In construction, managing a project also means managing risk. For companies working in Texas, one of the biggest factors in any dispute is where the case will be handled and which law applies. For years, contracts often required disputes to be resolved in another state or under another state’s law. That added an extra layer of complexity, sometimes driving up costs and making it harder to respond efficiently, even before addressing the case’s actual issues.
Recent updates from the Texas Legislature have changed that. The law now provides greater clarity on how construction contracts tied to Texas projects will be handled, with a stronger focus on keeping disputes local. At MehaffyWeber, our construction lawyers keep a close eye on these changes so our clients can adjust their contracts and avoid unnecessary complications. A solid defense usually starts well before a dispute. It starts with ensuring that the contract terms are clear, enforceable, and capable of withstanding scrutiny if issues arise.
The Impact of House Bill 2960
The Texas Legislature passed House Bill 2960, which took effect on September 1, 2025. This was more than a technical update. It changed how certain contract terms are treated in practice.
This update directly addresses two statutes that frequently come up in construction disputes. Those statutes are Texas Business & Commerce Code § 272.001 and Texas Civil Practice & Remedies Code § 15.020. Before this change, contract provisions requiring disputes to be handled out of state or governed by another state’s law were considered voidable. Now, they are simply not enforceable.
Why Voidable vs. Void Matters
This change may seem small, but it has real consequences.
- Old rule (voidable): The clause stayed in place unless someone challenged it. If a contract required a Texas contractor to resolve a dispute in another state, that contractor had to take action to push back. That meant raising the issue early and handling it correctly. If not, the case could move forward in a location unrelated to the project.
- New rule (void): The clause has no legal effect from the start. There is no need to challenge it or opt out. If the project is in Texas, those out-of-state requirements generally will not be enforced.
Where Will Disputes Be Handled Now?
The updated statutes also clarify where disputes should be resolved. In most cases, that means:
- The dispute will be handled in Texas.
- The case will be filed in the county where the project is located.
These requirements keep the dispute tied to the place where the work was performed and where the parties are operating.
Why Choice of Law Affects Your Bottom Line
Where a case is handled is only part of the picture. The law that applies can shape the outcome just as much as where the case is heard. Each state handles construction issues differently. Texas has its own set of rules that affect payment, project disputes, and contractor rights, including:
- The Texas Prompt Payment Act: Sets deadlines for payment and allows penalties when payments are delayed without a valid reason
- Mechanic’s lien laws: Provide a way to secure payment if done correctly
- Retainage rules: Control how much can be withheld and when those funds must be released
If a contract pointed to another state’s law, those Texas rules might not apply. The recent changes make it clear that Texas law will generally govern disputes tied to projects performed here.
Practical Impact on Contractors and Subcontractors
These changes directly affect how disputes play out. In the past, contracts, especially those drafted by larger, out-of-state companies, often required disputes to be handled elsewhere. Even if a contractor knew the clause was unfavorable, they might still sign the agreement to secure the work.
When a dispute arose, the cost of handling a case in another state could be significant. Travel, hiring local counsel, and coordinating witnesses could quickly outweigh the value of the claim. That reality sometimes pushed parties to settle for less than they otherwise would have accepted. With the new law in place, those types of clauses generally no longer carry weight for Texas projects.
What This Means for Owners and Developers
For owners and developers, especially those based outside Texas, this change is worth close attention.
- Contract templates should be reviewed: Provisions requiring out-of-state litigation or applying another state’s law are no longer effective for Texas projects and may create confusion if left in place.
- Risk assumptions may need to be revisited: Different states handle issues like indemnity and liability limits differently. If your contracts relied on another state’s rules, it is important to understand how Texas law will apply instead.
- Dispute planning should focus on Texas venues: Since cases will generally be handled locally, it makes sense to plan accordingly from the start.
Leaving outdated language in place can lead to confusion and early disputes over where a case belongs before anything else is even decided.
Practical Considerations Moving Forward
Even with these protections in place, contract language still matters and can dramatically impact the complexity and outcome of your situation.
- Watch timing: The new rules apply to contracts entered into or renewed on or after September 1, 2025.
- Post-dispute agreements are still allowed: Parties can agree to a different venue after a dispute arises if both sides choose to do so.
- Review arbitration provisions: Federal law, including the Federal Arbitration Act, can affect the enforcement of arbitration clauses.
Taking the time to review and update contracts now can prevent disputes later over where a case should be handled.
What This Means Going Forward
Texas continues to see steady growth in construction statewide, and with that growth comes more complex contracting relationships.
These legislative changes reflect a clear direction: construction disputes tied to Texas projects should generally stay in Texas and be governed by Texas law. For businesses, this means greater predictability about where disputes will be handled and which rules will apply, but it also means that contract language needs to be updated to align with current law. Find out how MehaffyWeber can help.