Forms of Construction Agreements

November 8, 2011
Forms of Construction Agreements

There are various forms of executing construction agreements, with the most common being: (i) the constructionagreement for management of work, in which the owner of the work entrusts the management of the construction to a contractor who provides services in exchange for a fixed payment. However, at all times, the individual whocontracts with suppliers is the owner of the work, with the support and management of the managing contractor;(ii) the fixed price construction agreement, in which the contractor agrees to carry out the construction for a fixedprice and is bound to comply with the specifications agreed to by the parties, with all the materials, labor andother direct and indirect costs included in the fixed price; and (iii) the fixed price construction agreement by unitpricing, in which a fixed price is established per construction unit, which includes the cost of materials, labor, andother direct and indirect costs. In this latter type of construction agreement, the consideration provided to thecontractor is calculated by applying the agreed unit prices to the construction volumes of the work. Success inthe negotiation and administration of a construction agreement consists of correctly establishing the plans,specifications, quality of materials and other particularities in a detailed manner. Further, it is also important todocument all progress of the work, order modifications with the corresponding specifications (in writing), as wellas obtain bonds from the contractor for (a) proper application of the cash advance; (b) performance; (c) hiddendefects; and (d) contingent liabilities. This last point is particularly relevant in the event that liability is imputedto the owner due to non-performance of any of the employer’s obligations due by the contractor to its workersand the Mexican Social Security Institute. The lack of adequate provisions in a construction agreement, the lackof bonds with proper language and missing documentation regarding the progress of the work tend to be the mostcommon causes that complicate a claim for performance or rescission of construction agreements.

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