Claims and Dispute Resolution Procedures of State Agencies Relating to Construction Contracts

This paper will briefly discuss some of the claims and dispute resolution procedures of several State of Texas agencies in connection with construction contracts. Some of the claims procedures are automatically incorporated into the agencies' construction contracts pursuant to Tex. Gov't. Code Ann. §2166.302, while others are adopted through the Texas Administrative Code. Most of these procedures have been adopted and/or amended recently and there is little case law, if any, interpreting these procedures.

State Office of Administrative Hearings (SOAH)

A. Function and Divisions

Until a few years ago, each state agency conducted its own hearings of contested cases. In 1991, the State Office of Administrative Hearings was created to provide increased independence, quality, and cost efficiency for the administrative hearings process and to provide an independent forum of administrative law judges ("ALJs") to conduct administrative hearings in contested cases referred to SOAH by other state agencies under the APA(Tex. Gov't Code Ann. Chapter 2001; 1 TAC pp. XIX-XLII). Tex. Gov't. Code Ann. §2003.021. Approximately 70 state agencies refer hearings in contested cases to SOAH. See Exhibit "A" for a list of these referring agencies.

SOAH began operations in January 1992 and began conducting hearings on April 15, 1992. See Exhibit "B," which is the organizational chart for SOAH. From April 1992 through November 1996, SOAH has conducted approximately 4,660 hearings and approximately 6 of these hearings have involved construction contract disputes. There are four hearing divisions of SOAH:

1. Natural Resource Conservation Division, which holds hearings for the Texas Natural Resource Conservation Commission (TNRCC);
2. Utility Division, which holds hearings for the Public Utilities Commission;
3. Administrative License Revocation, which holds hearings for the DPS; and
4. Central Hearings Panel, which holds hearings for all other referring agencies.

Since most construction-related disputes are handled by the Central Hearings Panel, this division of SOAH will be the focus of this paper.

The SOAH ALJs conduct hearings and handle all matters related thereto, including conducting pre-hearing and preliminary conferences and issuing proposals for decision and often a proposed order for the referring agency's consideration. If the referring agency wishes to change the order, SOAH will not be responsible for preparing and entering the order. SOAH may also provide mediation and arbitration services.

The Docket Division is responsible for receiving agencies' requests to initiate cases before SOAH, receiving and distributing pleadings, opening, maintaining and closing case files, scheduling hearing rooms and preparing the daily hearings docket. This division is also the liaison to the public and the referring state agencies.

B. Authority of SOAH and the State Agencies (Tex. Gov't. Code Ann. §2001.058 (Vernon Pamph. 1997))

An ALJ shall consider the referring agency's rules and policies when conducting a hearing, but the state agency deciding the case may not supervise the ALJ. The state agency may not attempt to influence the finding of facts or the application of the law in a contested case, except by proper evidence and legal argument. A state agency may change a finding of fact or conclusion of law made by the ALJ or vacate or modify an order issued by the ALJ only for reasons of policy. See Aetna Cas. and Surety Co. v. State Bd of Ins., 898 S.W.2d 930, 935 n.5 (Tex. App. -- Austin 1995, writ den'd) (agency must state in writing the reason and legal basis for such a change) (citing APA, §2001.058(e)).

C. Divisions of SOAH

1. Central Hearings Panel

Cases from all state agencies other than the PUC, TNRCC and DPS are referred to the CHP. SOAH's Procedural Rules are codified at 1 TAC Chapter 155.

a. General (§155.5)

SOAH conducts hearings in accordance with the APA and the applicable laws and rules of the referring agency. If there is a conflict between SOAH's rules and the rules of the referring agency, the rules of the agency control, unless:

1. the agency rules are contrary to other controlling law;
2. SOAH's rules specifically state that they control; or
3. the ALJ orders that SOAH's rules control when necessary to ensure the fair and efficient handling of the case.

The referring agency shall provide the ALJ with a written statement of applicable rules or policies when SOAH acquires jurisdiction under §155.7. If the agency fails to do this, which it often does, another party to the dispute should file the rules and policies of the referring agency with SOAH (serving a copy on all interested parties) and introduce them as evidence during the hearing.

b. Invoking SOAH's Jurisdiction (1 TAC §§ 155.5(c), 155.7, 155.9, 155.11; Tex. Gov't Code Ann. §2001.058(c))

A case is commenced in the agency with appropriate subject matter jurisdiction. A complainant may not initiate a case directly with SOAH.

Only the agency may refer a case to SOAH. The complainant must comply with the procedures of the agency with subject matter jurisdiction to refer the contested matter to SOAH. Parties wishing to have a hearing should consult the referring agency's rules or the APA to determine whether the dispute is one that the agency should refer to SOAH for hearing.

A referring agency triggers SOAH's jurisdiction by filing either a Request for Setting of Hearing Form or a Request for Assignment of ALJ Form, both of which must include copies of all pertinent documents, including the complaint, petition, application or other document describing agency action giving rise to the contested case and a written statement of applicable rules or policies. A party adverse to a decision made by a referring agency should request from the referring agency all papers it files with SOAH related to the dispute because most agencies do not serve a copy of everything filed with SOAH on other parties to the case.

(i) notice of hearing (Tex. Gov't Code Ann. §2001.052; 1 TAC 155.11)

The referring agency must provide a notice of hearing to all parties. The notice must comply with the APA and any specific requirements of the referring agency's rules or jurisdictional statutes. Specifically, the notice must include:

1. a statement of the time, place and nature of the hearing;
2. a statement of the legal authority and jurisdiction under which the hearing is to be held;
3. a reference to the particular sections of the statutes and rules involved; and
4. a short, plain statement of the matters asserted.

Tex. Gov't. Code Ann. §2001.052(a). Adequacy of service of the notice must be established at the beginning of the hearing. Many of the referring agencies have adopted default rules which allow them to treat as "deemed admitted" factual and legal allegations contained in the notice of hearing if the respondent fails to appear at the hearing. Accordingly, the agency should prepare the notice with care to ensure that all requirements have been met and the notice is worded correctly in the event of a default. The complainant should also carefully review the notice as it often fails to comply with these requirements (i.e. failure to link the alleged conduct with the applicable alleged legal violations) and a party receiving a deficient notice should make a written application for a more definite and detailed statement. Tex. Gov't. Code Ann. §2001.052(b).

c. Powers and Duties of ALJs (1 TAC §155.15; Tex. Gov't Code Ann. §2003.042)

The ALJs shall have the authority and duty to:

1. conduct a full, fair and impartial hearing;
2. act to avoid delay of proceeding, grant a continuance and maintain order;
3. administer oaths and take testimony;
4. make evidentiary and discovery-related rulings;
5. issue orders related to pre-hearing and hearing matters, including sanctions that the referring agency could impose;
6. admit or deny party status;
7. limit testimony and time for presentations;
8. request parties to submit legal memoranda, proposed findings of fact and conclusions of law; and
9. issue proposals for decision pursuant to the APA, Tex. Gov't Code Ann. §2001.062.

The assignment of a case to a particular ALJ is based on the ALJ's schedule, workload, experience and expertise, among other factors. Neither the referring agency nor any interested party may request or veto a particular ALJ for a particular case. However, a party may seek to recuse or disqualify an ALJ. 1 TAC §155.17.

d. Appearance of Parties (1 TAC 155.21)

A party may be represented by an attorney, an authorized agent or may represent himself or herself and should make a written appearance with SOAH at the beginning of the hearings process, including the party's name, address and telephone and fax numbers.

e. Filing of Pleadings, Motions and Discovery (1 TAC §§155.22, 155.23, 155.33)

Pleadings are filed in the Docket Division by mail, express delivery service, hand delivery and facsimile (if document does not exceed 20 pages). If an ALJ has been assigned to the case, a party should include a cover letter asking the Docket Division to forward the documents to the ALJ. The original file will be maintained in Austin and all originals must be filed in the Austin office even if an ALJ outside of Austin is assigned to hear the case and/or the hearing will occur outside of Austin. Copies may be served directly with the ALJ. The original file in Austin is available for public inspection, while the copy in the ALJ's hands is a working file for the ALJ's use only.

Confidential materials should be filed under seal. 1 TAC §155.22(2). Materials may also be submitted for in camera review. 1 TAC §155.22(2)(B). Materials submitted for in camera review are delivered to the ALJ, but are not filed with SOAH unless the ALJ so orders. Discovery documents are not to be filed with SOAH unless a dispute develops and the dispute shall be resolved by SOAH. 1 TAC §155.22(3), 155.23(d), 155.23(f)).

Absent good cause, a motion for continuance should be filed no later than five (5) days before the hearing, with responses due three (3) days thereafter. 1 TAC §155.33. If the ALJ's schedule permits, he or she may allow a telephone conference to rule on contested motions requiring prompt attention. Absent good cause, motions, other than those for continuance, should be filed no later than seven (7) days before the hearing, with responses due five (5) days after receipt of the motion. Parties must also review the referring agency's procedural rules to determine whether they establish additional or different requirements.

Unless the referring agency has adopted all or a part of the Texas Rules of Civil Procedure, they are generally not applicable to SOAH proceedings.

f. Alternative Dispute Resolution

Some state agencies' rules provide for ADR as an alternative to the contested case process. Additionally, some disputes are more appropriate for ADR. A referring agency wishing to submit a matter to SOAH for ADR handling instead of as a contested case should contact the SOAH ADR coordinator before referral of the matter to SOAH. The current ADR coordinator is Nancy N. Lynch. A party wishing to have the matter handled through ADR should file a motion to be ruled on by the ALJ. SOAH has approximately 20 ALJs that can provide alternative dispute resolution services, including arbitration, mediation and the management of complex public policy dispute resolution processes.

g. The Hearing

Most hearings are held in Austin in the hearing rooms on the 4th and 5th floors of the William P. Clements Building. However, sometimes hearings are conducted in rooms located within an office area at SOAH or in a location mandated by statute or the referring agency's rules. All or part of a hearing may be conducted by telephone. 1 TAC §155.39.

A request for the issuance of a subpoena or commission should be directed to the agency for which the hearing is being conducted unless the agency's rules provide that SOAH issue the subpoena. 1 TAC §155.23(b). If a dispute arises over the issuance of a subpoena, the objection or motion to quash should be filed with SOAH.

The referring agency is responsible for providing the means of making a record of the hearing with a court reporter or tape recorder. Parties should contact the referring agency for information on whether the hearing will be taped or whether a court reporter will be present and should review the agency's rules regarding how to request that a court reporter be present or that a transcript be prepared.

The Texas Rules of Civil Evidence as applied in a nonjury civil case in a district court of this state apply in contested cases governed by the APA. Tex. Gov't Code Ann. §2001.081; 1 TAC 155.45. Almost all CHP cases are governed by the APA. In some cases, the ALJ may request that testimony be prefiled. 1 TAC §155.45(c). Prefiled testimony is normally required only when it is expected to save considerable hearing time and when most of the testimony is from expert witnesses. Additionally, the ALJ may require the exchange and prefiling of documentary evidence and the parties are encouraged to reach stipulations before the hearing on the admissibility of records.

h. Proposal for Decision (1 TAC §155.51; Tex. Gov't Code Ann. §2001.143(a))

A written proposal for decision, including findings of fact and conclusions of law, will be issued by the ALJ to the referring agency's decision maker after the close of the hearing, with copies to all parties. The decision or order should be rendered not later than the 60th day after the date on which the hearing is finally closed. The proposal for decision may be accompanied by a proposed final order for the agency's signature. The filing of exceptions and replies to the proposal for decision are governed by the referring agency's procedural rules. If no such rules exist addressing the proposal for decision, the parties should request that a schedule be established by the ALJ for making the exceptions and replies to the proposal for decision. Once the proposal for decision has been issued, SOAH loses jurisdiction over the case unless it is requested to issue a supplemental or amended proposal for decision or to comment on the exceptions and replies that have been filed.

A decision in a contested case is final if a motion for rehearing is not timely filed or on the date that the order overruling a motion for rehearing is rendered or the motion is overruled by operation of law. Tex. Gov't Code Ann. §2001.144.

i. Motions for Rehearing

Motions for rehearing are to be filed with the referring agency, rather than with SOAH. SOAH will close its case file once it receives a copy of the referring agency's final order. In the event of an appeal, the referring agency, rather than SOAH, is responsible for forwarding the hearing record to the district court. A timely motion for rehearing is a prerequisite to an appeal in a contested case except that a motion for rehearing of a decision or order that is final under §2001.144(a)(3)[relating to decisions or orders which must be effectuated immediately due to an imminent peril to the public health, safety or welfare] is not a prerequisite for appeal. Tex. Gov't Code Ann. §2001.145. A motion for rehearing must be filed within twenty (20) days of receipt of notification of a decision or order. Id. at §2001.146(a). A reply to the motion for rehearing must be filed within thirty (30) days of receipt of notification of a decision or order. Id. at §2001.146(b). A state agency must act on a motion for rehearing within 45 days of the date on which the party is notified of a decision or order or the motion is overruled by operation of law. Id. at §2001.146(c).

j. Judicial Review

Once all administrative remedies with the state agency have been exhausted and a final decision in a contested case has been rendered, an aggrieved party is entitled to judicial review under the APA. Tex. Gov't Code Ann. §2001.171. The scope of judicial review of a state agency decision in a contested case is as provided by the law under which review is sought. Id. at §2001.172. Review may be by trial de novo, Id. at §2001.173, or under the substantial evidence rule, Id. at §2001.174. The procedures for review under the substantial evidence rule or undefined scope of review may be found at Tex. Gov't Code Ann. §2001.175. A party initiates judicial review in a contested case by filing a petition not later than the 30th day after the date on which the decision that is the subject of the complaint is final and appealable. Id. at §2001.176. Unless otherwise provided by statute, the petition must be filed in a district court in Travis County, Texas, and a copy of the petition must be served on the state agency and each party of record in the proceedings before the agency. Id. The filing of the petition vacates a state agency decision for which trial de novo is the manner of review, but does not affect enforcement of an agency decision for which another manner of review is authorized. Id.

Except as provided by §2001.175(c), an agency may not modify its findings or decision in a contested case after proceedings for judicial review of the case have been instituted under §2001.176 and during the time that the case is under judicial review. Tex. Gov't Code Ann. §2001.1775. A party may appeal a final district court judgment under this chapter in the manner provided for civil actions generally. Id. at §2001.901(a).

Uniform General Conditions for State Construction Contracts

Uniform General Conditions (UGCs) shall be incorporated into all building construction contracts made by the state, except for projects constructed by or under the supervision of a public authority created by the laws of Texas or a state-aided local government project. Tex. Gov't. Code Ann. §2166.302.

The contracting agencies are advised to implement an administrative procedure for dispute resolution and contract change orders and this procedure could offset possible litigation between the agency and a contractor by allowing in-place procedures to be used in lieu of court proceedings. The UGCs provide, in pertinent part, as follows:

Article IV. Contract Administration
4.6 Disputed Matters: Disputed matters, and protests, shall be handled through administrative procedures as established in Supplementary General Conditions. Such matters shall be referred to the Owner's established administrative review process prior to resort by either party to judicial redress through courts of law.

Accordingly, each state agency, through its Supplementary General Conditions, can add to the UGCs and impose agency-specific rules and conditions governing its dispute resolution procedures and administrative review process. If a dispute cannot be resolved through the administrative review process and a formal hearing is required, the agency may conduct its own hearing or it may refer the contested matter to SOAH for hearing.

IV. Supplementary General Conditions Used by Selected State Agencies in State Construction Contracts

Section 1.1.2 of the UGCs provides:

Supplementary General Conditions are the standard procedures and contract administration requirements of an individual State contracting agency and alter or expand upon matters covered in the Uniform General Conditions.

Under this provision, many state agencies incorporate into their construction contracts additional conditions which supplement the UGCs. It is therefore important to be familiar with the Supplementary General Conditions of the specific state agency with whom you or your client contracts. In this paper, the author has selected four state agencies which enter into construction-related contracts, in order to examine the dispute resolution procedures and administrative review process of each agency.

A. TEXAS DEPARTMENT OF TRANSPORTATION

The Supplementary General Conditions for State of Texas Building Construction Contracts of the Texas Department of Transportation (revised September 1, 1991) are attached as Exhibit "E". The specific Supplementary General Conditions governing procedures to resolve claims and disputes for the Texas Department of Transportation are as follows:

Article IV. Contract Administration
4.6 Disputed Matters: Disputed matters shall be handled through administrative procedures as established in Supplementary Conditions.

ARTICLE XII. CLAIM SETTLEMENT PROCEDURE
The Owner's duly authorized representative in charge of this project shall have sole authority and responsibility for decision during the term of the contract. Claims arising prior to the termination of the contract should be filed with the Owner's representative in accordance with Article 6.3 of the foregoing Uniform General Conditions.

To every extent possible, disputes between the Contractor and Owner's representative in charge of the project should be resolved during the course of the contract. If, however, after the completion of the contract, the Contractor has not been satisfied, a detailed report and request may be filed with the Owner's representative for forwarding to a Contractors Review Committee composed of primary administrative personnel of the Texas Department of Transportation at the State Headquarters in Austin. The Committee will review the project records and all other available information pertinent to the claim and will then invite the Contractor to attend an informal conference with the Committee to discuss the issue and present further information. Award or rejection of the claim will be recommended by the Committee to the Texas Transportation Commission who will take final action on the matter.

In addition to the claim settlement procedure contained in the Supplementary General Conditions, the Texas Department of Transportation (TXDOT) has adopted two sets of procedures which apply to resolution of contract claims. 43 TAC Chapter 1. These procedures are the Contested Case Procedure and the Claim Procedure. A "contract claim" is a claim for additional compensation or time extension, or any other claim arising out of a contract between TXDOT and a contractor which is entered into and administered by TXDOT pursuant to Texas Transportation Code, Chapter 223 Subchapter A, or Governmental Code, Title 10, Subchapter A.

1. Contract Claim Procedure (43 TAC §1.68)

The contract claim committee, whose members are appointed by the TXDOT engineer-director (the State Engineer-Director for the State Department of Highways and Public Transportation), and the contractor should meet and attempt to resolve the dispute during the course of the contract if possible. If an informal resolution is not possible, the contractor should file a detailed report of the claim with the district-engineer or the division head under whose administration the contract was or is being performed. The contractor should request that the claim be referred to the contract claim committee, which shall obtain detailed reports and recommendations from the responsible district or division and may confer with any other division.

The contractor will be given the opportunity to meet informally with the committee to present relevant information and respond to information that the committee has received from the district or division. The committee chairman will give written notice of the committee's proposed disposition to the contractor. If the disposition is acceptable, the contractor shall notify the committee chairman in writing within twenty (20) days and the chairman will forward the disposition to the engineer-director for a final and binding order on the claim. If the contractor is dissatisfied with the proposed disposition, the contractor must, within twenty (20) of receipt of the written notice, petition the engineer-director for a formal administrative hearing to litigate the claim under the Contested Case Procedure (43 TAC §§1.21-1.63). If no petition is timely made by the contractor, the committee's recommendation is final and any further appeal by the contractor is barred.

Proceedings before a district engineer, division head, or the committee are considered settlement discussions and are not admissible for any purpose in a formal administrative hearing under the Contested Case Procedure.

2. Contested Case Procedure (43 TAC §§1.21-1.61)

a. Filing of Petition
A petition may be filed with the executive-director (Chief Administrative Officer of the Department) in Austin to initiate the proceeding. 43 TAC §1.22. The proceeding may also be instituted by TXDOT upon the issuance of a notice. 43 TAC §1.25. A petition shall include the following (43 TAC §§1.23, 1.31, 1.32):

(i) contents
Original and amended petitions shall be typed or printed on 8 1/2 x 11" paper with an inside margin at least 1" wide, and shall include the following:

• the names of the claimant and all parties in interest;
• a concise statement of the facts;
• a reference to the claim document and attachment of a copy;
• a prayer stating the relief or action desired;
• any other matter required by statute;
• the signature of the party or representative; and;
• certificate of service.

(ii) pleading defects
It is the duty of the executive-director or hearing officer to examine the petition and return it if it fails to comply with the Texas Administrative Code and the APA. The claimant shall have the right to file a corrected pleading. 43 TAC §§1.24, 1.34. Exceptions to the form or sufficiency of a pleading must be filed at least three (3) days prior to the hearing. 43 TAC §1.41.

b. Appointment of Hearing Officer

A hearing officer or officers will be appointed by the executive-director and shall have the authority to administer oaths, examine witnesses, rule upon the admissibility of evidence and amendments to pleadings, resolve all procedural questions and recess any hearing from day to day. 43 TAC §1.28.

c. Parties

Any party in interest may appear, subject to a motion to strike upon a showing that the party has no justiciable or administratively cognizable interest in the proceeding. 43 TAC §1.31. A party may be represented by an attorney, a bona fide officer, partner or full-time employee or may represent himself. 43 TAC §1.30.

d. Motions

Motions shall be in writing, unless made during the hearing. A motion must be supported by an affidavit if it is based upon matters which do not appear of record. 43 TAC §1.39. A written sworn motion for postponement or continuance must be filed and served not less than five (5) days before the hearing and shall make reference to all prior motions for continuances. 43 TAC §1.38. A written motion for consolidation of two or more proceedings may be made prior to the hearing and the proceedings may be consolidated by agreement of all parties, unless the executive-director finds that the proceedings involve common questions of law and fact and that separate hearings would result in unwarranted expense, delay or substantial injustice. 1 TAC 1.26.

e. Prehearing Conference (43 TAC §1.37)

A prehearing conference may be held upon the motion of the hearing officer or any party, with the following matters to be considered concerning the hearing:

• the simplification of issues;
• admissions of fact or stipulations;
• procedure at hearing;
• limitation of the number of witnesses; and
• other matters to simplify the proceedings and disposition, including settlement.

f. Dismissal Without Hearing (43 TAC §1.40)

A motion for dismissal without a hearing may be made based upon the failure to prosecute, unnecessary duplication of proceedings or res judicata, withdrawal, moot questions or stale petitions, lack of jurisdiction, or failure to raise a material issue in the pleading. The hearing officer may recommend to the executive-director that the case be dismissed.

g. Discovery

Upon a written request and a deposit to cover expenses, the hearing officer may issue a commission to allow a deposition of a witness. 43 TAC §1.35. The executive-director or a hearing officer may issue subpoenas for witnesses or production of documents upon a showing of good cause and a cost deposit. 43 TAC §1.36.

h. Hearing

The hearing shall be open to the public and shall take place in Austin, unless the executive-director designates another place in the interest of the public for good cause. 43 TAC §1.27. All parties shall enter their appearance on the record. Timely filed exceptions to pleadings shall be heard. The petitioner is normally entitled to open and close and the hearing officer may call upon any party or the staff of the department for further material or relevant evidence on any issue to be presented at a further public hearing after notice to all parties of record. 43 TAC §1.41. The claimant must make a written request that the hearing be transcribed. 43 TAC §1.51. Suggested corrections to the transcript of the record may be offered within ten (10) days after the transcript is filed. 43 TAC §1.52. The presentation of evidence is governed by the APA, except that proceedings conducted pursuant to §1.68 (relating to Contract Claim Procedure) shall not be admissible for any purpose. 43 TAC §1.42. The hearing officer may require abstracting of relevant data from documents offered as evidence. 43 TAC §1.44. A party may offer prepared testimony of a witness upon direct examination which may be incorporated into the record subject to cross-examination and a motion to strike. 43 TAC §1.45.

i. Proposal for Decision, Orders and Appeal

The hearing officer shall prepare a proposal for decision containing findings of fact, conclusions of law and a statement of reasons for the proposed decision. 43 TAC §1.50. Exceptions to the proposal for decision must be filed within twenty (20) days and replies to exceptions must be filed within fifteen (15) days thereafter. 43 TAC §§1.53, 1.54. The executive-director may adopt the hearing officer's recommended order after twenty (20) days following the time provided for the filing of exceptions by written order served upon all parties. 43 TAC §1.50. The executive director may order a rehearing if he or she concludes that substantial evidence of procedure or the exclusion of evidence have so affected the record as to render it impracticable to determine the case justly and fairly upon the record. 43 TAC §1.55. The prerequisites for appeal and administrative finality in contested proceedings are governed by the provisions of the APA. 43 TAC §1.57 (see § II C 1 j on p. 12).

B. GENERAL SERVICES COMMISSION

The General Services Commission contracts for and administers building construction projects for all state agencies except for:

1. the Texas Department of Transportation;
2. the Department of Agriculture (limited);
3. a repair or rehabilitation project, except a major renovation, of buildings and grounds on the commission inventory;
4. Institutions of higher education;
5. the Texas Parks and Wildlife Department;
6. projects constructed by or under the supervision of a public authority created by the laws of Texas;
7. state-aided local government projects;
8. a repair and rehabilitation project of another using agency if the labor is provided by the using agency and the project does not require the advance preparation of working plans or drawings; and
9. a repair or rehabilitation project involving the use of contract labor if the project is excluded from this chapter by commission rule and does not require the advance preparation of working plans or drawings. Tex. Gov't. Code Ann. §§2166.003, 2166.004.

The Uniform General Conditions for State of Texas Building Construction Contracts Including Supplementary General Conditions for Projects Administered by the General Services Commission (revised December 15, 1995) are attached as Exhibit "F". The specific Supplementary General Conditions governing procedures to resolve claims and disputes for the General Service Commission are as follows:

Article IV. Contract Administration
4.6 Disputed Matters: ...
4.6.1 Bid protests are subject to the General Services commission protest rules 1 Texas Administrative Code, Section 111.3.
4.6.2 The procedure set forth in this paragraph 4.6.3 herein shall apply to contract disputes.
4.6.3 (LEFT BLANK INTENTIONALLY)
4.6.4 Negotiation, Assertion of Claims:

The parties acknowledge that failing to resolve a contract administration dispute through use of paragraph 6.4 results in the following provisions being followed:

(a) In the event of any dispute arising out of or relating to this contract, the parties agree to attempt to resolve such dispute amicably by promptly entering into negotiations in good faith. Such negotiations shall be held at a mutually acceptable time and place between a representative of each party who has authority to settle the dispute. Each party agrees to provide the other party with the name or names, address(es), and phone number(s) of managers authorized to negotiate on its behalf with respect to the dispute. The parties agree that they will not refer any dispute to any other dispute resolution system, including litigation, until they have first exercised their responsibility to make reasonable and good faith efforts to settle their differences at job level, fairly, amicably, and in a timely manner.

(b) In the event that any such dispute is not resolved as a result of such negotiations, either party may at any time thereafter give a formal notice to the other of a claim. A "claim" as used herein means a demand or assertion by one of the parties (the "claimant") seeking, as a matter of right, adjustment or interpretation of contract terms, payment-of-money, extension of time or other relief with respect to the terms of the contract, or any other dispute or matter in question between the parties arising out of or relating to the contract. Such notice shall be in writing and shall be deemed to be the notice of claim provided for in Tex. Civ. Stat. art. 601b, Section 5.26(c). After such notice is given by either party, the dispute resolution procedure provided for in paragraph 4.6.5 herein shall immediately enter into effect.

(c) At all time during the course of the dispute resolution procedures provided for in paragraphs 4.6.5 and 4.6.6 and pending final resolution of a claim, the Contractor shall continue with performance of the contract as directed, in a diligent manner and without delay, and the Owner shall continue to make payment in accordance with the contract.

4.6.5 Mediation:

(a) If any dispute cannot be resolved through negotiation pursuant to paragraph 4.6.4(b), then the parties shall endeavor to settle the dispute by mediation as provided further herein.

(b) Promptly following the giving of a formal notice of claim as provided in paragraph 4.6.4(b), the parties shall consult with each other in order to agree on the appointment of a mediator. If the parties are unable to agree on the appointment of a mediator within 5 business days following the date of such formal notice of claim (the "notice date"), then at the request of either party the mediator shall be appointed by the Center for Public Policy Dispute Resolution at the University of Texas School of Law. Such mediator shall have experience in construction disputes, and shall be appointed within 10 business days following the notice date.

(c) The mediator shall be expected to be impartial between the parties to this contract and shall have no conflict of interest. The mediator shall not have or previously have had any ownership or any other financial interest in, or shall be or previously have been employed by or acted as a consultant to, any party to the contract, or any subcontractor or the Architect or Engineer except for past service as a third party neutral, or shall have any financial interest in the contract except for payment for services as a mediator. The mediator shall not have had any prior involvement in the project which is the subject of this contract. Before the appointment of the mediator is final, any prospective mediator shall submit complete disclosure statements for the approval of both Owner and Contractor, which statements shall include a resume of experience, together with a declaration describing all past, present and anticipated future relationships to this project and with all parties involved in the construction contract, including all subcontractors and the Architect or Engineer. After appointment as a mediator and thereafter throughout the mediation process, the mediator shall not acquire any ownership or any other financial interest in, nor shall be employed by or act as a consultant to, any party to the contract, any subcontractor, or the Architect or Engineer, and during this period the mediator shall not engage in any discussion or make any agreement with any party to the contract, any subcontractor, or the Architect or Engineer regarding the acquisition of any ownership or financial interest, employment, or consulting activity after the contract is completed.

(d) The mediation shall be held at a time and location that is convenient for the parties and the mediator, but in no event shall the first scheduled mediation session be held later than 15 business days following the notice date.

(e) Within 10 business days after notice date, the claimant shall submit to the other party and to the mediator a written statement of the claimant's position with regard to the issues that need to be resolved, along with a summary of the facts and arguments supporting its position. Within 3 business days following its receipt of such statement, the other party shall submit to the claimant and to the mediator a written response, which shall also contain a summary of the facts and of the arguments supporting its position. At the first session, at the request of the mediator or either party, the parties shall produce additional information reasonably required to understand the issues presented, and the mediator may thereafter request any party to supplement such information.

(f) If the parties agree that independent expert advice concerning technical aspects of the dispute would be helpful in facilitating a negotiated settlement, the mediator may make arrangements to obtain such advice, and may, with the agreement of the parties, make arrangements for an independent expert to render a non-binding advisory opinion as to any technical matters in dispute after hearing the contentions of the paries with respect thereto. The expenses of obtaining such advice or advisory opinion shall be borne equally by the parties.

(g) The fees and expenses of the mediator and any other costs of administering the mediation shall be borne equally by the contracting parties unless otherwise agreed between them.

(h) The mediator may promote settlement in any manner the mediator believes is appropriate, at one or several mediation sessions as agreed to by the parties and the mediator; however, the mediation process may continue only as long as desired by both parties and with the consent of both parties.

(i) (DELETED)

(j) (DELETED)

(k) Mediation sessions shall be private. Persons other than the parties and their representatives may attend mediation sessions only with the permission of the parties and the consent of the mediator. All communications made in the course of the mediation process, including any advice or advisory opinions rendered by any independent expert pursuant to section (f) hereof, shall be confidential in accordance with the provisions of Tex. Civ. Prac. & Rem. Code Section 154.073.
4.6.6. (DELETED)

C. THE UNIVERSITY OF TEXAS SYSTEM

The dispute resolution of its claims revolves around the Uniform General Conditions and Supplementary General Conditions for State of Texas Building Construction Contracts of the University of Texas System (revised March 22, 1996), which are attached as Exhibit "G". The University of Texas System has also implemented a partnering program which has been so successful that the University of Texas System has not conducted an administrative hearing in four years. On each construction job, the parties hire a professional facilitator and all parties to the contract (architects, engineers, contractors and subcontractors) engage in partnering workshops. The written information that the agency provides to bidders (as of November 5, 1996) includes the following statement:

The Owner desires to create a cohesive team for this project, to include all primary parties. To that end, the successful bidder and its primary subcontractors and suppliers will be encouraged to join the Owner and the A/E Team in project "Partnering" as one means of achieving success. The Partnering process is entirely voluntary and all costs for such would be shared equally by the Owner and Contractor with no impact on the contract price. Partnering begins with a joint workshop of all significant project participants to 1) get better acquainted and draw upon the strengths of each organization, 2) establish mutual goals for the project within the contract parameters, and 3) develop strategies for achieving those goals. The results of the workshop cannot result in a legally binding document but would represent a commitment by the parties to work together cooperatively toward common goals. The initial partnering workshop will be scheduled as soon as possible after contract award and will be conducted by a third party facilitator. This workshop will last one full day and periodic evaluation meetings and subsequent workshops would follow as the parties determine appropriate. Costs for past facilitated workshops have generally averaged from $2,000 to $3,000 including equipment, supplies, and lunch for the team.

See Exhibit "H."

The specific Supplementary General Conditions governing procedures to resolve claims and disputes for the University of Texas System are as follows:

Article IV. Contract Administration
4.6 Disputed Matters: Disputed matters shall be handled through administrative procedures as established in paragraph 5.2.1. ...
Article V. Contract Responsibilities

...

5.2.1 Disputes: This paragraph concerns disputes over questions of fact that arise under this Contract and that are not disposed of by agreement. Except as otherwise provided in this Contract, the Contractor may obtain a decision on any such question of fact by making a written request, in which the question of fact is clearly stated and this paragraph is cited, to the Owner as represented by the Director, Office of Facilities Planning and Construction. The Director may in his discretion make a decision on any such question without a request by the Contractor. Any such request by the Contractor must be made before the Owner makes or tenders final payment under the Contract. The Contractor shall enclose with its letter of request or incorporate therein by specific reference all information and documents that it wishes the Director to take into account in making the decision. The Director shall reduce its decision to writing and mail or otherwise furnish a copy thereof to the Contractor.

5.2.1.1 The Director's decision shall be final and conclusive unless, within 30 days from the date of receipt of such copy, the Contractor mails or otherwise furnishes to the Owner a written appeal addressed to the Chancellor, The University of Texas System. The Chancellor will make its decision on the written record on the basis of which the Director made his decision. If the Chancellor's decision on the appeal is adverse to the Contractor, the Contractor may within 30 days from the date of receipt thereof mail or otherwise furnish to the Owner a further appeal addressed to the Board of Regents, The University of Texas System. Any appeal to the Chancellor or to the Board of Regents shall particularly state the factual and legal basis for the Contractor's objection to the decision being appealed from.

5.2.1.2 If an appeal is taken to the Board of Regents, the Contractor and the Owner shall each be afforded an opportunity to be heard before a hearing officer appointed by the Board of Regents to hear the appeal. The only issues that may be considered during hearing are those considered in the decisions appealed from. The only evidence that may be considered during the hearing is the evidence on the basis of which the Director and the Chancellor made their decisions, except that the hearing officer may in his/her discretion permit the Contractor and the Owner to offer additional evidence which was not available when the Director made his decision or for which the party offering the evidence otherwise shows just cause why it was not presented to the Director before he made his decision. The hearing officer shall present to the Board of Regents his/her written findings and recommendations, which may not include recommendations for the payment of interest or legal fees by either party to the other. The decision of the Board of Regents shall be final and conclusive.

5.2.1.3 Pending final decision of a dispute hereunder, the Contractor shall proceed diligently with the performance of the Contract and in accordance with the Owner's decision.

D. TEXAS PARKS AND WILDLIFE DEPARTMENT

The dispute resolution procedures of the Texas Parks and Wildlife Department have been successful, such that the agency has only been sued once in the past five years (not related to a construction contract). Additionally, the agency will mediate a dispute at the request of a contractor.

The Uniform General Conditions for All State of Texas Building Construction Contracts Including Supplementary General Conditions for Projects Administered by the Texas Parks and Wildlife Department (revised September 1, 1993) are attached as Exhibit "I". The specific Supplementary General Conditions governing procedures to resolve claims and disputes for the Texas Parks and Wildlife Department are as follows:

Article IV. Contract Administration
4.6 Disputed Matters: ...
4.6.1 (Suppl) Any dispute concerning a question of fact arising under this contract, not disposed of by agreement between the Architect/Engineer and Contractor, shall be appealed by the Contractor to the Owner, as represented by the Director of the Division responsible for administrating the contract, who shall reduce his decision to writing and furnish a copy thereof to the Contractor. Such decision shall be final and conclusive unless, within thirty (30) calendar days from the date of receipt thereof, the Contractor mails or otherwise furnishes to the Owner a written appeal addressed to the Executive Director, Texas Parks and Wildlife Department. The Contractor shall be afforded an opportunity to be heard and to offer evidence in support of this appeal. The decision of the Executive Director shall be final and conclusive. Pending final decision of the dispute hereunder, the Contractor shall proceed with the performance of the contract in accordance with the Owner's decision.

.1 (Suppl) This disputes provision does not preclude consideration of questions of law in connection with decisions provided for in this Article. Nothing in this contract, however, shall be construed as making final the decision of any Texas Parks and Wildlife Department administrative official or representative on a question of law."

V. Proposed Legislation

The Texas House of Representatives Committee on Civil Practices published an Interim Report to the 75th Texas Legislature in December 1996. This report, the pertinent portions of which are attached hereto as Exhibit "J," contains proposed legislation which affects sovereign immunity and claims against state agencies, specifically the requirement that all claim disputes with a state agency go through mediation or non-binding arbitration before a claimant can be given permission to sue the State, the development of an alternative dispute resolution system for all state agencies for breach of a building contract and the referral of all disputed contract claims to SOAH.

The proposed legislation regarding the development of an alternative dispute resolution system for all state agencies for breach of a building contract gives the Center for Public Policy Dispute Resolution at the University of Texas Law School ("CPPDR") the authority to monitor the proceedings and creates a special dispute resolution account. Participation is voluntary and a contractor may elect to be covered by the proposed legislation if he or she pays the fee (10 cents per $100 of the contractor's fee as agreed in the building contract) and the building contract is greater than $25,000.00. If a contractor elects to participate, a dispute will be resolved by mediation and, if unsuccessful, by binding arbitration. An arbitration award may not include exemplary damages or attorney's fees. This act would apply only to a contract entered into on or after the effective date of the act.

The proposed legislation regarding the referral of all disputed contract claims to SOAH to hold an administrative hearing to resolve the dispute does not apply to: (1) a claim for which another law waives the state's immunity from suit; or (2) personal injury or death. A claimant who elects to submit a claim to SOAH under the proposed legislation may not litigate the claim in a separate action. The claimant shall pay the cost of the proceedings which shall be conducted as a contested case under the APA, Tex. Gov't Code Ann. chapter 2001. The determination of an ALJ of SOAH is subject to judicial review as provided for in the APA. The proposed act would take effect on September 1, 1997, and apply only to a claim arising under a contract entered into on or after that date.

1. This Division was created in September 1, 1995, to hear contested cases for the TNRCC.
2. This division was created on September 1, 1995, to hear contested cases for the PUC. The PUC is also authorized to delegate to the UD division the authority to make a final decision in uncontested proceedings.
3. This division became effective on January 1, 1995. See laws at Tex. Transp. Code Ann. Chapters 522, 524 and 724 (Vernon Pamph. 1997) and procedural rules at 1 TAC Chapter 159. The ALR conducts hearings for the DPS aimed at suspending the drivers' licenses of those persons suspected of driving while intoxicated.
4. There is presently proposed legislation before the 75th Texas Legislature which allows an aggrieved party to elect to submit a disputed contract claim with a state agency to SOAH as long as it is not a claim for which another law waives the state's immunity from suit and it does not involve a personal injury or death. This proposed legislation is discussed at the end of this paper.
5. An exception to this rule is for cases heard by SOAH for the General Services Commission under 1 TAC §113.19(p), involving protests of an agency's actions in making a catalogue purchase involving federal funds. A protesting party may file an appeal directly with SOAH.
6. There is presently pending proposed legislation before the 75th Texas Legislature which would: (1) allow a contractor to participate in mediation of contract disputes by including applicable language in the construction contract; (2) require mediation and/or arbitration before a party can sue a state agency in connection with a construction contract. This legislation is briefly discussed at the end of this paper.
7. There is presently pending proposed legislation before the 75th Texas Legislature which would require the referral of all disputed contract claims to SOAH, other than those claims for which another law waives the state's immunity from suit or which involve personal injury or death.