Contract Claims

Contract Claims

Chapter 2260 of the Texas Government Code establishes the administrative process for resolving certain contract claims made by contractors against the State or a State entity. These claims typically involve allegations of breach of contract by the state agency and may arise from contracts for goods or services as well as construction contracts.

Contract claims dispute cases under Chapter 2260 are generally handled in the same manner as other SOAH hearings. SOAH’s Rules of Procedure for General Hearings in Title 1, Chapter 155 of the Texas Administrative Code apply. Chapter 2260 claims differ procedurally in two distinct ways:

  1. The contractor must initiate the dispute through the contracting agency’s dispute resolution procedures and in accordance with the prerequisites of Chapter 2260; and
  2. The costs of 2260 cases are not covered by either General Revenue appropriations or interagency contract. Instead, SOAH charges hearing costs to the parties through a statutory mechanism that applies exclusively to contract claims disputes under Chapter 2260.

Negotiation and Mediation

Upon receiving a claim, the agency head or their designee must review and attempt to resolve the dispute through negotiation or mediation, which must begin no later than 120 days after the claim is received. Parties may elect to use mediation services from the State Office of Administrative Hearings (SOAH) or hire a private mediator.

If the dispute is not resolved to the contractor’s satisfaction within 270 days, the contractor may request a contested case hearing at SOAH.

Requesting a Contested Case Hearing

To initiate a contested case hearing, the referring state agency must submit a Request to Docket Case form to SOAH, along with the complaint, petition, or other relevant documents. The case must be docketed in the name of the governmental unit involved. Although the Office of the Attorney General serves as lead counsel to defend the agency in the contested case hearing, the case must be docketed in the name of the contracting unit of government that is the defendant in the case.

A non-refundable $250 filing fee must be paid, typically by the contractor, either directly to SOAH or through the referring agency (Tex. Gov’t Code § 2006.102(a) and § 2006.103(b)(1)). The case will not be assigned to an Administrative Law Judge (ALJ) until the fee is received.

Referral to SOAH

SOAH only accepts jurisdiction of the matter once the case is officially docketed and the $250 filing fee is paid. The case will be assigned to one or more ALJs and then proceed like any other SOAH contested case hearing. ALJs may issue an initial order outlining Chapter 2260-specific requirements, such as deadlines, cost responsibilities, and expectations.

Even after a contract claims case is docketed at SOAH, mediation remains available to the parties upon request. Visit SOAH’s Mediation & Alternative Dispute Resolution webpage for more information.

Hearing Costs

The initial $250 filing fee is required to begin the process. Additional costs are assessed after the hearing. The ALJ has discretion to assess costs against the non-prevailing party or apportion costs equitably among the parties (Tex. Gov’t Code § 2260.103(d)).

The average cost of a contract claim case is $11,000–$20,000, depending on case complexity and the amount of ALJ time required.

  • Standard $165/hour for ALJ time (per the General Appropriations Act for FY 26-27), plus;
  • An additional $46.20/hour (28% of non-General Revenue payments) required for fringe benefit reimbursement to the state’s General Revenue Fund, unless the costs of the proceeding are paid for by the defendant agency from state General Revenue.

Contested Case Hearing

The contested case hearing will be conducted by a single ALJ or panel and will be like a court proceeding in terms of procedure and formality. Contractors bear the burden of proof and must prove their claim by a preponderance of the evidence. The ALJ conducts the hearing, hears evidence, and issues a final written decision with findings of fact and conclusions of law.

ALJ decisions under Chapter 2260 are final and may not be appealed except for an abuse of discretion. The state agency may not change the findings of fact or conclusion of law, nor vacate or modify the ALJ’s order.

Damages

If the ALJ finds in favor of the contractor, damages up to $250,000 may be awarded and ordered paid by the state entity.

For claims exceeding $250,000, the ALJ must order payment of the first $250,000, and submit a report to the Texas Legislature recommending whether to appropriate funds for the remaining amount or deny further relief, including the right to sue under Chapter 107, Civil Practice and Remedies Code.