MEXICO Law and Practice Contributed by: Roberto Cannizzo, Carlo Cannizzo, Stefano Amato and Mauricio Moreno-Rey, Cannizzo
The above-mentioned responsibilities are typi - cally allocated in specific responsibility and indemnification clauses within the construc - tion contract, whereby the contractor agrees to indemnify and hold the client and its indemni - fied parties free from any damage, claim, liability, obligation, loss, action, administrative proceed - ing, complaint, expenses, interest, fines and costs (including reasonable attorneys’ costs and expenses) arising out of or in connection with the construction agreement. 7.3 Management of Construction Risk In Mexico, several means are used to manage construction 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 cor - rect 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 com - plete performance of the works and timely completion of the construction. • Guarantee and quality assurance bond – usu - ally delivered simultaneously with the comple - tion of the construction works in an amount equal to 10% of the construction works price and effective for a one-year term from the delivery of the fully completed construction works; this bond usually guarantees the pay - ment of any hidden defects in the construc -
tion 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 insur - ance. Generally, it includes any risk inherent to the construction works, including constructions adjacent or within the construction site, person - al damage and death, basic cover for activities and real estate, subsoil installations, demolition, machines used for work, foundations, propping and other works, and sudden and unforeseeable pollution. The insurance policy usually covers gross liability, design errors, employers’ liability and damage to property. Guarantee Funds From the amounts paid by the client to the con - tractor, the client usually withholds 5% of the total amount of each invoice, until they have accrued a guarantee fund equivalent to 5% of the construction price to guarantee compliance with the obligations of the contractor under the construction agreement. The guarantee fund is typically used by clients to address any defect, liabilities or claims against the contractor that may arise from the construc - tion agreement, including (but not limited to) the payment of liquidated damages or where the contractor fails to comply with any obligation established in the agreement. There is also the possibility of limiting contrac - tor’s liability or capping it at a certain amount, depending on the project and the specific nego - tiations. Other than with respect to the maximum liability under the law or limitation or prohibition of certain damages (consequential, risk of loss, etc) under the law, all the provisions relating to
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