Legislative Update on School District Construction - Bills Passed During the 89th Legislative Session Affecting School District Construction/Procurement

By Trey Nesloney, Shareholder

During the 89th Legislative Regular Session, the Texas Legislature passed several bills that impact school district construction projects and procurement of construction-related services. Although this session was not particularly heavy on construction-related legislation, the following bills may have significant effects on procurement processes, conflicts of interest in bidding on and awarding of projects, hiring restrictions due to contractor/subcontractor conduct, audits, and defect claims.

Senate Bill 1173 – Threshold for Competitive Procurement Raised (from $50,000 to $100,000)

Section 44.031 of the Texas Education Code requires that Texas school districts perform a competitive procurement process for obtaining goods and services, if the contract value meets a certain threshold. This statute is often the starting point for determining what processes are required, depending on the type of goods or services being sought. The current threshold that triggers competitive procurement is a contract “for the purchase of goods or services” that is “valued at $50,000 or more in the aggregate for each 12-month period.”^[1] For construction services that meet that threshold, districts are then required to use “a method provided by Chapter 2269, Government Code”^[2] that provides the best value to the district.

The 89th Legislature, in Senate Bill 1173, increased this threshold. Effective September 1, 2025, if a contract is “valued at $100,000 or more in the aggregate for each 12-month period,” this triggers a competitive procurement process.^[3] This means that construction projects valued at or greater than $50,000 but less than $100,000 will no longer be required to be procured pursuant to one of the methods provided in Chapter 2269, Texas Government Code, after September 1st. It is important to note that this threshold increase impacts more than just construction related projects and services; it raised the competitive procurement floor for non-construction related “goods and services” as well.

While this is likely  a welcome change, resulting in at times much needed flexibility, a few words of caution are in order. This change in threshold DOES NOT change other thresholds. It also does not affect other construction-related requirements for which there is no threshold (e.g., prevailing wage). So, if you are going to build a project without following a recognized delivery method under Chapter 2269 (i.e., a project below the new $100k procurement threshold), you still need to account for legal requirements regarding design. The law requires an Architect for certain projects with a threshold as low as $50,000. The thresholds for Engineering are even lower: $8,000 for projects involving electrical or mechanical engineering, and $20,000 for projects involving engineering other than electrical/mechanical.

House Bill 210 – Vendor Conflict of Interest

House Bill 210 added section 11.067 to the Texas Education Code, providing that a “vendor^[4] that bids on or receives a contract from a school district or an open-enrollment charter school commits an offense if any individual serving on the board of trustees or governing body of the district or school: (1) has a substantial interest in the vendor or a subcontractor hired by a vendor; (2) is related in the second degree by consanguinity or affinity, as determined under Chapter 573, Government Code, to an individual who has a substantial interest in the vendor; or (3) has received or has been promised a gift or in-kind services with a value of more than $250.”^[5]  A “substantial interest” is defined as owning more than 10 percent of the voting interest in the vendor, or having a direct or indirect participating interest (regardless of whether voting rights are included) in more than 10 percent of the profits, proceeds, or capital gains.

Consequences for violating this section are as follows: A first offense under § 11.067 is a Class C misdemeanor, a second offense is Class B misdemeanor, a third offense is a Class A misdemeanor, and a fourth or subsequent offense in a state jail felony. Moreover, any offense is a state jail felony if the vendor (directly or indirectly) compensates the individual serving on the board or governing body with “money, gifts, or in-kind services as consideration for the district or school entering into a contract with the vendor.”^[6]

Note that a violation occurs once a “vendor…bids on or receives a contract.” Does this mean that the “vendor” could be found guilty of a violation for simply submitting a bid, regardless of whether a contract is ultimately awarded to the vendor?  The answer seems obvious…until you look at the definition of the word, “vendor.”  The bill defines it thusly:  

"vendor" means a company, individual, contractor, subcontractor, or professional services provider with whom a school district or open-enrollment charter school enters into an agreement, contract, memorandum of understanding, interlocal agreement, fee schedule, retainer, or similar instrument for goods or services.

 So, which is it?  Is the new crime limited to vendors that actually receive a contract?  Or does it cover all bidders, such that a bidder would commit a crime even if it was not awarded the contract?  We’ll have to wait for definitive authority or guidance on this question.

Another curious quirk:  what is a “subcontractor”?  A violation also occurs if a board member has a substantial interest in “a subcontractor hired by a vendor,” which for a large company may be a substantial list of subcontractors. The word “hired” is also past tense (the statute does not say “currently hired”), in which case this could mean hired in the past, well before the bid in question is submitted, and possibly even after the subcontract between the vendor and subcontractor has been fully performed.

House Bill 33 – Security Reviews of District Facilities

If a school district “constructs, acquires, renovates, or improves a district facility,” § 37.1087 of the Texas Education Code (added by House Bill 33) requires that the district conduct a “security review” of the facility. The “security review” is to “determine whether the facility meets school safety and security requirements as described by commissioner rule,” and to “identify security vulnerabilities at the facility in the event of an active shooter incident and describe strategies to mitigate each vulnerability identified.”^[7] Thus, this type of security review must be performed “as soon as practicable” for all new construction, renovations, improvements, and acquisitions of district facilities.

Senate Bill 571 – Do Not Hire Registry Expanded to Contractors and Subcontractors

Senate Bill 571 includes contractors and subcontractors as employees who are required to determine employment eligibility through the Do Not Hire Registry (registry of persons not eligible to be employed by or act as a service provider for an educational entity), which is maintained by the Texas Education Agency and made available through the Internet. Senate Bill 571 defines the term “service provider” as “a person who provides services to an educational entity,” which includes “a contractor or subcontractor for an educational entity.”^[8] The bill requires the Texas Education Agency to, on a quarterly basis, post on the agency’s Internet website a report on service provider conduct.^[9] Senate Bill 571 also expands the offenses that result in Do Not Hire Registry placement, mandatory employment termination, and loss of certification.^[10]

House Bill 3005 – Audits on Construction Projects

House Bill 3005 added subsection (c) to section 2251.002 of the Texas Government Code, which provides, for purposes of the Texas Prompt Payment Act, that “a bona fide dispute with respect to a contract for the construction of a public work does not include an audit of the public work project that continues for more than 60 days after the date of the substantial completion of the project.^[11] First, how does this law affect the readers of this article?  Most directly, this law impacts construction projects built using the Construction Manager—at Risk method of delivery. CMAR projects are usually built on a “cost plus” basis subject to a Guaranteed Maximum Price. An Owner (i.e., school district) on a CMAR project has the right to (and always should) audit the contractor’s billings to ensure that the school district is only paying what it is supposed to pay. This is typically accomplished through the services of a construction auditor. Sometimes, an audit will drag on over an extended period of time. Most of the time, this delay is actually due to the contractor refusing to provide required documentation…but that’s a topic for another day.

The technicalities of the effect of this law are best left to a discussion between you and your counsel. What we can say, at least, is that this law evidences a legislative intent to…well, here’s the language straight from the bill analysis:  “H.B. 3005 seeks to clarify that audits on construction projects for public works are subject to the Texas Prompt Payment Act by excluding from a bona fide and good faith dispute an audit that continues for more than 60 days after the project's substantial completion.”  

So, what should you do about this?  To be on the safe side, hire your construction auditor early in the process and make sure they are aware of this new law. Oftentimes, an audit will not start until after a project is substantially complete. And contracts often afford contractors at least 60 days additional days to achieve final completion. The earlier you start your audit, the better. Additionally, make sure your construction contracts for CMAR projects have strong, clear language regarding the audit process.

House Bill 1922 – Clarification of Accrual of Texas Right to Repair Statute

Texas’s “right to repair” law (located in Chapter 2272, Government Code) provides certain parameters to allow a contractor to review and address construction defects on public works projects before governmental entities pursue litigation. Section 2272.003 of the Texas Government Code requires a government entity with a defect claim to provide each party with whom the governmental entity has a contract for the design or construction of an affected structure a written report that: (1) identifies the specific construction defect, (2) describes the present physical condition of the affected structure, and (3) describes any modification, maintenance, or repairs to the affected structure made by the governmental entity or others.^[12] 

House Bill 1922 adds section 2272.010 to the Texas Government Code, which clarifies that a cause of action for defect claims “accrues on the date [this written report] is postmarked by the United States Postal Service” for purposes of Chapter 2272 of the Government Code.^[13] However, for all other purposes, including the date of an occurrence under an applicable insurance policy and the date a cause of action accrues for purposes of determining whether the cause of action is barred by the statute of limitations or statute of repose, the date of the accrual of a cause of action is unaffected by the new section added by House Bill 1922.

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