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You are here: Home . rules . 2006 . 0419-059

SUBCHAPTER P. Negotiation and Mediation of Claim of Breach of Contract

28 TAC §§1.1807, 1.1809, and 1.1815

1. INTRODUCTION. The Commissioner of Insurance adopts amendments to §§1.1807, 1.1809, and 1.1815, concerning negotiation and mediation of certain breach of contract claims asserted by contractors against the Department. Sections 1.1807, 1.1809, and 1.1815 are adopted without changes to the proposed text published in the January 5, 2007 issue of the Texas Register (32 TexReg 25).

2. REASONED JUSTIFICATION. The adopted amendments are necessary to implement HB 1940, enacted by the 79th Legislature, Regular Session, effective September 1, 2005, which amended Chapter 2260 of the Government Code to shorten some of the timeframes related to negotiation and mediation of breach of contract claims against the state. Chapter 2260 of the Government Code requires state agencies to adopt rules to govern the negotiation and mediation of certain claims for breach of contract. Title 28 Chapter 1 Subchapter P of the Texas Administrative Code establishes procedures regarding negotiation and mediation of certain claims of breach of contract asserted by a contractor against the Department under the Government Code Chapter 2260. The amendments to the rules change the required timeframes for complying with Chapter 2260 to be consistent with the newly enacted legislation.

3. HOW THE SECTIONS WILL FUNCTION. The adopted amendment to §1.1807(c) changes the number of days that the notice of counterclaim must be delivered to the contractor after the Department's receipt of the contractor's notice of claim from 90 days to 60 days.

The adopted amendment to §1.1809(b) changes the number of days that the parties shall begin negotiations from 60 days following the later of (i) the date of termination of the contract; (ii) the completion date, or substantial completion date in the case of construction projects, in the original contract; or (iii) the date the Department receives the contractor's claim of notice to 120 days following the date the Department receives the contractor's notice of claim.

The adopted amendment to §1.1809(h) changes the number of days that the parties may agree to mediate the dispute from before the 270th day to the 120th day after the Department receives the contractor's notice of claim or before the expiration of any extension agreed to by the parties.

The adopted amendment to §1.1815(a) changes the number of days that the parties may agree to mediate the dispute at any time before the 270th day to the 120th day after the Department receives notice of the claim of breach of contract or before the expiration of any extension agreed to by the parties in writing.

In accordance with SECTIONS 9 and 10 of HB 1940, the adopted amendments are effective for any claims involving a breach of contract entered into by a unit of state government on or after the effective date of the Act, which is September 1, 2005. A claim involving a breach of contract entered into by a unit of state government before the effective date of the Act is governed by the law in effect immediately before that date.

4. SUMMARY OF COMMENTS. The Department did not receive any comments on the proposal.

5. STATUTORY AUTHORITY. The amendments are adopted under the Government Code Chapter 2260 and the Insurance Code §36.001. Section §2260.052(c) provides that each unit of state government with rulemaking authority shall develop rules to govern the negotiation and mediation of a claim of breach of contract. Section 36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

6. TEXT.

§1.1807. Agency Counterclaim.

(a) To assert a counterclaim under the Government Code, Chapter 2260, the department shall file notice of the counterclaim as provided by this section.

(b) The notice of counterclaim shall:

(1) be in writing;

(2) be delivered by hand, certified mail return receipt requested or other verifiable delivery service to the contractor or representative of the contractor who signed the notice of claim of breach of contract; and

(3) state in detail:

(A) the nature of the counterclaim;

(B) a description of damages or offsets sought, including the amount and method used to calculate those damages or offsets; and

(C) the legal theory supporting the counterclaim.

(c) The notice of counterclaim shall be delivered to the contractor no later than 60 days after the department's receipt of the contractor's notice of claim.

(d) Nothing herein precludes the department from initiating a lawsuit for damages against the contractor in a court of competent jurisdiction.

§1.1809. Timetable.

(a) Following receipt of a contractor's timely notice of claim, the commissioner or other designated representative shall review the contractor's claim(s) and the department's counterclaim(s), if any, and initiate negotiations with the contractor to attempt to resolve the claim(s) and counterclaim(s).

(b) Subject to subsection (c) of this section, the parties shall begin negotiations within a reasonable period of time, not to exceed 120 days following the date the department receives the contractor's notice of claim.

(c) The department may delay negotiations until after the 180th day after the date of the event giving rise to the claim of breach of contract by:

(1) delivering written notice to the contractor that the commencement of negotiations will be delayed; and

(2) delivering written notice to the contractor of the date on which the department is ready to begin negotiations.

(d) The parties may conduct negotiations according to an agreed schedule so long as they begin negotiations no later than the deadlines set forth in subsections (b) or (c) of this section, whichever is applicable.

(e) Subject to subsection (f) of this section, the parties shall complete the negotiations that are required by this subchapter as a prerequisite to a contractor's request for contested case hearing no later than 270 days after the department receives the contractor's notice of claim.

(f) The parties may agree in writing to extend the time for negotiations on or before the 270th day after the department receives the contractor's notice of claim. The agreement shall be signed by representatives of the parties with authority to bind each respective party and shall provide for the extension of the statutory negotiation period until a date certain. The parties may enter into a series of written extension agreements that comply with the requirements of this section.

(g) The contractor may request a contested case hearing before the State Office of Administrative Hearings (SOAH) pursuant to §1.1814 of this subchapter (relating to Request for Contested Case Hearing) after the 270th day after the department receives the contractor's notice of claim, or the expiration of any extension agreed to under subsection (f) of this section.

(h) The parties may agree to mediate the dispute at any time before the 120th day after the department receives the contractor's notice of claim or before the expiration of any extension agreed to by the parties pursuant to subsection (f) of this section. The mediation shall be governed by §1.1816 of this subchapter (relating to Mediation of Contract Disputes).

(i) Nothing in this section is intended to prevent the parties from agreeing to commence negotiations earlier than the deadlines established in subsections (b) and (c) of this section, or from continuing or resuming negotiations after the contractor requests a contested case hearing before SOAH.

§1.1815. Mediation Timetable.

(a) The contractor and the department may agree to mediate the dispute at any time before the 120th day after the department receives a notice of claim of breach of contract, or before the expiration of any extension agreed to by the parties in writing.

(b) A contractor and the department may mediate the dispute even after the case has been referred to SOAH for a contested case. SOAH may also refer a contested case for mediation pursuant to its own rules and guidelines, whether or not the parties have previously attempted mediation.



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