House Bill 718

HB 718 added Section 51.9237 to the Texas Education Code, which prohibits “institutions of higher education” from contractually partnering with a private entity to construct a student housing facility if the private entity (or its property) has a pending action or lien against it related to a claim for nonpayment of a contractor, subcontractor, or vendor. (Institutions of higher education are defined by Texas Education Code, Chapter 61, to include any public technical institute, public junior college, public senior college or university, medical or dental unit, public state college, or other agency of higher education.) However, this prohibition does not apply to a claim for nonpayment if the private entity (1) has provided a payment bond to cover the claim; or (2) contests in good faith the validity or accuracy of the claim (e.g., nonpayment in accordance with an enforceable contingent payment clause).

Nonpayment claims from downstream vendors are commonplace on Texas construction projects. As a result, this bill could make it difficult for parties that develop or construct student housing facilities to be awarded such projects in the future. While the bill provided a good-faith-dispute exception, entities looking to partner with institutions of higher education for these projects would presumably need to demonstrate the legitimacy of this exception to such institution—or incur additional costs to procure a bond to cover the claim in question—before being awarded a project. However, the bill does not specify how an entity can demonstrate the existence of a good faith dispute or what documentation is required to demonstrate the validity of a payment bond. “Action” is also undefined, risking an interpretation encompassing all claims, whether filed in a lawsuit or not. While other statutes have defined “action” in a manner usually limited to arbitrations and judicial proceedings, the lack of definition in both this bill and the Education Code may allow for a potentially broader reading. Such institutions may find it simpler and less risky to partner with an entity without any such actions or liens. On the other hand, such institutions may have difficulty finding a private entity in the construction industry that has no pending actions or liens against it for nonpayment claims. This bill applies to all contracts entered into on or after September 1, 2025.