PORTUGAL LAW AND PRACTICE Contributed by: João Gonçalo Galvão, Carolina Cardoso Alves and Miguel Paquete, CS’Associados
and engineers to ultimately the contractor itself. This means that the project owner may seek to hold these liable depending on the nature of any deficiency or error and on the party/ies responsi - ble for its design/features and/or incorporation in the project, and such liability may be exclusive to one party or shared by multiple parties. 7.3 Management of Construction Risk Construction agreements usually regulate the contractor’s liability for the project, this includ - ing, in addition to a set of representations and warranties (in order to establish the contractor’s competence and qualifications), a number of undertakings concerning execution of the works. These undertakings might include, for example, the obligation to put in place adequate insurance policies (such as contractor’s all-risk insurance), to safeguard the works and neighbouring prop - erties, to allocate suitable and skilled manpower, to use state-of-the-art construction techniques or to use appropriate equipment, among others. Construction risk is also managed via progress monitoring by the appointed supervising entity, as well as by coupling payments with the effec - tive verification of such progress, mainly via monthly work certificates and the achievement of pre-agreed milestones. 7.4 Management of Schedule-Related Risk Construction agreements may stipulate sched - ule targets such as partial completion or mile - stone dates, together with delay management mechanisms such that the contractor deploys corrective measures. In addition, construction agreements usually contain penalty clauses according to which fail - ure to meet certain milestones or the incurring of critical project delays results in monetary pen -
alties that correspond to a predefined percent - age of the project cost per each day of delay, this increasing as the delay increases. Typically, these clauses also stipulate that the agreement may be terminated if such penalties reach a cer - tain threshold. In addition to contractual mechanisms, the supervisory team may be crucial to delay cor - rection by proposing alternative schedules to set the project back on track. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance Security to guarantee a contractor’s perfor - mance is also achieved by the requirement of contractors to provide suitable collateral. The most common are irrevocable first-demand bank guarantees for a percentage of the project cost; these guarantees should remain in force until the provisional handover, after which the respective value is adjusted downwards until the definitive handover. Bank guarantees may also be coupled with reten - tions throughout the execution of the agreement, these representing deductions of predetermined percentages of the value of the monthly pay - ments until a certain value is reached. 7.6 Liens or Encumbrances in the Event of Non-Payment Contractors are entitled to a lien over the rel - evant property in respect of the expenses made for the purposes of maintaining or improving it (it is debatable under case law and authorised legal doctrine whether the right of lien is also intended to safeguard payment of the works’ cost). To cir - cumvent this potential lien, it is not uncommon for construction agreements to contemplate the possibility of the owner providing suitable collat - eral (bank guarantee or other) regarding amounts
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