CONSTRUCTION CONTRACTS

A well structured and complete construction contract is the key to avoid many problems when building in Costa Rica.  The more attention you give to detail in such agreement, and the more it actually reflects the way you envision your relationship with the builder and what is expected from him, the more possibilities you have for the final outcome to match what you projected and fall within the expected budget.

Very often, construction companies propose to clients very simple and standard agreements, which in most cases do not fully reflect or apply to the specific project and neglect to address many items.  This practice leads to frequent misunderstandings, on which, commonly, the client bears the consequences, which are mainly translated in additional expenses, lack of conformity with plans and, in some cases, the termination of the relationship between the parties before completion of the work, with its inherent complications.

When possible, and especially when you will not be able to dedicate a large percentage of your time to the construction, or when you are not willing or do not feel capable of controlling and purchasing every material and engage the work force, it is advisable to negotiate a contract which is usually referred to as “llave en mano” (literally, “key on hand”) which, to different extents, basically leaves the purchasing of materials, control of the workers, finishes, permits and, of course, construction, to the contractor.  In this case, materials and finishes are mainly selected by the owner either from a mutually agreed list or specifically on blue prints or an Appendix to the contract.

The level of detail in which these materials and finishes are entered into the agreement is crucial for guaranteeing that the final product actually corresponds to your wishes and expectations.  If such level of detail is being left for the architectural blueprints, it is important to make sure that such documents have it, since not all professionals deliver a good level of definition on their plans.

There are many other elements that should be present in construction agreements, which will offer the owner of the project a better level of protection, among them:

1. The property where construction will occur should be clearly identified, if possible, including its registration (“folio real”) and its survey (“plano catastrado”) numbers.
2. The contract must clearly and expressly state that the contractor is responsible for the employees involved in the project, including all labor related payments (“cargas sociales”), social security and workers compensation insurance.  If this is not clear, the project owner runs the risk of assuming liability for these items, which may not be evident until after the end of construction, since many labor instances in Costa Rica take very long to process problems or complaints.
3. The agreement must specifically address the issue of the procurement of building permits and all other associated government and municipal authorizations, including not only that the contractor must be the one in charge of obtaining such permits but also that associated fees and costs are included in the price.
4. There shall be a break down of the amounts to be paid by different stages, directly tied to specific advances on construction, such as roofing, electrical and mechanical installations, etc.
5. The contract must include a specific deadline for finalization of construction and clearly define what will be understood by finalization.  Not meeting the deadline should trigger penalties for the builder.
6. Still on the subject of delays, it is convenient to include a provision addressing the possibility of delays beyond what the owner considers acceptable.  If that is the case, this party should have the right (not the obligation) to either extend the term and continue charging penalties or terminate the contract and collect damages so other options for finishing the work can be pursued.
7. Inspections and meetings between the owner, the contractor and the owner’s support team (mainly architect and engineers who prepared the blueprints) are crucial for guaranteeing that construction is advancing correctly and their periodicity must be specifically mentioned in the agreement.
8. It is also recommendable to include a section on copyright, clearly stating who owns the intellectual property rights of what is built.

Although at a first glimpse, you might be concerned that the negotiation of the contract and of the details that have been pointed out in this article might cause some delays in the initiation of construction, this is really worthwhile and will strongly protect you against future problems which might cause major delays as well as compromise the outcome of the whole construction venture.  Take some time, get to work on these details and you will be hardly disappointed.

 

©Henry Lang, Lang & Asociados. All rights reserved.