When a Government Agency Signs a Contract, Can You Sue It? Texas Law Says “Maybe.”

Every day across Texas, governmental entities enter into contracts worth thousands, and sometimes millions, of dollars.

Cities purchase land. Water districts contract for engineering services. River authorities acquire easements. Municipal utility districts construct infrastructure. Contractors build public projects. Developers dedicate utilities. Water suppliers negotiate long-term water supply agreements.

Most people assume the same thing:

“If the government signs a contract and breaks it, I can sue just like I could anyone else.”

That assumption has ended more than a few lawsuits before they ever truly began.

A recent decision from the Fourth Court of Appeals in San Antonio Water System v. Bexar Medina Atascosa Counties Water Control and Improvement District No. 1, No. 04-25-00430-CV, 2026 WL ________ (Tex. App.—San Antonio July 8, 2026, no pet. h.) (mem. op.), serves as an important reminder that contract disputes involving governmental entities are governed by a different set of rules than disputes between private parties.

The case is also a good opportunity to revisit one of the most misunderstood doctrines in Texas law: governmental immunity.

Governmental Immunity Is Often the First Battle

Clients are frequently surprised to learn that a lawsuit against a governmental entity may never reach the question of whether anyone actually breached the contract.

Instead, the first issue is often whether the court has jurisdiction to hear the dispute at all.

Governmental immunity is not simply another defense that gets sorted out later in litigation. If immunity applies and the Texas Legislature has not clearly waived it, the court lacks subject-matter jurisdiction. The case can be dismissed before the merits are ever considered.

That can be difficult to appreciate because immunity has nothing to do with whether the governmental entity acted fairly, whether the plaintiff suffered damages, or even whether a breach occurred.

The threshold question is different:

Has the Texas Legislature authorized this particular lawsuit?

If the answer is no, the courthouse doors may remain closed.

The Recent SAWS Decision

The recent Fourth Court opinion arose from a long-term water supply agreement between the San Antonio Water System, commonly known as SAWS, and the Bexar Medina Atascosa Counties Water Control and Improvement District No. 1, commonly known as BMA.

Under the agreement, BMA was obligated to provide SAWS with untreated water from Medina Lake when water was available in sufficient quantities. SAWS, in turn, was obligated to pay for a stated quantity of water whether it accepted delivery or not, subject to contractual credits for certain shortfalls.

SAWS alleged that the available water had become unreliable and difficult to treat because of extremely low lake levels and poor water quality. Rather than asserting a traditional breach of contract claim, SAWS sought a declaration that payments required under the agreement violated the Texas Constitution’s prohibition against gratuitous grants of public money. SAWS also asserted related ultra vires claims against BMA officials.

The Fourth Court affirmed dismissal of the lawsuit.

The court explained that declaratory judgment actions seeking to invalidate a contract, establish contractual rights, enforce contractual performance, or impose contractual liabilities generally remain subject to governmental immunity unless the Legislature has expressly waived that immunity.

Because SAWS did not identify an applicable waiver for the declaratory relief it sought, the trial court properly granted BMA’s plea to the jurisdiction.

The opinion does not announce a sweeping new rule. It applies principles Texas appellate courts have recognized for years.

Immunity From Liability Is Different From Immunity From Suit

One of the most confusing aspects of governmental immunity is that it includes two separate concepts.

Immunity from liability concerns whether the governmental entity can ultimately be held legally responsible.

Immunity from suit concerns whether the governmental entity can be brought into court without legislative consent.

A governmental entity may waive immunity from liability by entering into a contract, yet retain immunity from suit unless a statute authorizes the lawsuit. The Texas Supreme Court discussed this distinction in Tooke v. City of Mexia, 197 S.W.3d 325, 332-33 (Tex. 2006).

For contractors, developers, landowners, engineers, architects, and businesses, that distinction matters.

Having a legitimate contract dispute does not automatically mean the plaintiff has a lawsuit that a Texas court is authorized to hear.

Chapter 271 Opened One Door, Not Every Door

Texas law contains an important statutory waiver for certain contract claims against local governmental entities.

Section 271.152 of the Texas Local Government Code provides that a qualifying local governmental entity that enters into a contract subject to the statute waives immunity from suit for the purpose of adjudicating a claim for breach of that contract.

That waiver has significantly changed governmental contract litigation in Texas. It allows many contractors and service providers to pursue breach of contract claims that might otherwise be barred.

But Chapter 271 is not a blanket waiver.

It applies only to qualifying contracts and qualifying claims. As a general matter, the statutory definition focuses on certain written contracts stating the essential terms of an agreement for providing goods or services to a local governmental entity and properly executed on the entity’s behalf.

The statute does not cover every agreement involving a governmental entity. It does not authorize every remedy. It also does not automatically extend to declaratory judgment claims seeking to invalidate a contract or obtain a judicial declaration concerning contractual obligations.

In the recent SAWS case, the Fourth Court specifically noted that SAWS had not asserted a breach of contract claim. The court also relied upon prior authority holding that Chapter 271 does not clearly and unambiguously waive immunity for a declaratory judgment claim concerning a contract.

Understanding exactly what Chapter 271 does, and what it does not do, can determine whether litigation proceeds or ends at the jurisdictional stage.

A Declaratory Judgment Claim Does Not Automatically Avoid Immunity

Parties sometimes attempt to frame a contract dispute as a request for declaratory relief rather than a breach of contract claim.

That approach does not necessarily solve the immunity problem.

The Uniform Declaratory Judgments Act contains a limited waiver for certain claims challenging the validity of statutes or municipal ordinances. It does not create a general waiver permitting courts to decide every dispute involving a governmental contract.

Texas courts look beyond the label placed on the claim and examine what the plaintiff is actually asking the court to do.

If the purpose or effect of the lawsuit is to establish the validity of a contract, cancel the contract, enforce performance, or impose contractual liability on the governmental entity, immunity may still apply unless the Legislature has authorized the claim.

Calling a contract dispute a declaratory judgment action does not create jurisdiction where none otherwise exists.

Water Districts Occupy a Particularly Strong Position

The recent SAWS opinion involved a water control and improvement district created under Article XVI, Section 59 of the Texas Constitution.

Texas courts have long treated those districts as political subdivisions of the State performing governmental functions.

In Bexar Metropolitan Water District v. Education & Economic Development Joint Venture, 220 S.W.3d 25, 28-31 (Tex. App.—San Antonio 2006, pet. dism’d), the Fourth Court held that governmental immunity barred a claim seeking specific performance of a real estate contract against a water district.

The plaintiff argued that the district had acted in a proprietary capacity by buying and selling land for profit. The court rejected that argument, explaining that a conservation district created under Article XVI, Section 59 performs governmental functions.

More recently, in McLennan County Water Control & Improvement District No. 2 v. Geer, No. 10-17-00399-CV, 2020 WL 4218085, at *2-3 (Tex. App.—Waco July 22, 2020, no pet.) (mem. op.), the court held that a residential water service agreement did not fall within Chapter 271 because the customers were receiving water from the district rather than providing goods or services to it.

The Texas Supreme Court has likewise confirmed that a water control and improvement district is generally immune from suit and liability unless the Legislature has waived that immunity. Tarrant Regional Water District v. Johnson, 572 S.W.3d 658, 663 (Tex. 2019).

These cases do not mean that water districts can never be sued. They mean that a plaintiff must identify a valid cause of action and a clear legislative waiver that applies to that cause of action.

Do Not Wait Until Litigation to Think About Immunity

One of the most expensive mistakes parties make is waiting until litigation has already begun before seriously evaluating governmental immunity.

By then, substantial attorney’s fees may already have been incurred pursuing claims that Texas law may not permit the court to hear.

Whether I represent a governmental water supplier or a private party doing business with one, one of the first questions I ask is not simply whether someone breached the contract.

It is whether the lawsuit itself can be maintained.

That question often shapes every strategic decision that follows.

Over the years, I have represented governmental water entities in successfully obtaining dismissal of multiple lawsuits based upon governmental immunity. I have also represented private clients pursuing claims against governmental entities where identifying an applicable statutory waiver was essential before suit was ever filed.

Those experiences have reinforced the same lesson. Governmental immunity should be evaluated before contracts are signed, before claims are asserted, and certainly before a lawsuit is filed.

Questions to Ask Before Signing the Contract

Anyone entering into a significant agreement with a city, county, water district, river authority, municipal utility district, or other governmental entity should consider several questions at the outset:

1. Does the governmental entity have constitutional or statutory authority to enter into the agreement?
2. Is the contract written, properly approved, and executed by someone with authority to bind the governmental entity?
3. Does the agreement qualify as a contract covered by Chapter 271 or another statutory waiver?
4. What claims will be available if the governmental entity fails to perform?
5. What damages or equitable remedies does Texas law actually permit?
6. Do notice, presentment, dispute resolution, or administrative requirements apply before suit may be filed?

These questions are not academic.  The answers may determine whether the dispute is resolved on its merits or dismissed before the court ever reaches them.

Governmental Entities Should Raise Immunity Early

The same analysis matters on the defense side.

A governmental entity served with a lawsuit should promptly determine whether immunity has been waived for each claim asserted.

The inquiry should focus on the substance of each claim, the relief requested, the statute allegedly waiving immunity, and whether the plaintiff has pleaded facts bringing the claim within that waiver.

A plea to the jurisdiction may challenge the pleadings, the existence of jurisdictional facts, or both. When the pleadings affirmatively show that no waiver applies, dismissal may be appropriate without allowing the plaintiff to pursue discovery or reach the merits.

For governmental entities funded with public money, early evaluation of immunity can prevent public resources from being spent defending claims that courts lack authority to adjudicate.

Final Thoughts

Governmental immunity is sometimes criticized as technical or unfair. Regardless of one’s view of the doctrine, it remains a fundamental part of Texas law and one that courts continue to enforce.

The recent SAWS v. BMA opinion is another reminder that the first battle in many governmental contract disputes is not whether someone breached the agreement.

It is whether the Legislature has authorized the lawsuit in the first place.

For contractors, developers, landowners, engineers, water suppliers, and governmental entities, understanding that distinction before a dispute arises may be every bit as important as understanding the contract itself.

By Trey Wilson, San Antonio Real Estate Attorney and Texas Water Lawyer