SECTION 155.31. Establishing Procedures for Resolving Contract Claims and Disputes

(a) Purpose. This section is intended to serve as a guideline for the negotiation and mediation of a breach of contract claim asserted by a contractor against the Texas Department of Criminal Justice (TDCJ) under Texas Government Code Chapter 2260. This section is binding upon the TDCJ and is not intended to replace the TDCJ procedures relating to a breach of contract claim that is mandated by state or federal law, but is intended to provide procedures when none are so mandated.

(b) Policy. It is the policy of the Texas Board of Criminal Justice (TBCJ) and the TDCJ to resolve a breach of contract claim as efficiently and as expeditiously as possible, consistent with prudent stewardship of the state of Texas assets.

(c) Applicability. This section does not apply to an action of a unit of state government for which a contractor is entitled to a specific remedy pursuant to state or federal constitution or statute.

(1) This section does not apply to a contract action proposed or taken by a unit of state government for which a contractor receiving Medicaid funds under that contract is entitled by state statute or rule to a hearing conducted in accordance with Texas Government Code Chapter 2001.

(2) This section does not apply to contracts:

(A) between a unit of state government and the federal government or its agencies, another state, or another nation;

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

(C) between a unit of state government and a local governmental body, or a political subdivision of another state;

(D) between a subcontractor and a contractor;

(E) subject to Texas Transportation Code §201.112;

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

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

(H) that are solely and entirely funded by federal grant monies other than for a project defined in subsection (d)(9) of this section.

(d) Definitions. The following words and terms, when used in this section, shall have the following meaning, unless the context clearly indicates otherwise.

(1) Claim is a demand for damages by the contractor based upon the TDCJ's alleged breach of the contract.

(2) Contract is a written contract between the TDCJ 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 TDCJ; or

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

(3) Contractor is an independent contractor who has entered into a contract directly with the TDCJ. The term does not include:

(A) the contractor's subcontractor, officer, employee, agent, or other person who furnishes goods or services to a contractor;

(B) an employee of a unit of state government; or

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

(4) Counterclaim is a demand by the TDCJ arising out of the contract.

(5) Day is a calendar day. If an act is required to occur on a date that falls on a Saturday, Sunday, or holiday, the first working day that follows shall be counted as the required day for purpose of that act.

(6) Event is an act or omission or a series of acts or omissions giving rise to a claim. The following list contains illustrative examples of events, subject to the specific terms of the contract.

(A) Examples of events in the context of a contract for goods or services:

(i) the failure of the TDCJ to timely pay for goods and services;

(ii) the failure of the TDCJ to pay the balance due and owing on the contract price, including orders for additional work, after deducting any amount owed the TDCJ for work not performed under the contract or in substantial compliance with the contract terms;

(iii) the suspension, cancellation, or termination of the contract;

(iv) the final rejection of the goods or services tendered by the contractor, in whole or in part;

(v) the repudiation of the entire contract prior to or at the outset of performance by the contractor; or

(vi) the withholding liquidated damages from final payment to the contractor.

(B) Examples of events in the context of a project:

(i) the failure to timely pay the unpaid balance of the contract price following final acceptance of the project;

(ii) the failure to make timely progress payments required by the contract;

(iii) the failure to pay the balance due and owing on the contract price, including orders for additional work, after deducting work not performed under the contract;

(iv) the failure to grant time extensions to which the contractor is entitled under the terms of the contract;

(v) the failure to compensate the contractor for occurrences for which the contract provides a remedy;

(vi) the suspension, cancellation, or termination of the contract;

(vii) the rejection by the TDCJ, in whole or in part, of the "work," as defined by the contract, tendered by the contractor;

(viii) the repudiation of the entire contract prior to or at the outset of performance by the contractor;

(ix) the withholding liquidated damages from final payment to the contractor; or

(x) the refusal, in whole or in part, of a written request made by the contractor in strict accordance with the contract to adjust the contract price, the contract time or the scope of work.

(7) Executive Director is the chief administrative officer responsible for the day-to-day operations of the TDCJ.

(8) Parties means the TDCJ and the contractor who have entered into a contract in connection with which a breach of contract claim has been filed under this section.

(9) Project as defined in Texas Government Code §2166.001, is 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.

(10) Services means the furnishing of skilled or unskilled labor or consulting or professional work, or a combination thereof, excluding the labor of an employee of a unit of state government.

(e) Prerequisites to Suit. The procedures contained in this section are exclusive and required prerequisites to suit under Texas Civil Practice & Remedies Code Chapter 107 and Texas Government Code Chapter 2260.

(f) Notice of Breach of Contract Claim.

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

(2) The notice of claim shall:

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

(B) be delivered by hand, certified mail return receipt requested, or other verifiable delivery service, to the TDCJ Director of Contracts and Procurement, Two Financial Plaza, Suite 474, Huntsville, Texas 77340; and

(C) state in detail:

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

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

(iii) the legal theory of recovery, such as breach of contract, including the causal relationship between the alleged breach and the damages claimed.

(3) In addition to the mandatory contents of the notice of claim as required by paragraph (2) of this subsection, the contractor may submit supporting documentation or other tangible evidence to facilitate the TDCJ's evaluation of the contractor's claim.

(4) 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.

(g) Agency Counterclaim.

(1) The TDCJ, asserting a counterclaim under Texas Government Code Chapter 2260, shall file notice of the counterclaim as provided by this subsection.

(2) The notice of counterclaim shall:

(A) be in writing;

(B) 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 breach of contract claim; and

(C) state in detail:

(i) the nature of the counterclaim;

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

(iii) the legal theory supporting the counterclaim.

(3) In addition to the mandatory contents of the notice of counterclaim required by paragraph (2) of this subsection, the TDCJ may submit supporting documentation or other tangible evidence to facilitate the contractor's evaluation of the TDCJ's counterclaim.

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

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

(h) Contract Disputes.

(1) To every extent possible, a dispute with a contractor should be resolved during the course of the contract. However, after completion of a contract, or when required for orderly performance prior to completion, if a resolution of a contractor's dispute has not been reached by the appropriate TDCJ division, the contractor should file a Notice of Breach of Contract Claim with the director of Contracts and Procurement per the requirements in subsection (f) of this section.

(2) The executive director shall name the members and chairman of a Contract Dispute Committee (the committee), which will serve at the executive director's request. It shall be the responsibility of the committee to gather information, study relevant facts and documentation, meet with contractors and, if requested, to resolve any disputes between a TDCJ division and the contractor, as set forth by the claim.

(3) The committee shall secure detailed reports and recommendations from the appropriate TDCJ division and may confer with TDCJ personnel, other persons, and outside entities that it deems appropriate.

(4) The committee shall then afford the contractor an opportunity for a meeting or hearing to discuss the claim and to provide the contractor an opportunity to present additional relevant information and respond to information the committee has received from the appropriate TDCJ division.

(5) The committee chairman shall give written notice of the committee's proposed disposition of the claim to the contractor and the appropriate TDCJ division. If that disposition is acceptable, the contractor shall advise the committee chairman in writing within 20 days of the date such notice is received, and the committee chairman shall forward the agreed disposition to the executive director for a final and binding order on the claim. If the contractor or TDCJ division is dissatisfied with the proposal of the committee, either party may appeal to the executive director.

(i) Appeal to the Executive Director.

(1) An aggrieved contractor or TDCJ division may file a written appeal of the committee's decision to the executive director within 20 days of the receipt of the committee's decision. The contractor's appeal shall be submitted in writing and signed by the contractor or the contractor's authorized representative and delivered by hand, certified mail return receipt requested, or other verifiable delivery service to the TDCJ Executive Director, P.O. Box 99, Huntsville, Texas 77342. The TDCJ division's appeal shall be in writing and signed by the appropriate division director. The executive director or designee may uphold, reverse, or modify the decision of the committee.

(2) The executive director or designee shall give written notice of the disposition of the claim to the contractor and the appropriate TDCJ division. If that disposition is acceptable to the contractor, the contractor shall advise the executive director, in writing, within 20 days of the date such notice is received. The TDCJ division shall have no right to object to the disposition of the claim or dispute made by the executive director or designee.

(j) Appeal to the TBCJ with Respect to Certain Contracts. A contractor who operates or manages a secure correctional facility of the TDCJ may appeal to the TBCJ for final determination, within 20 days of the executive director's decision, any imposed sanction under the contract. The appeal shall be submitted in writing and signed by the contractor or the contractor's authorized representative and delivered by hand, certified mail return receipt requested, or other verifiable delivery service to the TBCJ, P.O. Box 13084, Austin, Texas 78711.

(k) Request for Voluntary Disclosure of Additional Information.

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

(A) accounting records;

(B) correspondence between the TDCJ and outside consultants it used when preparing its bid solicitation or any part thereof or in administering the contract, and correspondence between the contractor and its subcontractors, material men, and vendors;

(C) schedules;

(D) the parties' internal memoranda; and

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

(2) This subsection applies to all information in the parties' possession regardless of the manner in which it is recorded, including, without limitation, paper and electronic media.

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

(4) Nothing in this subsection requires any party to disclose any information or any matter that is privileged under Texas law.

(5) Requests submitted pursuant to this subsection for material claimed to be confidential by the contractor shall be handled pursuant to the requirements of the Public Information Act.

(l) Duty to Negotiate. The parties shall negotiate in accordance with the timetable set forth in subsection (m) of this section to resolve all claims and counterclaims. No party is obligated to settle with the other party as a result of the negotiation.

(m) Negotiation Timetable.

(1) Following receipt of a contractor's notice of claim, the committee shall review the contractor's claim(s) and the TDCJ's counterclaim(s), if any, and shall initiate negotiations with the contractor to resolve the claim(s) and counterclaim(s).

(2) The parties shall begin negotiations within a reasonable period of time, not to exceed 120 days following the date the TDCJ receives the contractor's notice of claim.

(3) The parties may conduct negotiations according to an agreed schedule provided negotiations begin no later than the deadline set forth in paragraph (2) of this subsection.

(4) Subject to paragraph (5) of this subsection, the parties shall complete the negotiations required by this subsection as a prerequisite to a contractor's request for contested case hearing no later than 270 days after the TDCJ receives the contractor's notice of claim.

(5) The parties may agree in writing to extend the time for negotiations on or before the 270th day after the TDCJ 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 certain date. The parties may enter into a series of written extension agreements that comply with the requirements of this section.

(6) The contractor may request, in writing, a contested case hearing before the State Office of Administrative Hearings (SOAH) pursuant to subsection (q) of this section after the 270th day after the TDCJ receives the contractor's notice of claim or the expiration of any extension agreed to under paragraph (5) of this subsection.

(7) The parties may agree to mediate the dispute at any time before the 120th day after the TDCJ receives the contractor's notice of claim or before the expiration of any extension agreed to by the parties pursuant to paragraph (5) of this subsection. The mediation shall be governed by subsections (r), (s), (t), (u), (v), and (w) of this section.

(8) Nothing in this subsection is intended to prevent the parties from agreeing to commence negotiations earlier than the deadlines established in paragraph (2) of this subsection, or from continuing or resuming negotiations after the contractor requests a contested case hearing before the SOAH.

(n) Conduct of Negotiation.

(1) 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 which permits the parties to identify respective positions, discuss respective differences, confer with respective advisers, exchange offers of settlement, and settle.

(2) The parties may conduct negotiations with the assistance of one or more neutral third-parties. If the parties choose to mediate the dispute, the mediation shall be conducted in accordance with subsections (r), (s), (t), (u), (v), and (w) of this section. Parties may choose an assisted negotiation process other than mediation, including, without limitation, processes such as those described in subsections (x), (y), and (z) of this section.

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

(4) Material submitted pursuant to this subsection and claimed to be confidential by the contractor shall be handled pursuant to the requirements of the Public Information Act.

(o) Settlement Agreement.

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

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

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

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

(q) Request for Contested Case Hearing.

(1) If a breach of contract claim is not resolved in its entirety through negotiation, mediation, or other assisted negotiation process in accordance with this section on or before the 270th day after the TDCJ receives the notice of claim, or after the expiration of any extension agreed to by the parties pursuant to subsection (m)(5) of this section, the contractor may file a request with the TDCJ for a contested case hearing before the SOAH.

(2) A request for a contested case hearing shall state the legal and factual basis for the claim and shall be delivered to the executive director 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 subsection (m)(5) of this section.

(3) The TDCJ shall forward the contractor's request for contested case hearing to the SOAH within a reasonable period of time, not to exceed 30 days, after receipt of the request.

(4) The parties may agree to submit the case to the SOAH before the 270th day after the notice of claim is received by the TDCJ 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.

(r) Mediation Timetable.

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

(2) A contractor and the TDCJ may mediate the dispute even after the case has been referred to the SOAH for a contested case. The 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.

(s) Conduct of Mediation.

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

(2) Parties may agree to use mediation as an option to resolve a breach of contract claim at the time the parties 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.

(3) In selecting a mediator, the parties should use the qualifications set forth in subsection (t) of this section. The mediator shall be acceptable to both parties.

(t) Qualification and Immunity of the Mediator.

(1) The mediator shall possess the qualifications required under Texas Civil Practice and Remedies Code §154.052, be subject to the standards and duties prescribed by Texas Civil Practice and Remedies Code §154.053 and have the qualified immunity prescribed by Texas Civil Practice and Remedies Code §154.055, if applicable.

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

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

(u) Confidentiality of Mediation and Final Mediated Settlement Agreement.

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

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

(v) Costs of Mediation. Unless the contractor and the TDCJ agree otherwise in writing, 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 fees, consultant fees or expert fees. The costs of the mediation process itself shall be divided equally between the parties.

(w) Mediated Settlement Agreement. Any settlement agreement reached during the mediation shall be signed by the representatives of the contractor and the TDCJ and describe any procedures required to be followed by the parties in connection with final approval of the agreement.

(x) Final Settlement Agreement.

(1) A final settlement agreement reached through 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 TDCJ who have authority to bind each respective party.

(2) 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.

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

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

(z) Factors Supporting the Use of Assisted Negotiation Processes. The following factors may help the parties decide whether one or more assisted negotiation processes could help resolve the dispute:

(1) the parties recognize the benefits of an agreed resolution of the dispute;

(2) the expense of proceeding to contested case hearing at the SOAH is substantial and might outweigh any potential recovery;

(3) the parties want an expedited resolution;

(4) the ultimate outcome is uncertain;

(5) there exists factual or technical complexity or uncertainty that would benefit from the expertise of a third-party expert for technical assistance or fact-finding;

(6) the parties are having substantial difficulty communicating effectively;

(7) a mediator third-party could facilitate the parties' realistic evaluation of the respective cases;

(8) there is an on-going relationship that exists between the parties;

(9) the parties want to retain control over the outcome;

(10) there is a need to develop creative alternatives to resolve the dispute;

(11) there is a need for flexibility in shaping relief;

(12) a party has an unrealistic view of the merits of its case; or

(13) the parties, or aggrieved persons, need to hear an evaluation of the case from someone other than their lawyers.

(aa) Use of Assisted Negotiation Processes. Any of the following methods, or a combination of these methods, or any assisted negotiation process agreed to by the parties, may be used in seeking resolution of disputes or other controversy arising under Texas Government Code Chapter 2260. If the parties agree to use an assisted negotiation procedure, the parties should agree in writing to a detailed description of the process prior to engaging in the process.

(1) Mediation.

(2) Early evaluation by a neutral third-party.

(A) This is a confidential conference wherein the parties and counsel present the factual and legal bases of their claims and receive a non-binding assessment by an experienced neutral third-party with subject-matter expertise or with significant experience in the substantive area of law involved in the dispute.

(B) After summary presentation, the neutral third-party identifies areas of agreement for possible stipulations, assesses the strengths and weaknesses of each party's position, and estimates, if possible, the likelihood of liability and the dollar range of damages that appear reasonable to the neutral third-party.

(C) This less complicated procedure may be appropriate only for some issues in dispute where there are clear-cut differences over the appropriate amount of damages. This process may be particularly helpful when:

(i) the parties agree that the dispute can be settled;

(ii) the dispute involves specific legal issues;

(iii) the parties disagree on the amount of damages;

(iv) the opposition has an unrealistic view of the dispute; or

(v) the neutral third-party is a recognized expert in the subject area or area of law involved.

(3) Neutral fact-finding by an expert.

(A) In this process, a neutral third-party expert studies a particular issue and reports findings on that issue. The process usually occurs after most discovery concerning the dispute has been completed and the significance of particular technical or scientific issues is apparent.

(B) The parties may agree in writing that the fact-finding shall be binding in later proceedings, and entered into as a stipulation in the dispute if the matter proceeds to contested case hearing, or that it shall be advisory in nature, to be used only in further settlement discussions between representatives of the parties. This process may be particularly helpful when:

(i) factual issues requiring expert testimony may be dispositive of liability or damage issues;

(ii) the use of a neutral third-party is cost effective; or

(iii) the neutral third-party's findings could narrow factual issues for contested case hearing.

(4) Mini-trial.

(A) A mini-trial is a summary proceeding before a representative of upper management from each party who has authority to settle and a neutral third-party selected by agreement of the parties. A mini-trial is usually divided into a limited information-exchange phase, the hearing, and post-hearing settlement discussions. No written or oral statement made in the proceeding may be used as evidence or an admission in any other proceeding.

(B) The information-exchange stage should be brief, but it shall be sufficient for each party to understand and appreciate the key issues. At a minimum, the parties should exchange key exhibits, introductory statements, and a summary of witnesses' testimony.

(C) At the hearing, representatives of the parties present a summary of the anticipated evidence and any legal issues that shall be decided before the case can be resolved. The neutral third-party presides over the presentation and may question witnesses and counsel, as well as comment on the arguments and evidence. Each party may agree to put on abbreviated direct and cross-examination testimony. The hearing generally takes no longer than one to two days.

(D) Settlement discussions, facilitated by the neutral third-party, take place after the hearing. The parties may ask the neutral third-party to formally evaluate the evidence and arguments and provide an advisory opinion as to the issues in the case. If the parties cannot reach an agreed resolution to the dispute, either side may declare the mini-trial terminated and proceed to a resolution of the dispute by other means.

(E) Mini-trials may be appropriate when:

(i) the dispute is at a stage where substantial costs can be saved by a resolution based on limited information gathered;

(ii) the matter justifies the senior executive's time required to complete the process;

(iii) the issues include highly technical mixed questions of law and fact;

(iv) the matter involves trade secrets or other confidential or proprietary information; or

(v) the parties seek to narrow the large number of issues in dispute.

(bb) Approval. Any settlement reached pursuant to this section may require the approval of the TBCJ, the attorney general of Texas, the governor of Texas, or the Texas Legislature, as required by TBCJ policy, statutes, and rules of the state of Texas, and the General Appropriations Act.

(cc) Intent. It is the intent of the TDCJ to comply with the provisions of Texas Government Code Chapter 2260. To the extent that any term or provision of this section is in conflict with Chapter 2260, the terms and provisions of Chapter 2260 shall prevail.

(dd) Disclaimer. The TDCJ and the TBCJ do not waive sovereign immunity from suit or liability due to the establishment of this section. The TDCJ and the TBCJ consider the procedure described in Chapter 2260 and this section to be the exclusive means of resolving breach of contract claims against the TDCJ.

Source Note: The provisions of this §155.31 adopted to be effective June 11, 2000, 25 TexReg 5378; amended to be effective December 9, 2001, 26 TexReg 9914; amended to be effective October 7, 2007, 32 TexReg 6785; amended to be effective May 10, 2012, 37 TexReg 3420