MEXICO Law and Practice Contributed by: Roberto Cannizzo, Carlo Cannizzo, Stefano Amato and Mauricio Moreno-Rey, Cannizzo
7. Construction 7.1 Common Structures Used to Price Construction Projects The most common structures used in Mexico to price construction projects are: • unit-price construction agreements; • lump-sum construction agreements; and • refundable costs construction agreements. Unit-Price Construction Agreements Under the unit-price construction agreement, the par - ties agree on a price per construction unit, and the total value of the contract will be the sum of the units multiplied by the value of each unit. Each unit must include a value that represents the value of the con - tractor’s remuneration. Lump-Sum Construction Agreements Under the lump-sum construction agreement, the con - tractor provides the fixed price of the work, regardless of the effective costs of the work it incurs during exe - cution of the project. Usually, the cost is higher than in other construction contracts, since the contractor tends to have a margin in case of cost variations for material, equipment and subcontractors. Refundable Costs Construction Agreements Under the refundable costs construction agreement, the price that the contractor receives will be that resulting from the expenses assumed in the execu - tion of the project plus a profit. Mexican construction contracts commonly include a “change clause” that allows the owner to modify the work to be performed. As a consequence, the price and time also change. 7.2 Assigning Responsibility for the Design and Construction of a Project In Mexico, responsibility for design and construc - tion varies by contract. If the contractor develops the design and engineering, they are liable for: • construction defects, errors and malfunctions, including structural damage; • labour issues;
• material shortages; and • equipment failures.
They must guarantee the work during the contract term and typically for 12 months post-completion (guarantee period). If defects arise, the contractor must repair them at their own cost, extending the guarantee as agreed. If the contractor does not design the project, they are responsible for construction defects but not for design errors, which remain the client’s liability unless other - wise stated. Responsibility and indemnification clauses in con - struction contracts typically protect the client, requir - ing the contractor to indemnify against damages, claims, legal actions and costs, including attorney fees. These provisions ensure risk allocation between parties, safeguarding the client’s interests while hold - ing contractors accountable for their scope of work. 7.3 Management of Construction Risk In Mexico, several means are used to manage con - struction risk on a construction project. The most common ones are: • bonds; • insurance; and • guarantee funds. Bonds A contractor typically grants the following bonds in construction agreements. • Down-payment bond: To guarantee the correct use of the down payment in an amount equal to the full amount of the down payment; the down-payment bond is effective until the full down payment is amortised. • Performance bond: Usually equal to 10% of the construction price, it guarantees the complete performance of the works and timely completion of the construction. • Guarantee and quality assurance bond: Usu - ally delivered simultaneously with the completion of the construction works in an amount equal to 10% of the construction works price and effective
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