Lonergan, the much debated 1907 Texas Supreme Court opinion that the Court reaffirmed in its MasTecopinion in 2012, was overruled by the Texas Legislature in 2021 and codified as Chapter 59 of the Texas Business and Commerce Code (“Chapter 59”).  While the law became effective on September 1, 2021, exceptions and unanswered questions abound.

The effect of Chapter 59 is to limit contractors’ liability for design defects when the contractor plays no part in the preparation of the design documents. Although Chapter 59 is brief and may seem to the point, it is important to familiarize yourself with the statute’s limitations, obligations, and exclusions.

The Fundamental Premise
Chapter 59 states that a contractor is not responsible for design defects and cannot warrant the accuracy, adequacy, sufficiency, or suitability of design documents that are provided by those outside of the contractor’s control.  This brings Texas in-line with the other 49 states that already have statutes of case-law that limit construction contractor’s liability for design defects.

Construction Contractor’s Obligations
Chapter 59 requires construction contractors to disclose, in writing to the party it contracted with, any defect, inaccuracy, inadequacy, or insufficiency in the design documents that the contractor discovers or reasonably should have discovered by using ordinary diligence. Chapter 59 defines “ordinary diligence” as observation of the design documents that would reasonably be made while preparing a bid or performing the contractor’s scope of work under normal circumstances. If written disclosure is not made within a reasonable time after discovering a defect, the contractor may still be liable for the consequences of defects that result from the nondisclosure.

Exclusions from Chapter 59
Chapter 59 applies to contracts for the construction or repair of an improvement to real property, only. For instance, the statute is not applicable to certain construction contracts, specifically critical infrastructure facility contracts and design-build contracts.  What are “critical infrastructure facilities”?  Many types of projects, including but not limited to facilities used to provide wired or wireless telecommunication services (data centers, perhaps), and almost anything having to do with oil, gas, electricity or water.

Chapter 59 also does not apply to portions of contracts where a contractor agrees to provide input and guidance on design documents if the contractor’s input and guidance is provided as the signed and sealed work of a licensed design professional and the work product is incorporated into the design documents used in the construction.

Chapter 59 is an attempt to undo over 100 years of case-law in Texas enforcing the Lonergan doctrine.  It holds the promise of bringing Texas into alignment with the rest of the United States, and to benefit contractors performing certain types of construction using certain types of delivery methods.

The actual impact of Chapter 59 on contractor’s obligations will be decided by the courts. For instance, what is the impact of Chapter 59 on contractual indemnity provisions that meet the Texas Anti-Indemnity Act, but also require the contractor to indemnify the architect, regardless of whether the contractor knew or should have known of the alleged design error or omission? Until appellate courts begin issuing opinions about Chapter 59, its actual reach is somewhat unknown.

The attorneys in our Austin and Dallas offices have significant experience drafting, negotiating, and litigating design and construction contracts.  Please contact us at info@gstexlaw.com with any questions you may have.

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