BRAZIL Law and Practice Contributed by: Mariana Cobra, Janaína Vargas, Mayara Zanini and Marcela Freire, Mattos Filho
7. Construction 7.1 Common Structures Used to Price Construction Projects In Brazil, the pricing structures for construction projects typically fall into one of the following categories. • Lump-sum: this structure stipulates a fixed price for the entire scope of work in the con - struction project. • Cost-plus: under this arrangement, the project owner bears all construction costs, which are then reimbursed to the construction company. In addition to these costs, the con - struction company receives a profit margin, which may be a fixed fee or a percentage of the construction costs. • Capped cost-plus (PMG): this is a variation of the cost-plus model where a maximum limit is set on the costs that the project owner will reimburse. This model is increasingly popular in Brazil as it incentivises the construction company to manage costs efficiently. 7.2 Assigning Responsibility for the Design and Construction of a Project The division of responsibilities for design and construction is influenced by the project owner’s familiarity with the construction industry and the complexity of the project. For less complex projects or for owners with limited industry knowledge, it is typical for the construction company to assume responsibility for both the design verification and the construc - tion. In contrast, for more intricate projects or for owners with extensive construction experience, the design responsibilities, including the selec - tion of certain materials or equipment, are often retained by the project owner. The construction
company’s role is then focused on executing the project according to the owner’s specifications. 7.3 Management of Construction Risk To manage construction risks, the following con - tractual mechanisms are commonly employed. • Contractual allocation of responsibilities: this involves determining the roles and obligations of each party under the contract. • Indemnification rights and warranties: these provisions allow for compensation for losses or damages incurred due to the actions of the other party and respective warranties and security. • Limitations and waivers: the parties may agree to limit liability or waive certain types of damages, such as indirect losses or loss of profits. While parties have significant freedom in allocat - ing responsibilities, certain mandatory legal pro - visions must be observed. For instance, Brazil - ian law mandates that construction companies are liable for the structural integrity and safety of a building for five years following the completion of construction. 7.4 Management of Schedule-Related Risk Construction projects are legally required to con - tain a completion date. While construction com - panies are permitted to extend the completion date by up to 180 days without penalties, interim project milestones are frequently established to work as incentives, particularly for financing purposes. These milestones may be tied to the release of financing instalments upon achieve - ment.
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