Construction Contract

A construction contract is a contract governing the construction, alteration, repair, or improvement of real property. Texas construction law layers multiple statutory schemes onto private contract, the Anti-Indemnity Act, the mechanic's lien statute, the Prompt Payment Act, and various project-delivery method regulations, that materially affect what parties can and cannot agree to. Industry-standard form contracts (AIA, ConsensusDocs) are commonly used and are often modified to address these Texas statutes.

Project-delivery methods

Common Texas commercial delivery methods include: (1) design-bid-build, owner contracts separately with designer and contractor; lowest-bid award typical; (2) design-build, single entity provides both design and construction; (3) construction manager at-risk (CMAR), CM provides preconstruction services and then takes price risk via guaranteed maximum price; (4) integrated project delivery (IPD), multi-party agreements integrating owner, designer, and contractor; (5) job-order contracting, common on public projects for repetitive work. Each method has distinct contract structures and risk-allocation patterns.

Pricing structures

Standard pricing approaches: (1) lump sum / stipulated price, fixed price for defined scope; risk on contractor; (2) cost-plus-fee, owner reimburses actual costs plus a defined fee; risk on owner; (3) guaranteed maximum price (GMP), cost-plus with a ceiling; costs above the GMP generally fall on the contractor, often with savings-sharing below; (4) unit price, payment by quantity of work installed; (5) time-and-materials, most commonly used for emergency or change-order work, not whole projects.

Texas-specific compliance overlays

Texas construction contracts must reckon with: (1) the TAIA voiding indemnity and defense obligations to the extent they cover the indemnitee's own negligence or fault, subject to exceptions such as claims for bodily injury or death of an employee of the indemnitor, its agent or its subcontractor (§ 151.103) and the exclusions in § 151.105, including single-family residential work; (2) the mechanic's lien framework requiring statutory notice and lien-filing procedures (post-HB 2237 amendments for original contracts entered into on or after January 1, 2022); (3) Prompt Payment Act mandates of 35-day owner-to-prime payment and 7-day prime-to-sub payment, with 1.5%/month interest for late payment; (4) statutes of repose that generally bar design and construction-defect suits 10 years after substantial completion, with shorter periods for many governmental-entity claims and for warranted residential work; and (5) special rules for residential construction under the Property Code.

Common disputes

Recurring construction disputes in Texas include: (1) scope of work and change-order disputes; (2) delay claims and concurrent-delay analysis; (3) defective work claims; (4) payment claims (often invoking lien rights and Prompt Payment Act); (5) differing site conditions; (6) liquidated damages for late completion; (7) termination for convenience vs. termination for default. Forum selection also matters since the Texas Business Court began operating on September 1, 2024. A construction dispute can reach that court if it arises from a qualified transaction or from a contract in which the parties agreed to business court jurisdiction and the amount in controversy exceeds $5 million. Claims arising under Chapter 53 of the Property Code and claims by or against a governmental entity are excluded unless they fall within the court's supplemental jurisdiction.

Full entry: Construction Contract