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Texas Department of Insurance
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Subchapter P. Negotiation and Mediation of Claim of Breach of Contract

28 TAC §§1.1807, 1.1809 and 1.1815

1. INTRODUCTION. The Texas Department of Insurance proposes 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. The proposed amendments are necessary to address certain statutory provisions regarding the negotiation and mediation of certain breach of contract claims. HB 1940, enacted by the 79th Legislature, Regular Session, effective September 1, 2005, shorten some of the timeframes related to negotiation and mediation of breach of contract claims against the state. 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. 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.

The proposed amendments to §§1.1807, 1.1809 and 1.1815 change the required timeframes for complying with Chapter 2260 to be consistent with the newly enacted legislation. The proposed 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 proposed 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 proposed 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 proposed 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.

2. FISCAL NOTE. Karen Phillips, Senior Associate Commissioner and Chief of Staff, has determined that for each year of the first five years the proposed amendments are in effect, there will be no fiscal impact on state or local government, local employment, or local economies as a result of enforcing or administering the amendments.

3. PUBLIC BENEFIT/COST NOTE. Ms. Phillips also has determined that for each year of the first five years the proposed amendments are in effect, the public benefits anticipated as a result of the proposed amendments will be consistency of the Department's rules concerning negotiation and mediation of certain breach of contract claims asserted by contractors against the Department with the relevant state law and shorter timeframes for dealing with these types of claims. There are no costs associated with the adoption of these rules. However, if there are any such additional costs, the costs are the result of the legislative enactment of HB 1940 by the 79th Legislature, Regular Session, effective September 1, 2005, and are not a result of the adoption of the proposed amendments. Accordingly, the proposed amendments will not have an impact on small and micro businesses. The Department has considered the purposes of the relevant statute, which is to establish procedures and timeframes regarding negotiation and mediation of certain claims of breach of contract asserted by a contractor against the Department, and has determined that it is neither legal nor feasible to waive or modify the proposed timeframe requirements for small or micro businesses.

4. REQUEST FOR PUBLIC COMMENT. To be considered, written comments on the proposal must be submitted no later than 5:00 p.m. on February 5, 2007 to Gene C. Jarmon, General Counsel and Chief Clerk, P.O. Box 149104, MC 113-2A, Austin, Texas 78714-9104. An additional copy of the comment must be simultaneously submitted to Cynthia Villarreal-Reyna, Section Chief, Agency Counsel Section, Legal Services Division, P.O. Box 149104, MC 110-1A, Austin, Texas 78714-9104. Any request for a public hearing on the proposed amendments should be submitted separately to the Office of the Chief Clerk before the close of the public comment period. If a hearing is held, written and oral comments presented at the hearing will be considered.

5. STATUTORY AUTHORITY. The amendments are proposed under the Government Code Chapter 2260 and the Insurance Code §36.001. The Government Code §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. The Insurance Code §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. CROSS REFERENCE TO STATUTE. The proposed amendments affect negotiation and mediation procedures pursuant to the following statutes: Government Code §§2260.051, 2260.052, and 2260.056.

7. TEST.

§1.1807. Agency Counterclaim.

(a) - (b) (No change.)

(c) The notice of counterclaim shall be delivered to the contractor no later than 60[90] days after the department's receipt of the contractor's notice of claim.

(d) (No change.)

§1.1809. Timetable.

(a) (No change.)

(b) Subject to subsection (c) of this section, the parties shall begin negotiations within a reasonable period of time, not to exceed 120[60] days following the [later of:]

[(1) the date of termination of the contract;]

(2) the completion date, or substantial completion date in the case of construction projects, in the original contract; or]

[(3) the ]date the department receives the contractor's notice of claim.

(c) - (g) (No change.)

(h) The parties may agree to mediate the dispute at any time before the 120th[270th] 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) (No change.)

§1.1815. Mediation Timetable.

(a) The contractor and the department may agree to mediate the dispute at any time before the 120th[270th] 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) (No change.)

For more information, contact: ChiefClerk@tdi.texas.gov