Alternative Dispute Resolution Clause »

Ch. 2260, Government Code

Most contracts entered into by state agencies must include language about the dispute resolution process used by the agencies. The following language should be modified to include information specific to the TAMUS component and used in all contracts to which the new law applies.

Questions and Answers about Ch. 2260

What is ADR?

Alternative Dispute Resolution--a means by which parties to a contract seek to resolve disputes without resorting to litigation. ADR may take several forms. These include mediation (facilitated communication using a neutral third party), mini-trial, moderated settlement conference (present case to a panel of impartial third parties), summary jury trial (using six jurors), and arbitration. All of these are non-binding.

Are state agencies required to have ADR as part of their policies and procedures?

No. They may develop and use ADR procedures if they wish, and if they do they must be consistent with a number of existing laws. They cannot limit the state agency's ability to use other means of dispute resolution (including litigation).

Does the Open Records Act apply to final written agreements reached through ADR?

Yes. They are treated like any other record, i.e., they may be excepted or not excepted from disclosure. It will depend upon the content and nature of the information.

Contract Claims Process

What does this law apply to?

It applies to disputes arising under written contracts between state agencies and contractors for goods or services. 

Who can use the new law?

Independent contractors who enter into contracts directly with state agencies. It does not include subcontractors, officers, employees, agents or others furnishing goods or services to a contractor. It also does not include employees of state agencies or students at institutions of higher education.

What types of claims can be made?

Only breach of contract claims are permitted under this law. It may not be used to claims involving personal injury or wrongful death arising from the breach of contract.

How much money can a contractor get?

The total amount of money damages recoverable may not be more than the balance due on the contract price, including orders for extra work. The state can deduct any amounts it is owed by the contractor from that amount.

Are all kinds of damages available?

No. Five specific types of damages are not permitted: consequential damages, exemplary (punitive) damages, unjust enrichment, attorney's fees, and home office overhead.

Will this require a change in current contract forms?

Yes. All contracts to which the law applies must include as a term of the contract a provision stating that the state agency's dispute resolution process (as set up under the new law) MUST BE USED to attempt to resolve a dispute arising under the contract. The Attorney General's Office is supposed to assist state agencies in developing a contract provision to reflect this change.

How does a contractor make a claim?

A written notice must be provided to the state agency not later than the 180th day after the date of the event giving rise to the claim. The notice must state the nature of the alleged breach, the amount sought as damages, and the contractor's legal theory of recovery.

How does the state assert any counterclaims? 

It must deliver to the contractor a written notice of its counterclaim not later than the 90th day after the date of the contractor's notice. Failure to comply with this provision automatically waives the state agency's counterclaim.

What are the next steps?

The agency must review the claim and negotiate with the contractor. If that fails, or only settles a part of the claim, the contractor may file a request for a hearing under the new law. This must be filed on or before the 270th day after the date the claim was filed. 

The parties may agree to mediate claim before the 270th day. 

If the parties do not mediate, the contractor may file a request for a hearing to be conducted by the State Office of Administrative Hearings. 

Who conducts the hearing?

An administrative law judge appointed by the State Office of Administrative Hearings.

Is the administrative law judge's decision binding?

Neither side may appeal the decision, and the agency may not change it or make changes to an order issued by the judge. The agency must pay the claims if the judge rules against it and the total amount of damages is less than $250,000.

What about cases exceeding that amount?

The administrative law judge issues a report and recommendations to the legislature. The report will either recommend that money be appropriated to pay the claim, or it will recommend against such an appropriation. If the recommendation is against payment, the report will also recommend that the state give its consent to be sued in the matter.

What legal representation does the agency get?

As with all such matters, the Office of General Counsel will provide local counsel and assistance. The Attorney General is required to provide the defense to the agency in cases before the administrative law judges, but he is also empowered to settle or compromise the claim.