New Texas Legislation that Restricts Owner-Directed Change Order Rights Takes Effect September 1, 2023

The Texas legislature has passed House Bill 3485 that may limit owner-directed change orders for owner-directed work. The law takes effect September 1, 2023 for contracts entered into on or after September 1, 2023. The upshot of the bill is that private and governmental owners cannot issue owner-directives (or change orders only signed by the owner) for change orders exceeding 10% of the original contract price individually or in the aggregate. HB 3485 gives the contractor a statutory right to refuse to proceed with work before an executed change order is signed for change orders over the 10% threshold, and expressly provides the contractor/subcontractor is not responsible for damages associated with the refusal to proceed with the owner-directed work. The law similarly applies to contractor/subcontractor contracts. 

The law does not address all types of change orders, for example change orders which may pertain to force majeure or delays not directed by the owner. Instead, the law appears to focus specifically on change orders which would pertain to true additional work requested by an owner.

With respect to private projects, the new bill amends Chapter 28 of the Texas Property Code which includes an important existing exemption for certain oil and gas related work. While somewhat convoluted, Section 28.010 appears to exempt agreements to design, construct, or improve well or mine services. Well or mine services may be read broadly enough to include gathering, storing (tanks), or transporting (pipelines) various petrochemicals or water (in addition to drilling activities). In other words, many oil and gas construction projects may not be subject to this new legislation.

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