Contract Expenditures
Contract Disputes/Claims Against the State

A contract entered into by a state governmental entity must include a provision stating the dispute resolution process used to resolve a dispute that arises under the contract.

A contractor may file a claim against a state governmental entity for breach of a contract between the contractor and the entity. The contractor must provide written notice to the entity not later than the 180th day after the date of the event giving rise to the claim. The entity may respond with a counterclaim against the contractor, delivered in writing no later than the 90th day after the date of the initial claim by the contractor.

The total amount of money recovered on a claim for breach of contract under this section may not, after deducting any amount owed the state governmental entity for work not performed, exceed an amount equal to the sum of:

1. The balance due and the remainder of the contract price, and
2. The amount or fair market value of orders or requests for additional work that was performed, and
3. Any delay or labor-related expense incurred by the contractor as a result of an action of or failure to act by the entity of state government or a party acting under the supervision or control of the entity of state government.

An award of damages may not include:

• Other or similar damages (except for delays or labor-related expenses as described in the preceding paragraph),
• Exemplary damages,
• Damages based on an unjust enrichment theory,
• Attorney’s fees, or
• Home office overhead.

If a contractor is not satisfied with the result of a negotiation in a contract claim, the contractor may file a request for a hearing with the state governmental entity. The entity must refer the claim to the State Office of Administrative Hearings (SOAH).

If the SOAH administrative law judge finds the claim is valid, the state governmental entity must pay the first $250,000 of the claim from money appropriated for that purpose. Any amount exceeding $250,000 may only be paid from money appropriated by the Legislature for that claim.

The chief administrative law judge of SOAH may set a fee for the hearing in an amount not less than $250 that allows SOAH to recover all or a substantial part of its costs in holding the hearings. SOAH may charge the fee against the party that does not win the hearing or may equally divide up the fee between the parties.

Note: This section does not apply to claims for personal injury or wrongful death arising from the breach of a contract. It also does not apply to a claim or dispute in which the Legislature granted permission to the contractor to bring a suit against the state or entity of state government. Lastly, it does not give protection against suit or liability.

Definitions:

Contract

A written contract between a unit of state government and a contractor for goods or services, or for a project as defined by the State Purchasing and General Services Act, Texas Government Code Section 2166.001(4). The term does not include a contract subject to Texas Transportation Code Section 201.112.

Contractor

An independent contractor who has entered into a contract directly with a unit of state government. The term does not include:

• A contractor’s subcontractor, officer, employee, agent or other person furnishing goods or services to a contractor.
• An employee of a unit of state government.
• A student at an institution of higher education.

Institution of higher education

Has the meaning assigned by Texas Education Code Section 61.003.

Unit of state government

The state or an agency, department, commission, bureau, board, office, council, court or other entity that is in any branch of state government and created by the constitution or a statute of this state, including a university system or an institution of higher education. The term does not include a county, municipality, court of a county or municipality, special purpose district or other political subdivision of this state.

Source for definitions [+]

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