TEXAS: An Introduction to Construction
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It’s often said that everything is bigger in Texas, and that saying holds true for growth and economic development, including a booming construction industry.
According to the U.S. Census Bureau, 5 of the top 10 fastest growing U.S. cities in the last decade and 4 of the top 10 in 2021 are here in the Lone Star State. The Dallas-Fort Worth metroplex topped the nation for 2021 population growth, followed by Houston, Austin and San Antonio. In short, people and companies are flocking to Texas for favorable business conditions, affordable housing, and great weather, food, and music, and Texas construction companies are answering the call.
From the Alamo to ZZ Top and everything in between, Texans take great pride in their state, and their construction companies are no different as they build Texas for generations to come. According to the Associated General Contractors of America, construction in 2020 accounted for more than $100 billion of the state's gross domestic product. In 2021, Texas led the nation in commercial construction spending with an estimated $29.29 billion. This year, Houston, Dallas-Fort Worth and Austin employed more than half a million construction workers and ranked first, second and fifth, respectively, in housing permits, including single-family and multifamily. From single family residential to "supertall" mixed-use towers, construction and the demand for material and skilled labor is at an all-time high. This unprecedented growth has led state and local leaders to invest in infrastructure and legislation to further stimulate economic development, positioning Texas as a front-runner in advancement and innovation.
Not surprisingly, the COVID-19 pandemic caused significant problems for the construction industry, interrupting projects and supply chains. Two years later, the ripple effect can still be felt, primarily supply chain interruptions. For example, lumber and other building material (including copper, steel, aluminum, and concrete) shortages can be traced to government shutdowns/limitations of mills and other production facilities due to COVID-19. More recent global events, including the conflict in Ukraine (causing oil and gas prices to soar and transportation costs to follow), the China-U.S. trade war (causing localization of manufacturing) and climate-related disruptions have exacerbated the supply chain problem. These factors have resulted in volatile price conditions, backorders of materials, project delays and negative impacts to budgets and the bottom line. At the same time, there is a shrinking labor force. According to Associated General Contractors of America and Autodesk, more than 75% of Texas construction firms have encountered difficulty in finding workers, and more than 50% have lost workers due to perceived better offers from other companies. Rapid inflation adds yet another aspect to the on-going problem.
The compound effect of the foregoing issues has led property owners, contractors and materialmen to pay special attention to contractual provisions in the relentless quest to shift project risks and adapt to uncertainties. In response, the industry has taken great strides to advance the delivery of work, recruit new talent and incorporate new technologies and methods to address various concerns. For example, one study found that investment in construction technology more than doubled over the past decade. In fact, infrared cameras, barcodes for tools, drones, 3D printing, and smart wearables are becoming project norms, as industry professionals seek to establish a competitive edge and set themselves apart from their competition.
Moreover, Texas lawmakers have rushed to pass legislation to facilitate economic growth with additional protections for contractors, simplifying statues, and streamlining construction payment provisions. For example, SB 219 is a key piece of 2021 legislation that narrows the applicability of the infamous 1907 Lonergan doctrine, which held general contractors liable for errors and omissions in design. Other important laws passed in 2021 include: (1) HB 2237, designed to streamline the Texas lien process (the mechanism for ensuring payment for laborers and materialmen); (2) SB 968, which protected housing and commercial construction projects from shutdowns during the pandemic; (3) SB 6, which shields businesses from certain liability stemming from continued operations during COVID-19; (4) SB 2069, which shortened the statute of repose – the time for which a contractor can be sued for defective construction (from 10 years to 8 years); (5) SB 338, which sets forth uniform general conditions for K-12 school construction, simplifying and, thus, expediting the construction process; (6) HB 2416, allowing for the recovery of attorneys' fees as compensatory damages; and (7) HB 19, addressing litigation abuses in commercial vehicle accidents. In addition, the El Paso Court of Appeals held that Section 97.002 of the Texas Civil Practice & Remedies Code (limit on liability of certain highway, road, and street contractors) applies whether contractors have ongoing projects or have completed their work.
To reap the most benefits from the booming construction industry while dealing with the accompanying “growing pains,” construction companies should consider the following tips:
1. Review and revise your contracts – Carefully review, and revise when necessary, contractual provisions, especially those addressing price escalation, change orders, delays, force majeure and indemnity.
2. Get a jump on materials – Order materials as soon as the project is being initiated.
3. Document changes – All too often projects and companies are tacitly pressured to change the scope of their work without impacting budget or schedule. Document all communications, directives and agreements, with the goal of avoiding ambiguities and future disputes.
4. Invest in the future – Baby boomers currently make up more than 20% of the work force, and the pandemic inspired early retirement, leaving many big “boots” to fill. By investing in the next generation of the work force, companies can bring fresh perspectives and ideas to projects and can help address labor scarcity issues. Devote some time and resources to high school programs, trade schools, colleges and universities, and inner-company development programs, to help ensure the future of the industry.
Cokinos | Young
For 32 years, Cokinos | Young has led the way in construction law. In 2021, Construction Executive magazine ranked Cokinos | Young #2 among The Top 50 Construction Law Firms™. Today, our team of over 100 dedicated professionals provides a broad array of legal services for all aspects of construction law to general contractors, project managers, design professionals, subcontractors, material and equipment suppliers, sureties, insurance companies, owner/developers, and lenders.
In today’s complex and constantly changing business environment, Cokinos | Young continues to use practical experience and pragmatic approaches to manage serious legal challenges. As we have expanded our capabilities over the years to a true full-service law firm, Cokinos | Young’s commitment to the construction industry has never wavered. Clients benefit from our extensive experience on a wide range of construction projects in both the public and private sectors. Savvy. Tough. Dedicated. That’s Cokinos. Learn more at cokinoslaw.com.