Presenter: Judi Doran

Commission Agenda Item No. 14
Action
Contract Dispute Resolution
August 2000

I. Discussion: Government Code, Chapter 2260, Section 2260.052 (c) requires Texas Parks and Wildlife Department to adopt conforming rules establishing procedures for resolution of contract disputes. The proposed rules set out procedures for administration and mediation of disputes and other procedures for resolution of contractor’s claims. The rules were published in the Texas Register on July 28, 2000 for public comment. Staff received no comments.

II. Recommendation: The staff recommends the Texas Parks and Wildlife Commission adopt the following motion:

"The Texas Parks and Wildlife Commission adopts 31 TAC Sections 51.200 through 51.225, concerning dispute resolution of contractor’s claim, as published in the July 28, 2000 issue of the Texas Register.

Attachments - 2

1. Exhibit A - New Rules
2. Exhibit B - Fiscal Note (available upon request)


Commission Agenda Item No. 14
Exhibit A

Restrictions on Drilling
Contract Dispute Resolution
Proposed Preamble

1. Introduction.

The Texas Parks and Wildlife Department proposes new §§51.201-51.225, concerning dispute resolution. The new rules are intended to serve as guidelines for the negotiation and mediation of a claim of breach of contract asserted by a contractor against Texas Parks and Wildlife Department under Government Code, Chapter 2260. The new rules are not intended to replace agency procedures relating to breach of contract claims that are mandated by state or federal law, but are intended to provide procedures when none are so mandated. New §51.200, concerning Applicability, identifies the situations and instances in which the rules would be applicable. New §51.201, concerning Definitions, assigns meanings to words and phrases used in the subchapter. New §51.202, concerning Prerequisites to Suit, establishes the provisions of the subchapter as requirements for actions under other statutes. New §51.203, concerning Sovereign Immunity, affirms the department's sovereign immunity to suit and liability. New §51.204, concerning Notice of Claim of Breach of Contract, sets forth the contents of the notice required to be filed to claim breach of contract. New §51.205, concerning Agency Counterclaim, sets forth the contents of the notice required to be filed by the agency in a counterclaim. New §51.206, concerning Request for Voluntary Disclosure of Additional Information, provides for the availability of various types of information among parties to a claim or counterclaim. New §51.207, concerning Duty to Negotiate, establishes an obligation by parties to attempt to resolve claims and counterclaims. New §51.208, concerning Timetable, provides a chronology for the negotiations process. New §51.209, concerning Conduct of Negotiation, describes the protocol for the negotiations process. New §51.210, concerning Settlement Approval Procedures, provides for disclosure of the procedures for settlement prior to negotiations. New §51.211, concerning Settlement Agreement, defines the parameters of settlements. New §51.212, concerning Costs of Negotiation, specifies that each party is responsible for its own costs for negotiation, unless otherwise provided for by mutual agreement. New §51.213, concerning Request for Contested Case Hearing, provides a mechanism for obtaining a contested case hearing in the event that negotiations fail to resolve a claim. New §51.214, concerning Mediation Timetable, establishes a chronology for mediation of a dispute. New §51.215, concerning Conduct of Mediation, prescribes the conditions and process of mediation. New §51.216, concerning Agreement to Mediate, provides for mediation as option provided for at the time a contract is entered into, and prescribes potential mediators and the timeframe for the process. New §51.217, concerning Qualifications and Immunity of the Mediator, prescribes the legal requirements and protections for persons performing mediation. New §51.218, concerning Confidentiality of Mediation and Final Settlement Agreement, provides for the privacy of privileged information under a claim settlement. New 51.219, concerning Costs of Mediation, stipulates that each party to a mediation is responsible for its own costs, unless a previous agreement provides otherwise. New 51.220, concerning Settlement Procedures, stipulates the disclosure of settlement procedures prior to mediation. New 51.221, concerning Initial Settlement Agreement, establishes the obligations of parties under an initial settlement agreement. New 51.222, concerning Final Settlement Agreement, establishes the obligations of parties under a final settlement agreement. New 51.223, concerning Referral to the State Office of Administrative Hearings, provides a mechanism for referral to the State Office of Administrative Hearings in the event that mediation does not result in settlement of a claim. New 51.224, concerning Assisted Negotiation Process, allows for assisted negotiation in addition to negotiation and mediation. New 51.225, concerning Alternative Dispute Resolution, allows for alternative dispute resolution in addition to assisted negotiation, negotiation, and mediation.

2. Fiscal Note.

Melanie Callahan, Finance Director, has determined that for each of the first five years that the proposed new section is in effect, there will be no negative financial implication to state or local governments as a result of enforcing or administering the proposed new section.

3. Public Benefit - Cost Note

Ms. Callahan also has determined that for each of the first five years that the new sections as proposed are in effect:

(A) The public benefit anticipated as a result of the amended rules as proposed will be the increased satisfaction of those who contract with the department, adding more consistency and fairness to resolution of contract disputes.

(B) There will be no adverse effect on small businesses or microbusinesses. There are no economic costs to persons required to comply with the new amended rules as proposed because the rules allow for a procedure to resolve contract claims.

(C) The department has not filed a local impact statement with the Texas Workforce Commission as required by Government Code, §2001.022, as the agency has determined that the rule will not impact local economies.

(D) The department has determined that there will not be a taking of private real property, as defined by Government Code, Chapter 2007, as a result of the proposed rules.

4. Request for Public Comments.

Comments on the proposed rules will be solicited and submitted to Judith Doran, Texas Parks and Wildlife Department, 4200 Smith School road, Austin, Texas 78744.

5. Statutory Authority

The proposed rules are authorized by Government Code, §2260.052(c), which requires each unit of state government with rulemaking authority to develop rules to govern the negotiation and mediation of contract claims against the state, and Parks and Wildlife Code §11.0171, which requires the commission to adopt by rule policies and procedures for soliciting and awarding contracts.

The proposed new rules affect Government Code, Chapter 2260 and Parks and Wildlife Code, Chapter 11.

§51.200. Applicability.

(a) This subchapter does not apply to an action of the department for which a contractor is entitled to a specific remedy pursuant to state or federal constitution or statute.

(b) This subchapter does not apply to contracts:

(1) between Texas Parks and Wildlife Department and the federal government or its agencies, another state or another nation;

(2) between two or more units of state government;

(3) between the department and a local governmental body, or a political subdivision of another state;

(4 )between a subcontractor and a contractor;

(5) subject to Transportation Code, §201.112;

(6) within the exclusive jurisdiction of state or local regulatory bodies;

(7) within the exclusive jurisdiction of federal courts or regulatory bodies; or

(8) that are solely and entirely funded by federal grant monies other than for a project defined in .5.(10)

51.201. Definitions. The following words and terms, when used in this subchapter, shall have the following meaning, unless the context clearly indicates otherwise:

(1) Chief administrative officer - The executive director, or other executive officer responsible for the day to day operations of the department.

(2) Claim - A demand for damages by the contractor based upon the department's alleged breach of the contract.

(3) Contract - A written contract between the department and a contractor by the terms of which the contractor agrees either:

(A) to provide goods or services, by sale or lease, to or for the department; or

(B) to perform a project as defined by Government Code, §2166.001.

(4) Contractor - Independent contractor who has entered into a contract directly with the department. The term does not include:

(A) The contractor's subcontractor, officer, employee, agent or other person furnishing goods or services to a contractor;

(B) An employee of the department; or

(C) A student at an institution of higher education.

(5) Counterclaim - A demand by the department based upon the contractor's claim.

(6) Day - A calendar day. If an act is required to occur on a day falling on a Saturday, Sunday, or holiday, the first working day which is not one of these days should be counted as the required day for purpose of this act.

(7) Department - Texas Parks and Wildlife Department.

(7) Event - An act or omission or a series of acts or omissions giving rise to a claim.

(8) Goods - Supplies, materials or equipment.

(9) Parties - The contractor and the department when they have entered into a contract in connection with which a claim of breach of contract has been filed under this chapter.

(10) Project - As defined in Government Code, §2166.001, a building construction project that is financed wholly or partly by a specific appropriation, bond issue or federal money, including the construction of:

(A) a building, structure, or appurtenant facility or utility, including the acquisition and installation of original equipment and original furnishing; and

(B) an addition to, or alteration, modification, rehabilitation or repair of an existing building, structure, or appurtenant facility or utility.

(11) Services - The furnishing of skilled or unskilled labor or consulting or professional work, or a combination thereof, excluding the labor of an employee of the department.

§51.202. Prerequisites to Suit. The procedures contained in this chapter are exclusive and required prerequisites to suit under Civil Practice and Remedies Code, Chapter 107, and Government Code, Chapter 2260.

§51.203. Sovereign Immunity. This chapter does not waive the department's sovereign immunity to suit or liability.

§51.204. Notice of Claim of Breach of Contract.

(a) A contractor asserting a claim of breach of contract under Government Code, Chapter 2260, shall file notice of the claim as provided by this section.

(b) The notice of claim shall:

(1) be in writing and signed by the contractor or the contractor's authorized representative;

(2) be delivered by hand, certified mail return receipt requested, or other verifiable delivery service, to the officer of the department designated in the contract to receive a notice of claim of breach of contract under Government Code, Chapter 2260; if no person is designated in the contract, the notice shall be delivered to the unit's chief administrative officer, and shall state in detail:

(A) the nature of the alleged breach of contract, including the date of the event that the contractor asserts as the basis of the claim and each contractual provision allegedly breached;

(B) a description of damages that resulted from the alleged breach, including the amount and method used to calculate those damages; and

(C) the legal theory of recovery, i.e., breach of contract, including the causal relationship between the alleged breach and the damages claimed.

(c) In addition to the mandatory contents of the notice of claim as required by subsection (b) of this section, the contractor may submit supporting documentation or other tangible evidence to facilitate the unit's evaluation of the contractor's claim.

(d) The notice of claim shall be delivered no later than 180 days after the date of the event that the contractor asserts as the basis of the claim; provided, however, that a contractor shall deliver notice of a claim that was pending before the department on August 30, 1999, to the unit no later than February 26, 2000.

§51.205. Agency Counterclaim.

(a) the department in asserting a counterclaim under the Government Code, Chapter 2260, 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 shall 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) In addition to the mandatory contents of the notice of counterclaim required by subsection (b) of this section, the unit may submit supporting documentation or other tangible evidence to facilitate the contractor's evaluation of the unit's counterclaim.

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

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

§51.206. Request for Voluntary Disclosure of Additional Information.

(a) Upon the filing of a claim or counterclaim, parties may request to review and copy information in the possession or custody or subject to the control of the other party that pertains to the contract claimed to have been breached, including, without limitation:

(1) accounting records;

(2) correspondence, including, without limitation, correspondence between the unit and outside consultants it utilized in preparing its bid solicitation or any part thereof or in administering the contract, and correspondence between the contractor and its subcontractors, materialmen, and vendors;

(3) schedules;

(4) the parties' internal memoranda;

(5) documents created by the contractor in preparing its offer to the unit and documents created by the unit in analyzing the offers it received in response to a solicitation.

(b) Subsection (a) of this section applies to all information in the parties' possession regardless of the manner in which it is recorded, including, without limitation, paper and electronic media.

(c) The contractor and the department may seek additional information directly from third parties, including, without limitation, the unit's third-party consultants and the contractor's subcontractors.

(d) Nothing in this section requires any party to disclose the requested information or any matter that is privileged under Texas law.

(e) Material submitted pursuant to this section and claimed to be confidential by the contractor shall be handled pursuant to the requirements of Government Code, Chapter 552.

§51.207. Duty to Negotiate. The parties shall negotiate in accordance with the timetable set forth in §51.208 of this title (relating to Timetable) to attempt to resolve all claims and counterclaims. No party is obligated to settle with the other party as a result of the negotiation.

§51.208. Timetable.

(a) Following receipt of a contractor's notice of claim, the executive director of the department or other representative designated in the contract shall review the contractor's claim(s) and the unit'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 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) 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 when the unit is ready to begin negotiations.

(d) The parties may conduct negotiations according to an agreed schedule as 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 chapter 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 §51.213 of this title (relating to Request for Contested Case Hearing) after the 270th day after the unit 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 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 the provisions of this subchapter.

(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.

§51.209.Conduct of Negotiation.

(a) Negotiation is a consensual bargaining process in which the parties attempt to resolve a claim and counterclaim. A negotiation under this subchapter may be conducted by any method, technique, or procedure authorized under the contract or agreed upon by the parties, including, without limitation, negotiation in person, by telephone, by correspondence, by video conference, or by any other method that permits the parties to identify their respective positions, discuss their respective differences, confer with their respective advisers, exchange offers of settlement, and settle.

(b) The parties may conduct negotiations with the assistance of one or more neutral third parties. If the parties choose to mediate their dispute, the mediation shall be conducted in accordance with this subchapter. Parties may choose an assisted negotiation process other than mediation, including without limitation, processes such as those described in §51.224 of this title (relating to Assisted Negotiation Processes) and §51.225 of this title (relating to Alternative Dispute Resolution).

(c) To facilitate the meaningful evaluation and negotiation of the claim(s) and any counterclaim(s), the parties may exchange relevant documents that support their respective claims, defenses, counterclaims or positions.

(d) Material submitted pursuant to this subsection and claimed to be confidential by the contractor shall be handled pursuant to the requirements of Government Code , Chapter 552.

§51.210. Settlement Approval Procedures. The parties' settlement approval procedures shall be disclosed prior to, or at the beginning of, negotiations. To the extent possible, the parties shall select negotiators who are knowledgeable about the subject matter of the dispute, who are in a position to reach agreement, and who can credibly recommend approval of an agreement.

§51.211. Settlement Agreement.

(a) A settlement agreement may resolve an entire claim or any designated and severable portion of a claim.

(b) To be enforceable, a settlement agreement must be in writing and signed by representatives of the contractor and the department who have authority to bind each respective party.

(c) A partial settlement does not waive a parties' rights under the Government Code, Chapter 2260, as to the parts of the claims or counterclaims that are not resolved.

§51.212. Costs of Negotiation. Unless the parties agree otherwise, each party shall be responsible for its own costs incurred in connection with a negotiation, including, without limitation, the costs of attorney's fees, consultant's fees and expert's fees.

§51.213. Request for Contested Case Hearing.

(a) If a claim for breach of contract is not resolved in its entirety through negotiation, mediation or other assisted negotiation process in accordance with this chapter on or before the 270th day after the unit receives the notice of claim, or after the expiration of any extension agreed to by the parties pursuant to §51.208(f) of this title (relating to Timetable), the contractor may file a request with the department for a contested case hearing before SOAH.

(b) A request for a contested case hearing shall state the legal and factual basis for the claim, and shall be delivered to the chief administrative officer of the department or other officer designated in the contract to receive notice within a reasonable time after the 270th day or the expiration of any written extension agreed to pursuant to §51.208(f) of this subchapter.

(c)The department shall forward the contractor's request for contested case hearing to SOAH within a reasonable period of time, not to exceed thirty days, after receipt of the request.

(d)The parties may agree to submit the case to SOAH before the 270th day after the notice of claim is received by the department if they have achieved a partial resolution of the claim or if an impasse has been reached in the negotiations and proceeding to a contested case hearing would serve the interests of justice.

51.214. Mediation Timetable.

(a) The contractor and the department may agree to mediate the dispute at any time before the 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) 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.

§51.215. Conduct of Mediation.

(a)Mediation is a consensual process in which an impartial third party, the mediator, facilitates communication between the parties to promote reconciliation, settlement, or understanding among them. A mediator may not impose his or her own judgment on the issues for that of the parties. The mediator must be acceptable to both parties.

(b)The mediation is subject to the provisions of the Governmental Dispute Resolution Act, Government Code, Chapter 2009. For purposes of this subchapter, "mediation" is assigned the meaning set forth in the Civil Practice and Remedies Code, §154.023.

(c)To facilitate a meaningful opportunity for settlement, the parties shall, to the extent possible, select representatives who are knowledgeable about the dispute, who are in a position to reach agreement, or who can credibly recommend approval of an agreement.

§51.216. Agreement to Mediate.

(a) Parties may agree to use mediation as an option to resolve a breach of contract claim at the time they enter into the contract and include a contractual provision to do so. The parties may mediate a breach of contract claim even absent a contractual provision to do so if both parties agree.

(b) Any agreement to mediate should include consideration of the following factors:

(1) The source of the mediator. Potential sources of mediators include governmental officers or employees who are qualified as mediators under Civil Practice and Remedies Code, §154.052, private mediators, SOAH, the Center for Public Policy Dispute Resolution at The University of Texas School of Law, an alternative dispute resolution system created under Civil Practice and Remedies Code, Chapter 152, or another state or federal agency or through a pooling agreement with several state agencies. Before naming a mediator source in a contract, the parties should contact the mediator source to be sure that it is willing to serve in that capacity. In selecting a mediator, the parties should use the qualifications set forth in §51.217 of this title (relating to Qualifications and Immunity of Mediator).

(2) The time period for the mediation. The parties should allow enough time in which to make arrangements with the mediator and attending parties to schedule the mediation, to attend and participate in the mediation, and to complete any settlement approval procedures necessary to achieve final settlement. While this time frame can vary according to the needs and schedules of the mediator and parties, it is important that the parties allow adequate time for the process.

(3) The location of the mediation.

(4) Allocation of costs of the mediator.

(5) The identification of representatives who will attend the mediation on behalf of the parties, if possible, by name or position within the governmental unit or contracting entity.

(6) The settlement approval process in the event the parties reach agreement at the mediation.

§51.217. Qualifications and Immunity of the Mediator.

(a)The mediator shall possess the qualifications required under Civil Practice and Remedies Code, §154.052, be subject to the standards and duties prescribed by Civil Practice and Remedies Code, §154.051 and have the qualified immunity prescribed by Civil Practice and Remedies Code, §154.055, if applicable.

(b)The parties should decide whether, and to what extent, knowledge of the subject matter and experience in mediation would be advisable for the mediator.

(c)The parties should obtain from the prospective mediator the ethical standards that will govern the mediation.

§51.218. Confidentiality of Mediation and Final Settlement Agreement.

(a)A mediation conducted under this section is confidential in accordance with Government Code, §2009.054.

(b)The confidentiality of a final settlement agreement to which the department is a signatory that is reached as a result of the mediation is governed by Government Code, Chapter 552.

§51.219. Costs of Mediation. Unless the contractor and the department agree otherwise, each party shall be responsible for its own costs incurred in connection with the mediation, including costs of document reproduction for documents requested by such party, attorney's fees, and consultant or expert fees. The costs of the mediation process itself shall be divided equally between the parties.

§51.220. Settlement Approval Procedures. The parties' settlement approval procedures shall be disclosed by the parties prior to the mediation. To the extent possible, the parties shall select representatives who are knowledgeable about the subject matter of the dispute, who are in a position to reach agreement, and who can credibly recommend approval of an agreement.

§51.221. Initial Settlement Agreement. Any settlement agreement reached during the mediation shall be signed by the representatives of the contractor and the department, and shall describe any procedures required to be followed by the parties in connection with final approval of the agreement.

§51.222. Final Settlement Agreement.

(a)A final settlement agreement reached during, or as a result of mediation, that resolves an entire claim or any designated and severable portion of a claim shall be in writing and signed by representatives of the contractor and the department who have authority to bind each respective party.

(b)If the settlement agreement does not resolve all issues raised by the claim and counterclaim, the agreement shall identify the issues that are not resolved.

(c)A partial settlement does not waive a contractor's rights under the Government Code, Chapter 2260, as to the parts of the claim that are not resolved.

§51.223. Referral to the State Office of Administrative Hearings. If mediation does not resolve all issues raised by the claim, the contractor may request that the claim be referred to SOAH by the department. Nothing in these rules prohibits the contractor and the department from mediating their dispute after the case has been referred for contested case hearing, subject to the rules of SOAH.

§51.224. Assisted Negotiation Processes. Parties to a contract dispute under Government Code, Chapter 2260 may agree, either contractually or when a dispute arises, to use assisted negotiation (alternative dispute resolution) processes in addition to negotiation and mediation to resolve their dispute.

§51.225. Alternative Dispute Resolution. Parties to a contract dispute under these rules may agree, either contractually or when a dispute arises to use an Alternative Dispute Resolution process in addition to negotiation and mediation to resolve their disputes.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to a within the agency's authority to adopt.

Issued in Austin, Texas, on


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