Negotiate Out-of-State Choice of Law Provisions with Care
Laura Napoli-Janitens examines how Texas HB 2960 has reshaped where construction disputes can be resolved in an article written for the September edition of Construction News magazine. She explains how the new law renders certain out-of-state choice-of-law and venue provisions void and highlights what contractors and other construction professionals should consider when drafting and negotiating agreements for Texas projects.
Texas HB 2960 rewrote the rules on where construction disputes get resolved. The industry should take note.
What changed, and when it took effect
For years, the so called “home rule” statute—Section 272.001 of the Texas Business & Commerce Code—let participants in Texas-based construction projects attempt to void contract clauses that mandated the use of another state’s courts for disputes or imposed another state’s laws on Texas projects. Attempt is the key word here: an out-of-state forum-selection clause could stand unless affirmatively opposed by a party to the contract.
House Bill 2960, passed unanimously (148-0, 31-0) during the 89th Legislature’s 2025 regular session, changed that. Effective September 1, 2025, any provision in a construction contract (or in an agreement collateral to or affecting a construction contract)[1] that requires litigation in another state’s courts, arbitration in another state, or application of another state’s law is void as against public policy. The change applies to contracts entered into or renewed on or after the effective date.
Not just voidable, but void
A voidable clause is essentially valid and enforceable until someone challenges it, and a court agrees with the challenge. Under the old law, courts sometimes enforced out-of-state forum or venue clauses for Texas projects, reasoning that the party advocating for Texas home rule had bargained away such protections or failed to timely raise the issue. National contractors, keen on resolving disputes in their choice of state, could even use creative contract language to draft around the statute.
But a void clause is invalid from its inception. Parties cannot ratify, waive, or cure it by mutual consent before a dispute arises. Under the new HB 2960 version of the home rule statute, no amount of pre-dispute contract language—no matter how conspicuous or heavily negotiated—can relocate a Texas-based project construction dispute to another venue or impose another state’s laws.
Where cases will be heard
New subsection 272.001(c) supplies the default venue: “To the extent that a venue provision in a contract is void . . . unless the parties stipulate to another venue after the dispute arises, an action arising out of the contract shall be brought only in this state in the county in which the property that is the subject of the litigation is located.”
Thus, a Texas-based project’s physical location now drives not only where the case is heard, but also the jury pool, local counsel requirements, witness travel, insurance, and defense costs. These are all important pre-dispute considerations and can certainly affect settlement discussions.
An open question: Federal Arbitration Act preemption
Before HB 2960, at least one Texas appellate court held that the Federal Arbitration Act preempted the earlier, voidable version of Section 272.001 as applied to arbitration clauses in interstate-commerce contracts. Whether the FAA similarly preempts the new “void” standard is untested. Parties should not treat an out-of-state arbitration clause as a safe harbor—prudent contract negotiators should assume that the enhanced Texas home-rule statute requirements apply to arbitration as well.
Practical Guidance for Contract Drafting and Negotiation
Adjust expectations. National contractors and out-of-state parties should stop assuming home-jurisdiction dispute clauses will stand on Texas-based work.
Audit form documents. Update subcontracts, purchase orders, design agreements, guaranties, warranties, flow-downs, joint-check agreements, and indemnity agreements. The statute reaches agreements “collateral to or affecting” construction contracts, so it sweeps in ancillary documents.
Watch renewals and extensions. A contract entered into before September 1, 2025 that is renewed or extended on or after that date is subject to the new statute. Legacy forms pulled forward without revision expose the parties to unenforceable clauses.
Treat venue as commercial leverage. The dispute-resolution clause is no longer boilerplate. Where the case will be heard affects claim valuation, defense cost, jury composition, and settlement dynamics. Price the risk accordingly during negotiation.
Preserve the post-dispute stipulation option. Although pre-dispute venue agreements are void, both parties may still stipulate to a different venue after a dispute arises. Knowing this gives negotiators a tool.
The Takeaway
HB 2960 is a clear legislative signal—passed without a single dissenting vote—that Texas construction disputes belong in Texas. For owners, developers, general contractors, subcontractors, suppliers, and design professionals working on Texas projects, the days of defaulting to a distant forum are over. Treat September 1, 2025, as a hard deadline to review all active forms and pending deals.
This article is provided as general information about recent legislative developments and does not constitute legal advice; readers should consult qualified counsel regarding specific situations.
About the Author
Laura Napoli-Janitens is a Principal in the Houston office of Cokinos | Young, where her practice focuses on complex commercial and construction disputes. She represents businesses in state, federal, and appellate courts in matters involving real estate, industrial construction, pipelines, water systems, developer disputes, and tort defense. For questions, Laura can be reached at 713-535-5587 or lnapoli-janitens@cokinoslaw.com.
About Cokinos | Young
Cokinos | Young has led Texas construction and real estate law for over three decades. And today, our 100+ dedicated professionals operate coast to coast and proudly handle all aspects of construction law for owner/developers, project managers, general contractors, design professionals, subcontractors, sureties, and lenders. We provide both dispute resolution and transactional services to clients through all phases of commercial, industrial, pipeline, offshore, civil, and residential construction. Our reputation was built on relentless commitment to client service and the industries we serve, and that remains our primary driver. Dedicated. Resilient. Expertise. That’s Cokinos | Young. Learn more at cokinoslaw.com.
[1] The new law specifically defines which contracts it applies to: “a contract, subcontract, or agreement entered into or made by an owner, architect, engineer, contractor, construction manager, subcontractor, supplier, or material or equipment lessor for the design, construction, alteration, renovation, remodeling, or repair of, or for the furnishing of material or equipment for, a building, structure, appurtenance, or other improvement to or on public or private real property, including moving, demolition, and excavation connected with the real property. The term includes an agreement to which an architect, engineer, or contractor and an owner’s lender are parties regarding an assignment of the construction contract or other modifications thereto.” Texas Business & Commerce Code, Section 272.001. The new statute also exempts certain contracts to which it expressly does not apply in Section 272.002.