MEXICO Law and Practice Contributed by: Roberto Cannizzo, Carlo Cannizzo, Stefano Amato and Mauricio Moreno-Rey, Cannizzo
• 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 insurance. Generally, it includes any risk inherent to the construction works, including: • constructions adjacent to or within the con - struction 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
• 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 con - struction price is accrued. This fund covers defects, liabilities or claims, including liquidated damages if the contractor fails to meet obliga - tions. Contractor liability can be capped based on negotiations, except for statutory limitations. Indemnification, risk allocation and liability waiv - ers are freely negotiated. 7.4 Management of Schedule-Related Risk Parties may agree that the owner is entitled to monetary compensation/liquidated damages if certain milestones 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 permits, liquidated damages for any incomplete work are usually paid. The payments by contractor of penalties or other amounts (damages) are usually guaran - teed 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 payment holdbacks as agreed by the par - ties.
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