Construction law can be incredibly complex, mainly if entities in different states make agreements for a project. In Texas, navigating preemption and choice of law in construction contracts may feel tricky if you are at all unclear about what these terms mean and how they may impact each other.
At MehaffyWeber, our firm is recognized as a Texas construction contract leader. When you need a lawyer familiar with preemption and choice of law in construction contracts, you want the best.
Choice of Law in Construction Contracts
Choice-of-law clauses in Texas construction contracts are common. This clause allows parties to determine which jurisdiction their contract will fall under for arbitration, conflict over the terms of the contract, or fulfillment. However, this clause applies only to conflicts over the terms of the contract. All code requirements and regulations pertaining to the actual building, its construction, or its use are still subject to Texas law and the ordinances of the local city and county.
The Texas Business and Commerce Code details how the law applies to certain construction contracts. In Section 272.0001, a construction contract is defined as an agreement created or entered into by an owner architect, construction manager, contractor, subcontractor, supplier, or material or equipment lessor for specific services on a building or structure. This includes moving, excavating, or demolishing on public or private property.
How is Choice of Law Helpful in Texas Contract Law
Including another jurisdiction and different guidelines to address any part of your job may seem odd. However, contractors may see one or more of many points of value in designating a separate state to oversee their contract.
Familiar Jurisdiction
It is not uncommon for general contractors and service providers to work in multiple states, meaning they may not have significant ties to the jurisdiction their job site is in. When this happens, the contractor may have their local county oversee any mediation or arbitration needs for simplicity.
Every state has its own contract laws regarding construction sites. Federal regulations may give some degree of uniformity, but requirements can vary heavily from state to state. This means an attorney must be familiar with the unique laws of the specific state in which they practice.
If an out-of-state company must litigate only within their state, it will often require them to have multiple teams of lawyers. If they can use the same attorney for their local business as they do for their Texas business, it will often make it simpler and likely cheaper.
Legal Benefits
Regardless of the business’s location, some contractors may determine that the laws of a third state will benefit them more in arbitration. In this instance, they may include a choice of law clause for the third-party state, even if they are also in Texas.
Enforceability
While you may be allowed to provide a clause designating that litigation or mediation is performed by another state, this can be difficult to enforce or unenforceable. While the choice of law is considered a legal provision in the contract, this is not necessarily a concrete allowance. According to Section 272.001, a voidable contract provision contains a provision making the agreement or conflict arising under the contract subject to another state’s law.
Currently, the provision is voidable by the party or parties obligated to perform the work. This means that the other party may be able to successfully argue the matters to be heard in a Texas court instead of the other chosen state.
Some circumstances may not apply to your construction contract, requiring other laws and regulations to determine its enforceability. If you have any questions or concerns about the enforceability of your clause, you are best suited to speak with an attorney.
Preemption in Texas Construction Contracts
Preemption is also a common term in construction contracts. It typically refers to federal regulations that supersede state regulations. In construction contracts, this most often refers to the Federal Arbitration Act. Established in 1925, the act establishes a foundation for arbitration regarding contracts involving commerce that crosses state lines.
The basic principle of the FAA is that arbitration agreements are almost always valid, irrevocable, and enforceable, assuming they are otherwise legal. If you have questions or concerns regarding how this may affect your contract, the team at MehaffyWebber can help.
How Does This Affect My Construction Contract?
In practice, preemption and choice of law can complicate arbitration and disagreements if the obligated party disagrees with your choice-of-law state. This means you may choose a state to oversee arbitration but should also plan to manage disputes according to FAA requirements in the event of preemption. According to some sources, some things you may consider regarding the choice of law include indemnity clauses and limitations or waivers in liability.
If you face preemption or your choice-of-law provision is void, the conditions of your contract can vary dramatically. The ability to void these terms protects subcontractors from working in Texas but being held to potentially disadvantageous standards from a different state. While the choice-of-law clause can provide additional options regarding litigation, it does not offer any promise. To prepare for these possible outcomes, speaking with an attorney is critical to protecting your interests.
Contact a Construction Contract Lawyer Today
Construction law can be incredibly complex, and when millions of dollars are on the line, your company may benefit significantly from a legal overview and guidance from MehaffyWeber. The way preemption from the FAA and choice-of-law clauses interact can be contradictory and confusing, and it is critical to ensure you have a good understanding of Texas law and how clauses of your contract are likely to be enforced or voided in the event of a dispute.
Don’t risk unexpected ramifications that increase your liability and losses because your contract was poorly written or because you did not have appropriate guidance on what to expect. Contact us today for a case consultation at one of our four offices across Texas.