to owner
Prove additional cost
Claim promptly

Lien Waivers and Releases

Types of Waivers

Payment documentation:

Conditional Waivers:

Effective upon payment
Safe for recipients
Verify payment first

Unconditional Waivers:

Immediate effect
Risk for signers
Only after payment received

Partial vs. Final:

Partial: Through specific date
Final: All work and amounts

Texas Statutory Forms

Use correct forms:

Required Language:

Specific waiver forms
Include statutory warnings
Modifications dangerous
Protects all parties

Residential Construction Commission

TRCC Jurisdiction

Limited to residential:

Dispute Resolution:

Mediation services
Inspection programs
Standards education
Limited jurisdiction

Best Practices

Contract Drafting

Protect yourself:

Essential Clauses:

Detailed scope
Clear payment terms
Time provisions
Change order procedures
Dispute resolution
Attorney’s fees clause

Documentation

Record everything:

Critical Records:

All communications
Daily reports
Photos/videos
RFIs and responses
Meeting minutes
Cost tracking

Communication

Regular updates:

Maintain:

Regular meetings
Written confirmations
Prompt responses
Professional tone
Document everything

Working with Construction Attorneys

When to Engage

Timing matters:

Before Project:

Contract review
Risk assessment
Insurance review
Lien rights advice

During Project:

Dispute resolution
Change order review
Payment issues
Safety incidents

After Project:

Lien enforcement
Defect claims
Collection matters
Litigation

Conclusion

Construction law in Texas involves complex statutes, strict deadlines, and significant financial stakes. Whether you’re a contractor, subcontractor, supplier, or property owner, understanding your rights and obligations is essential to project success.

Proper contracting, diligent documentation, prompt notice compliance, and early legal consultation can prevent most disputes and protect your interests when problems arise. The Texas construction industry offers tremendous opportunities, but legal compliance and smart risk management are the foundations of long-term success.