Reminder on Contractor Best Practices in Disaster Remediation Construction Projects

In 2011, wildfires ravaged over 40,000 acres of Texas land located in Bastrop and Grimes counties. In addition to those wildfires, Texas experienced tornadoes, hail storms, floods and hurricanes on a regular basis. As a result, residential, commercial and industrial properties and structures required construction remediation. While many honest and hardworking Texas construction companies were there to help, some communities were plagued by unscrupulous contractors, referred to as “storm chasers,” who took money up front and failed to perform services as promised. In response to the misdeeds of these storm chasers, the Texas Legislature enacted the Disaster Remediation Contracts Statute which affects contractors who engage in remediation construction projects stemming from a natural disaster.

A new law was passed in 2011 by the Texas Legislature and was included in Chapter 58 of the Texas Business & Commerce Code.  The law applies to disaster remediation contractors, which are identified as those engaged in the removal, cleaning, sanitizing, demolition, reconstruction, or other treatment of improvements to real property performed because of damage or destruction to that property caused by a natural disaster. A natural disaster is defined as widespread or severe damage, injury, or loss of life or property related to any natural cause, including fire, flood, earthquake, wind, storm, or wave action, that results in a disaster declaration by the governor. This means that any construction remediation project related to a natural disaster falls under this new law.  After Hurricane Harvey landed, Texas Gov. Greg Abbott declared at least 43 counties as disaster areas.  As such, the law impacts a significant and large area of Texas and the contractors that are in and near these counties.

The statute requires any agreement for disaster remediation work be reduced to a written contract. Contracts for disaster remediation projects must contain a disclosure statement with specific language outlining the statute’s prohibitions in boldfaced type of at least 10-point font:

This contract is subject to Chapter 58, Business & Commerce Code. A contractor may not require a full or partial payment before the contractor begins work and may not require partial payments in an amount that exceeds an amount reasonably proportionate to the work performed, including any materials delivered.

The requirements and legal effects of the statute cannot be waived by any party through contract or other means. Additionally, any violation of the statute is also considered a violation of the Texas Deceptive Trade Practices Act which allows for the recovery of attorneys’ fees and multiplying damages in certain instances.

The law also provides that a contractor may not require a full or partial payment before the contractor begins work and may not require partial payments in an amount that exceeds an amount reasonably proportionate to the work performed, including any materials delivered. Therefore, a contractor cannot require a down payment, draw or other form of payment until work begins.

The law does not apply to remediation contractors if they maintain a physical business address in the county or a county adjacent to where the work is to be performed for one year prior to the date of contracting. This exception allows “local” companies to continue business as usual. However, the best practice would be to have your contracts and business practices set to comply with this law so that you can be ready to help in the event the next natural disaster is more than a county away. This new law affects all contracts entered into on or after Sept. 1, 2011.

Additionally, contractors would be well served to follow the regular and normal industry procedures.  It is recommended that they always have a written contract executed by both owners/homeowners to ensure that you do not waive your lien rights on the homestead.  Moreover, the scope of work needs to be clearly outlined and the liabilities assumed clearly defined in the contract.  For instance, a contractor should be careful to avoid assuming mold testing and mold remediation when it is only performing reconstruction services.   Another recommended practice is to ensure that a good escalation clause is included in any contract.  It is currently unknown what will happen to the price and supply of building materials (such as concrete, sheetrock, insulation, etc.) but the pricing could radically increase based on demand.  Additionally, labor and manpower may be scarce.  It is recommended that strong independent contractor agreements be used and insurance programs verified before retaining any laborers or subcontractors.  Also, strong and repeated communication with the owners and/or homeowners is encouraged.  Clear communication on timelines and scope of work can manage expectations and mitigate against disputes.  Finally, depending on the area, careful attention should be taken with respect to permitting and inspections.  There are other good practices to consider in remediation construction projects, and therefore contractors are encouraged to contact their attorney or trade organizations to obtain guidance. 

Ian P. Faria is a partner in the Construction and Government Contracts Practice Group and managing partner of the Houston office of Bradley Arant Boult Cummings. He focuses his practice on commercial, industrial and residential construction law and also has broad experience in real estate law. He can be reached at ifaria@bradley.com.

Republished with permission. This article was first published by Construction News on September 28, 2017.