MEXICO Law and Practice Contributed by: Roberto Cannizzo, Carlo Cannizzo, Stefano Amato and Mauricio Moreno-Rey, Cannizzo
for a one-year term from the delivery of the fully completed construction works; this bond usually guarantees payment for any hidden defects in the construction that may arise after the completion and delivery of the construction works and any third-party claims. Insurance Typically, the contractor is responsible for obtaining the all-risk and civil liability insurance. Generally, it includes any risk inherent to the construction works, including: • constructions adjacent to or within the construc - tion site; • personal damage and death; • basic cover for activities and real estate; • subsoil installations; • demolition; • machines used for work; • foundations, propping and other works; and
or other amounts (damages) are usually guaranteed through the issuance, for the benefit of the owner and/ or owner lenders, of: • performance and advance payment bonds; • letters of credit; and • parent or third-party guarantees, in addition to pay - ment holdbacks as agreed by the parties. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance The most common way for owners to seek to guaran - tee a contractor’s performance of a project is to obtain performance bonds, including advance payment and performance bonds. However, letters of credit, parent guarantees, holdbacks and escrow accounts are also common. 7.6 Liens or Encumbrances in the Event of Non-Payment Contractors and/or designers cannot lien or otherwise encumber a property in the event of non-payment. In Mexico, there are no mechanical liens as in other jurisdictions. However, it is important to note that in the case of certain equipment (ie, elevators and air conditioning equipment), the seller or manufacturer may include a domain reserve in their sales agreement, which allows them to retain ownership of the equipment until pay - ment is made. This domain reserve must be regis - tered in the Mexican Federal Register of Property and Commerce ( Registro Único de Garantías Mobiliarias – RUG). 7.7 Requirements Before Use or Inhabitation Local laws set requirements for occupying a build - ing post-construction. In Mexico City, this includes obtaining authorisation by presenting the construc - tion licence and expert-endorsed logbook, among other documents. Properties must also meet safety, evacuation and civil protection standards. Addition - ally, operation licences specific to the business type (hospitality, restaurant, parking, etc) are required for legal use.
• sudden and unforeseeable pollution. The insurance policy usually covers:
• gross liability; • design errors; • employers’ liability; and • damage to property. Guarantee Funds
Clients typically withhold 5% of each invoice until a guarantee fund equal to 5% of the construction price is accrued. This fund covers defects, liabilities or claims, including liquidated damages if the contrac - tor fails to meet obligations. Contractor liability can be capped based on negotiations, except for statutory limitations. Indemnification, risk allocation and liability waivers are freely negotiated. 7.4 Management of Schedule-Related Risk Parties may agree that the owner is entitled to mone - tary compensation/liquidated damages if certain mile - stones or completion dates are not achieved. Unless there is a force majeure event or delays caused by the owner or third-party factors such as licences or per - mits, liquidated damages for any incomplete work are usually paid. The payments by contractor of penalties
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