The Texas Water Development Board (the board) proposes new §§380.1, 380.2, 380.3, 380.4, 380.5, 380.6, 380.21, 380.22, 380.23, 380.24, 380.25, 380.26, 380.27, 380.28, 380.29, 380.41, 380.42, 380.43, 380.44, 380.45, 380.46, 380.47, 380.48, 380.49, 380.50, 380.61, 380.62, 380.63 comprising new 31 TAC Chapter 380, Alternative Dispute Resolution, relating to procedures for the negotiation and mediation of certain breach of contract claims asserted by contractors against the board pursuant to House Bill 826 §9, 76th. Leg., R.S., Chapter 68 (1999) (codified at Texas Government Code, Chapter 2260). Historically, the State of Texas has been immune from suit on a contract on the basis of sovereign immunity. Contractors seeking to assert and recover damages on a breach of contract claim had to obtain legislative consent to sue and a legislative appropriation to satisfy any resulting judgment. With the enactment of Chapter 2260, the legislature has established a new and exclusive administrative process by which a contractor who enters into a written contract with a unit of state government for goods, services, or certain projects may pursue a breach of contract claim for damages. Chapter 2260 requires a contractor who asserts a breach of contract claim and the board to attempt to resolve the contractor's claim and any counterclaim through negotiation, and authorizes, but does not require, the parties to mediate their dispute. If the contractor's claim is not resolved in its entirety within the statutory time frame, the contractor may request a contested case hearing before the State Office of Administrative Hearings ("SOAH"). Chapter 2260 authorizes the SOAH administrative law judge to render a non-appealable decision ordering the unit of state government to pay damages up to $250,000. If the contractor's claim exceeds $250,000, Chapter 2260 requires the administrative law judge to issue a written report of his or her findings to the legislature, recommending that the legislature either appropriate money to pay all or part of a valid claim or deny such appropriation and withhold consent to sue.

Texas Government Code, §2260.052(c) requires that the board adopt rules to establish negotiation and mediation provisions. The proposed rules provide a process sufficiently flexible to permit the parties to structure a negotiation or mediation in a manner that is most appropriate for a particular dispute regardless of such variables as the size or organization of the parties, or the subject matter, dollar amount, or method and time of performance.

Proposed Chapter 380 is organized into Subchapters A, B, C, and D. Subchapter A, General Provisions, includes §§380.1, 380.2, 380.3, 380.4, 380.5, and 380.6. Section 380.1 states that Chapter 380 governs the negotiation, mediation, and assisted negotiation process of resolving claims for breach of contract asserted by a contractor against the board. Section 380.2 states that Chapter 380 does not apply to claims for personal injury or wrongful death, claims for which there is a specific remedy under law, or claims based on contracts between the board and governmental entities, subcontractors, or any contract entirely funded with federal funds. Section 380.3 defines terms as they relate to this chapter. Section 380.4 provides that the procedures in Chapter 380 are prerequisites to filing suit under Texas Civil Practice & Remedies Code, Chapter 107 and Texas Government Code, Chapter 2260. Section 380.5 advises that the state has not waived sovereign immunity to suit or to liability. Section 380.6 describes the method the parties will use for computing time under the chapter.

Subchapter B, Negotiation of Contract Disputes, includes §§380.21, 380.22, 380.23, 380.24, 380.25, 380.26, 380.27, 380.28, and 380.29. Section 380.21 sets out the requirements and procedures of the notice of claim of breach of contract that the contractor must assert. Section 380.22 sets out the requirements and procedures of the counterclaim that the board must assert. Section 380.23 states that the parties must negotiate to settle the dispute within the timelines established by Texas Government Code, Chapter 2260. Section 380.24 provides a timetable based on the requirements of Texas Government Code, Chapter 2260 as it relates the negotiations between the contractor and the board. Section 380.25 describes how the parties may conduct the negotiation. Section 380.26 addresses the parties' settlement approval procedures. Section 380.27 announces the requirements of any resulting settlement agreement. Section 380.28 states how the costs of negotiations shall be handled by the parties. In the event the breach of contract claim is not resolved in its entirety, §380.29 specifies the process by which a contractor may seek resolution of the dispute by SOAH.

Subchapter C, Mediation of Contract Disputes, includes §§380.41, 380.42, 380.43, 380.44, 380.45, 380.46, 380.47, 380.48, 380.49, and 380.50. Section 380.41 sets the timetable for mediation in accordance with Texas Government Code, Chapter 2260. Section 380.42 sets the parameters for mediation by a neutral third party of breach of contract claims and counterclaims. Section 380.43 discusses how the parties may agree to mediate and select the mediator. Section 380.44 discusses the qualifications, immunities, and duties of a mediator. Section 380.45 pertains to the confidentiality of a mediation and any resulting final settlement agreement. Section 380.46 states how the costs of mediation shall be handled by the parties. Section 380.47 addresses the parties settlement approval procedures. Section 380.48 details the handling of any resulting settlement agreement. Section 380.49 states the requirements for a final settlement and ensures the parties' rights if a partial settlement is reached. Section 380.50 provides that, if mediation does not resolve the dispute, the contractor may request that the claim be referred to SOAH in accordance with §380.24 and §380.29 of this chapter.

Subchapter D, Assisted Negotiation Processes, includes §§380.61, 380.62, and 380.63. Section 380.61 states that the parties may agree, either contractually or when a dispute arises, to uses assisted negotiation processes to resolve disputes. Section 380.62 requires parties to agree in writing to the type of assisted negotiation process used and suggests a couple commonly used processes. Section 380.63 requires any assisted negotiation process used to follow the rules for mediation in Subchapter C of this chapter.

Ms. Pamela Gulley, Director of Fiscal Services, has determined that for each year of the first five years that the proposed rules are in effect there will be no fiscal impact to state or local government as a result of enforcing or administering the rules.

Ms. Gulley has also determined that for each year of the first five years that the proposed rules are in effect, the benefit to the public will be the more timely and efficient resolution of contract disputes between contractors and the board. The legislature, by enacting Chapter 2260, has determined that such process, with the potential to recover monetary damages for proven contractual breaches, is of public benefit. The proposed rules will have no adverse economic effect on small or large businesses and/or persons that contract with the state. In the past, sovereign immunity prevented breach of contract claims against the state and the only process available to the public for resolution of such a claim was to seek and obtain legislative consent to sue. Chapter 2260 and these proposed rules will provide a process by which claims for breach of contract and counterclaims can be asserted and resolved.

The negotiation provisions themselves will impose no economic cost to persons required to comply with the proposed rules because they do not require the use of any particular negotiation mode or method. The proposed rules require only that the parties negotiate to resolve their dispute, and the mode or method of negotiation can be as simple or as complex as the parties decide. The proposed rules specify that absent an agreement to the contrary, the parties are responsible for costs they individually incur in a negotiation or other alternative dispute resolution process.

Similarly, the mediation provisions themselves will impose no economic cost to persons required to comply with the proposed rules unless the parties choose to mediate. If the parties do so, the rules specify that, absent an agreement to the contrary, the parties will share the costs of the mediator and each will be responsible for whatever additional costs they decide to incur for items such as document reproduction, attorneys' fees, experts' fees and consultants' fees.

Comments on the proposed amendments will be accepted for 30 days following publication and may be submitted to Ron Pigott, (512) 936-2414, Texas Water Development Board, P.O. Box 13231, Austin, Texas, 78711-3231, or e-mailed to Ron.Pigott@twdb.state.tx.us.

Subchapter A. GENERAL PROVISIONS