Construction Comparative Guide

• Published date: 24 January 2022
• Subject Matter: Real Estate and Construction, Construction & Planning
• Law Firm: COMAD, S.C.
• Author: Mr Juan Pablo Sandoval

1 Legal framework

1.1 Which legislative and regulatory provisions govern construction projects in your jurisdiction?

The regulations that govern construction projects in Mexico will depend on the nature of the project, as follows:

• Public projects (funded by public resources) are governed by the Public Works and Related Services Law and its accompanying rules; and
• Private projects are governed by the Civil and Commercial Code, and of course the relevant contracts.

Each state also has its own civil regulations, so it is important to pay attention to the specific code applicable at the place where the project will be built.

Certain projects which are to be executed by specific entities or companies owned by the state have their own laws that govern relevant projects.

1.2 What other legislative and regulatory provisions have relevance for construction projects in your jurisdiction?

Depending on the purpose of the project, several norms of reference must be followed. In particular, for major power and oil projects, various different rules govern materials and processes.

1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?

In the case of public contracts, several different entities are responsible for managing their performance. Generally, these entities will appoint a specific officer to monitor the progress of the works, ensure the contractor's compliance with the rules and notify the contractor of any breach, among other things. These entities have the power to terminate the contract through the corresponding procedure and notify the corresponding ministry or department to commence the sanction process.

1.4 What is the general approach in regulating the construction sector?

In the case of public projects, regulation is effected in accordance with public order and the general interest. Every effort is made to avoid corruption and criminal activities, and any such activities will be punished.

In the private sector, regulations primarily relate to the parties' obligations and the consequences of breach thereof.

2 Procurement methods

2.1 What procurement methods are most commonly used in your jurisdiction? Do these vary depending on whether international parties are involved?

Public law provides for three types of public procurement:

• Public tender: The public tender is the general rule and consists of an open invitation to the population in general. In the first phase of this process, the contracting entity uploads the specifications of the project to be developed, the requirements to fulfil and the deadlines for the submission of proposals. In the second phase, clarification meetings are held, at which participants can ask questions about the project and the contracting entity will respond accordingly. Finally, the contracting entity will issue an award based on the technicalities and value of the proposals.
• Restricted invitation: This method is utilised for specific complex projects, where there is a limited number of specialised contractors on the market. After undertaking a study of the market, the contracting entity will invite a few operators to express their interest in participating in the process. Once the invited parties have express their interest, the tender process will continue as a public tender, but with the interested parties only.
• Direct award: This involves a direct award with no tender process and can be used exceptionally only.

Whether these processes vary depending on the involvement of international parties will depend on the individual circumstances of each case.

2.2 What are the advantages and disadvantages of these different methods?

The main advantage of a public tender is the transparency of the process. In addition, 'social witnesses' are involved who monitor the actions of the authorities.

The main disadvantage is that, for instance, the best option is not necessarily the cheapest. However, as public projects are funded with taxpayers' money, the economic criterion generally proves decisive to the award - even where this option is not the best from a technological or technical perspective. However, some projects admit private funds.

2.3 What other factors may influence the choice of procurement method?

Definitively, the offer in the market - that is, if there are numerous companies that could provide the services required by the state, the procurement method will be a public tender. If there are just a few competitors in the relevant sector, the contracting entity will opt for the restricted invitation method.

3 Project structures

3.1 How are construction projects typically structured in your jurisdiction? Does this vary depending on whether international parties are involved?

In both private and public projects, the client commonly appoints a project manager to monitor the status of the project, follow up with subcontractors and keep it informed of advances, delays, breaches and general progress.

The participation of international parties does not usually affect this structure, as it is common to most major projects

3.2 What are the advantages and disadvantages of these different structures?

There are two main advantages to the structure outlined in question 3.1:

• It ensures that the project will proceed in an orderly fashion, as a specialist is managing the project; and
• It is easier for the client - which will not necessarily be a construction specialist - to liaise directly with a project manager as a single point of contact.

The disadvantage is that the proposals made by the project manager must be approved by the client. This may result in delays due to late responses from the client.

3.3 What other factors may influence the choice of project structure?

Other factors include the size of the project and the available budget.

4 Financing

4.1 How are construction projects typically financed in your jurisdiction? Does this vary depending on whether international parties are involved?

The financing arrangements may vary depending on whether the project is public or private. While public projects are financed by the state, private projects are usually financed by finance institutions such as banks or funds.

However, some public projects are funded with hybrid financing sources - that is, partly by public resources and partly by private.

The experience in Latin America is that, for instance, the financing parties may require the construction parties to use a model contract (eg, those of the International Federation of Consulting Engineers) before providing funding. However, this practice is not common in Mexico.

4.2 What are the advantages and disadvantages of these different structures?

As a rule, the financing parties will want some degree of control over the project. This can be both an advantage and a disadvantage.

4.3 What other factors may...