Chapter 49 of the Water Code governs special purpose districts in Texas. Special purpose districts are governmental entities with specific geographic boundaries that provide various public services. Current § 49.273 of the Water Code governs the award of contracts for the construction or repair of special-purpose-district facilities, or the purchase of equipment, materials, etc. for such construction or repair. The current § 49.273 also sets a maximum change-order amount ($50,000) that the special districts can authorize certain employees to execute on such projects (without having the board approve the change order). HB 3437 increases this maximum threshold to $150,000, whether the change order is additive or deductive. On the other hand, HB 3507 increases the (1) minimum dollar threshold for contracts that require competitive sealed bid procurement from $75,000 to $150,000, and (2) the range of contract values that require written competitive bids from $25,000-$75,000, to $25,000-$150,000.

Background: Procurement Rules for Special Purpose Districts

Public projects are generally subject to public letting or procurement laws, which set forth the conditions, manners, and procedures that governmental entities must follow when contracting for goods and services. Texas Water Code Chapter 49, and specifically Subchapter I (§§ 49.271 –.279), contain procurement rules applicable to special purpose districts.

As noted above, special purpose districts are governmental entities with a set geographic boundary that provide public services, which can include firefighting services, water services, or wastewater services (among others). Special purpose districts are governed by a board of directors. If the board of the special purpose district wishes to construct or repair district facilities, they must follow the procurement rules outlined in Texas Water Code Chapter 49.

HB 3507

Under § 49.273, special purpose districts have three options, depending on the size of the construction project. Under the current law, if the project is large (contract greater than $75,000), the district must use a competitive sealed bid. This will involve publishing a notice in every county in which the district operates, which notifies all bidders of when the bids will be unsealed. If the project is medium-sized (contracts from $25,000 to $75,000), the district must solicit written competitive bids from at least three bidders. And, if the project is small (contracts less than $25,000), the district is not required to procure the services by competitive bidding.

The Legislature typically revisits these dollar thresholds periodically, because of inflation. The last time the Legislature tinkered with these thresholds was in 2013, and Texas has had significant inflation since that time. HB 3507, effective for procurement of all applicable projects after September 1, 2023, increases the “large” threshold to contracts greater than $150,000; the “medium-sized” threshold to contracts ranging in value from $25,000 to $150,000; and the “small” threshold is still contracts valued at less than $25,000.

The main takeaway is this: If you are a special purpose district that procures construction services for facility improvements or repairs, effective September 1, 2023, you must now use competitive sealed proposals only if the contract is larger than $150,000, but must use written competitive bid procurement for contracts between $25,000 to $150,000.

HB 3437

During construction projects falling under the purview of Texas Water Code Chapter 49, special districts may want to order changes in the work. These change orders require a written submission by the contractor, with approval by the special district’s board of directors. To expedite the approval process for smaller change orders, § 49.273(i) allows a special district’s board to authorize certain officials or employees to approve smaller change orders (as opposed to having the board approve the change order).

Under the current law, the maximum change-order amount that an employee could approve is $50,000. But HB 3437 increases that amount to $150,000 for change orders approved on or after September 1, 2023. This functionally increases the size of small change orders (that a board can delegate authority to approve) to the higher $150,000 amount. Importantly, the aggregate of change orders approved by the special district (either through the board for large change orders, or by a delegated employee for small change orders) cannot exceed 25% of the original contract balance.