Important Considerations of the Construction Contract

Whether you are hiring a contractor for new construction or a renovation project in Mexico, it is imperative to have a contract with your contractor. Construction contracts are designed to establish the obligations between a builder and an owner of a property concerning the execution of work. Its primary purpose is to determine the price, terms, and the manner in which work must be carried out according to the conditions agreed in the contract.

The construction contract between individuals is regulated by the Federal Civil Code and the commercial code.

Before proceeding with a construction contract, it is important to consider some important aspects which must be specified in the contract, such as:

• The work must be carried out under the contractor’s direction and supervision, using his own materials and equipment.
• The contractor will be responsible for the actions of the workers, companies or subcontracted persons during the execution of the work.
• The contractor will be responsible for third parties regarding the work, as well as hidden defects.
• The builder must be responsible for obtaining all permits and construction licenses from the municipal or state government authorities, and on completion of the work, must provide all original documents to the owner.
• The payment plan for the project may be paid upon completion of the job, or throughout the construction after each stage, depending on the agreement between the parties.
• Once the price is agreed, the contractor has no right to request an increase, unless the cost of materials or wages has increased by twenty-five percent.
• The contractor cannot increase the price when there have been any changes in the plan or design unless the change was authorized in writing by the owner and includes a specific cost increase.
• When the construction is carried out on property within a condominium complex, the contractor must request authorization from the administrator of the condominium, as the plans must be held in accordance with the provisions and specifications of the regime.
• The contractor will be obliged to register with the Mexican Social Security Institute; the start date of the work, any incident, suspension, resumption or cancellation of the work, and must provide the notice of completion of subcontracted jobs by presenting the corresponding forms.
• The contractor is the employer of the workers and must deliver to the owner proof of compliance with their obligation to the IMSS, obliging and pledging to cover the amount to be paid to the Mexican Social Security Institute, for employer and employee’s contributions, as well as a savings program for withdrawal, and Infonavit.

Other Factors to Consider in the Contract

• The contractor should be obligated to use the quality of materials set out in the contract.
• Include penalties and fines for a breach of contract by either party.
• Document in the contract what will happen if the project does not start or end on time.
• Acts of God or Force Majeure, situations which exempt the contracting parties from fulfilling their contractual obligations due to causes which are beyond their control.

As we know, things do not always go as planned and it is possible the project will not be finished by the delivery date specified in the contract. Will you be compensated if the project time runs late? Are you able to back out of the deal with the full deposit?

Be prepared for any scenario, for example, people have sold their previous home and end up waiting months to move into the new one. Will you be compensated for the extra cost you will incur during this time? If you are renovating a condo as a rental, and your guests move in to find some of the amenities are not complete, is there any recourse for you?

Consult a real estate lawyer to review any contract before you sign.