Construction 2016

Last verified on Friday 3rd March 2017

Peru

Claudia Lucena, Isabel Lira Miro Quesada, Daniel Corzo Simons and Luis Paz Maury
Miranda & Amado Abogados
  1. 1.

     Are construction contracts for projects developed in your jurisdiction required to be governed by local law? Are foreign choice-of-law clauses enforceable in contracts for construction projects developed in your jurisdiction?

  2. As a general rule, Peruvian conflict of law provisions allow the contracting parties to freely determine the law that will govern a contract. More specifically, article 2095 of the Peruvian Civil Code allows the parties of a contract to expressly agree as to the law that will govern such contract’s construction, as well as the interpretation of the obligations contained therein. Hence, the choice of a foreign law to govern a construction contract for a project developed in Peru would be a valid and effective choice of law, and a Peruvian court should give effect to such choice of law; except for, the limitations that may arise from the application of article 2049 of the Peruvian Civil Code, pursuant to which foreign law shall not be applied in Peru if it contradicts international public policy or general good morals.

  3. 2.

    Are there any formalities applicable to construction contracts? 

  4. No formalities are required for a construction contract to be deemed as valid and enforceable under Peruvian law.

  5. 3.

    Are contractors entitled to impose mechanics’ or similar liens on work performed in order to secure payment in your jurisdiction? Are lien waivers from contractors and subcontractors enforceable in your jurisdiction? Are these commonly used in your jurisdiction? Can payments to contractors be contingent on receipt of lien waivers?

  6. Article 1123 of the Peruvian Civil Code provides unpaid creditors a retention right against their debtors, by which the unpaid creditor can maintain in its possession the assets of the debtor until the payment obligation is guaranteed or fulfilled. The exercise of the retention right is subject to the condition that a connection between the payment obligation and the assets that are being retained exists. The retention right cannot be exercised over assets, that when received by the creditor, were destined to be deposited or delivered to another person.

    Provided that the aforementioned conditions are met, the contractor could be entitled to exercise a retention right over the works performed. Notwithstanding the above, it is relevant to take into consideration that lien waivers are acceptable in our jurisdiction and that the construction agreements can include provisions conditioning payments on receipt of lien waivers.

  7. 4.

    Are there any strict liabilities that extend to owners of construction projects in your jurisdiction?

  8. (i) From a labour perspective, it is important to have in mind the legal implications of services that qualify as outsourcing. Law No. 29245 states that if outsourcing services involve the secondment of personnel from one company to another, the latter shall be jointly and severally responsible for the payment of unpaid legal labour benefits and social taxes of the personnel that is being outsourced. This responsibly extends for one year after the end of the outsourcing of each person. Hence, in the specific case of a construction agreement pursuant to which personnel of the construction company works on a site that is property of the owner of the construction project, the latter will be jointly and severally responsible for the payment of unpaid legal labour benefits and social taxes of the personnel of the construction company that was outsourced to the project site.

    (ii) From a tax perspective it is relevant to note that, as a general rule and unless the law states otherwise, tax liabilities will not extend to third parties on a strict liability basis. This general rule will apply in the event that both, the contractor and the owner, are both legal entities for tax purposes domiciled in Peru (this includes permanent establishments). In such case, tax liabilities of the contractor will not be extended to the owner of the project.

    However, if the contractor is non-domiciled and the owner of the project is domiciled in Peru, the owner will be jointly liable for the payment of the income tax (IT) withholding of the non-domiciled contractor, which is levied on the Peruvian-sourced income generated by the non-domiciled contractor. If this IT is not paid to the Peruvian Tax Authority, interest and penalties may be applicable.

    Additionally, owners of construction projects are jointly and severally responsible for unpaid tax debts if they are or were part of a consortium agreement. Even if consortiums that have independent accounting are considered as different taxpayers than its parties, the Tax Court considers that the parties of any consortium (with independent accounting or not) are jointly and severally liable for all the tax debts the consortium may have.

    (iii) From an environmental perspective, it shall be noted that pursuant to the General Environmental Law, Law 28611 (GEL), any individual or legal entity that, by means of the use or exploitation of an asset or by carrying out a certain activity, may produce damages to the environment or third parties, will be deemed objectively liable and shall assume all costs related to prevention and mitigation measures, as well as any costs related to the surveillance, monitoring and closure of such activity. This strict liability scenario may apply to the owner of the construction project.

    Additionally, pursuant to article 140 of the GEL, titleholders of construction projects will be deemed jointly and severally liable for environmental infringements caused by professionals responsible for the poor elaboration or for the inadequate application of environmental management instruments in connection with projects, works or activities causing damage to the environment. 

  9. 5.

    Do owners typically negotiate a full pass-through of liabilities from their revenue contracts to contractors?

  10. Construction contracts typically include liquidated damages that will apply in the event that the contractor breaches certain obligations under the contract (eg, delay liquidated damages). The amounts of the liquidated damages are usually calculated in order to cover all the additional costs that the owners will have to assume as a consequence of such breach, this includes the liabilities that will arise from the revenue contracts of the owner. Hence, the liabilities of the owner from its revenue contracts are usually transferred to the contractor, indirectly, through the liquidated damaged under the construction agreement.

    Notwithstanding the above, some construction contracts do include provisions that regulate a direct pass-through to the contractor of certain liabilities from revenue contracts (this can be the case, for example, of liquidated damages that a concession agreement stipulates in connection with the construction phase). 

  11. 6.

    What are the most common pricing modalities in your jurisdiction? Is one modality more prevalent in certain types of projects than others?

  12. In our experience, construction agreements in Peru are usually regulated considering, as a general rule, a lump sum pricing modality. Notwithstanding the above, the lump sum price is usually complemented with certain specific matters that can cause an adjustment of the agreed price. Changes in law, geological risks and changes in environmental requirements are some of the matters that, subject to certain conditions or thresholds, are contemplated in some construction agreements as matters that may cause an adjustment of the agreed fixed price.

    Another common pricing modality used in Peru is “unit price”, pursuant to this modality the parties agree on a fixed price for each unit of the project but do not agree the quantity of units that will be required. This pricing modality is most commonly used in tunnels or access roads. 

  13. 7.

    What are the key approvals and permits required for a construction project? What is the typical cost and timing to obtain or fulfil such approvals, permits and obligations for large-scale infrastructure projects in your jurisdiction?

    • Regulatory: Depending on the nature and characteristics of the project, the owner of the project may be required to obtain certain administrative authorisations or concessions in order to be allowed to carry out the activities that the project involves.

    For example, in the specific case of electric projects, a definitive generation concession will be required for: (i) generation with hydroelectric plants and other type of plants that use renewable energy resources with installed power capacities that exceed 500kW; (ii) power transmission activities that affect state-owned property or require the establishment of easements by the Peruvian state; and, (iii) power distribution public service for demands over 500kW. Provided that no incidents are raised, the concession requests that comply with all the applicable requirements shall be answered within 60 business days from the submission date, except for the concessions for hydro generation activities in which case the requests shall be answered in 120 business days. The administrative fee that shall be paid for this proceeding is, approximately, US$600.

    • Environmental: Pursuant to the Environmental Impact Assessment National System Law (Law No. 27446) and its regulations (Supreme Decree 019-2009-MINAM), in order to carry out projects, titleholders must have an environmental certificate approving the corresponding environmental management instrument for the development of their activities. Depending on the environmental risks involved in their activities, such environmental management instruments fall into one of the following categories: (i) Environmental Impact Statement; (ii) Semi Detailed Environmental Impact Assessment; or (iii) Detailed Environmental Impact Assessment.

    In this regard, titleholders of new construction projects, before their development, must submit the corresponding environmental management instrument before the Ministry of Housing, Construction and Sanitation (Ministry of Housing), to obtain the environmental certification. The Ministry of Housing shall evaluate and approve the environmental management instrument in a maximum official term of 90 business days. The approximate costs of obtaining the approval will depend on the budget determined by the technical team of the environmental consultant hired for its elaboration.

    Notwithstanding the above, projects related to the construction of power plants, mining processing plants or other activities related to natural resources with particular regulations should submit their environmental management instruments before the competent environmental authority, as the case may be. Likewise, such projects shall consider measures to prevent, control, mitigate and eventually repair the negative impacts caused by waste generated from its activities.

    Depending on the particular characteristics of the construction project and the area where it is located, the titleholder must comply with additional obligations and permits related, among others, to archeological remains, water rights, liquid fuels and forest activities. The cost and timing to obtain the permits or attain the required approvals will vary depending on the particular characteristics of the project.

    Without prejudice to the above, the recently enacted Law 30327 establishes that the National Service of Environmental Certification for Sustainable Investments is the entity in charge of granting Global Environmental Certifications. Until the procedure for granting such certifications is defined, the competent authority responsible for evaluating and approving the corresponding environmental management instrument, shall incorporate in its evaluation process, the other titles (permits, licenses, rights or authorisations) referred to in Law 30327.

    • Prior consultation process: Pursuant to the Law of Consultation Right to Indigenous or Native Peoples, Law 29785, and its Regulations, approved by Supreme Decree 001-2012-MC, the prior consultation process should be carried out before the issuance of any legislative or administrative measure that could affect collective rights of indigenous or tribal peoples.

    It should be noted that the prior consultation process shall only be applicable in the context of the issuance of permits, authorisations or licences allowing the initiation of activities or works (and only in case the competent authority determines that the project will affect the collective rights of tribal or indigenous peoples located within the area where the relevant project will be developed). According to the applicable regulations, the maximum term for the development of the prior consultation process is 120 calendar days.

    • Municipal licence: A municipal building licence will be required only if the construction works that form part of the project legally qualify as a ‘building’. According to Law 29090, Supreme Decree 008-2013-VIVIENDA and Supreme Decree 011-2006-VIVIENDA construction works are considered a ‘building’ if they comply with the following conditions: (i) the construction works are intended to shelter the development of human activities; and, (ii) they have the characteristic of being permanent. 
  14. 8.

    Are subsurface conditions a common source of delays for construction projects in your jurisdiction? Do the laws of your jurisdiction permit the parties to freely allocate this risk contractually?

  15. Yes, subsurface conditions can be a common source of delays for construction projects in Peru. This can be specially the case when archaeological remains are found on the site of the project.

    Peruvian laws do allow the parties to freely allocate subsurface risk. 

  16. 9.

    Does your jurisdiction provide statutory protection for ‘unforeseeable’ or similar risks? Do such statutory protections supersede contractual allocations of risk?

  17. The Peruvian Civil Code defines force majeure as an event, which is not the responsibility of either party, consisting of an extraordinary, unforeseeable and irresistible event which prevents compliance with a certain obligation or which determines its partial, untimely or faulty compliance. Based on the above, force majeure can only be alleged when there is no fault or negligence on the side of the party invoking the alleged force majeure event.

    Detailed rules regarding force majeure under the Peruvian Civil Code are not a matter of public order. Therefore, the parties are free to negotiate the allocation of this risk and, hence, to stipulate particular provisions regarding force majeure, limiting or extending its application scope under their respective agreements. 

  18. 10.

    Will the laws of your jurisdiction strictly interpret contractual provisions granting cost or schedule relief? Or is there flexibility to arrive at ‘equitable’ solutions even if contrary to contractual provisions? Are there any specific rules in your jurisdiction regarding the evidence required to support cost or schedule relief claims?

  19. Provided that the contractual provisions granting cost or schedule relief are consistent with the Peruvian legal framework, as a general rule, such provisions should prevail in the event of disputes. Notwithstanding the above, it is relevant to note:

    The Peruvian Civil Code includes a provision stating that in certain agreements:

    in which the performance is continued, periodic or deferred, if performance becomes excessively onerous because of extraordinary and unforeseeable events, the prejudiced party may request a judge to reduce or increase the obligation, in order for the performance to cease being excessively onerous.

    Moreover, the Peruvian Civil Code also states that the judge, by petition of the debtor, is entitled to “(…) fairly reduce the penalty when it is manifestly excessive of the debtor’s obligations that have been partially or irregularly executed”.

    There are no specific requirements regarding the evidence required to support cost or schedule relief claims. 

  20. 11.

    Does your jurisdiction recognise economic equilibrium clauses? Have any such clauses been utilised in practice?

  21. The Peruvian legal framework does not forbid the use of economic equilibrium clauses, hence, in application of the principle of contractual freedom, private parties may decide to introduce economic equilibrium clauses in their contracts and, if this is the case, the applicability of such clauses shall be recognised. In practice, some construction agreements do include economic equilibrium clauses but restrict its scope of application (eg, changes in law that have a material effect in the costs of the contractor) and include certain exceptions.

  22. 12.

    How significant is the impact of labour unions on construction projects in your jurisdiction?

  23. The Civil Construction Workers’ Federation of Peru (FTCCP) is the union that represents the employees that are part of the special civil construction regime. On a yearly basis, the FTCCP enters into negotiations for collective bargaining with the Peruvian Chamber of Construction (CAPECO), which usually concludes with an increase in the minimum wage and improvements in the working conditions. Due to the above, the FTCCP tends to be considered as an agent with the potential to impact the construction of projects.

  24. 13.

    Highlight any significant public procurement law provisions applicable to public construction project tenders.

  25. Government Procurement Law, Law No. 30225 (the GPL) and its regulations, Supreme Decree No. 350-2016-EF (the RGPL), govern the procurement activities to be carried out by the Peruvian public sector. The GPL and RGPL regulate the proceedings that shall be followed by public entities to select the private entities with whom they will enter into agreements and the minimum terms that shall be covered by such agreements.

    The public entities shall follow one of the following proceedings prior to entering into an agreement for the construction of works pursuant to GPL and RGPL: (i) public tender, if the estimated or referential value of the contract equals or exceeds 1,800,000 pesos; (ii) simplified awards, if the estimated or referential value of the contract is less than 1,800,000 pesos; or, (iii) direct procurements, if the specific procurements fits within one of the exceptions contemplated in article 27 of the GPL.

    The agreements to be entered into pursuant to the GPL and RGPL shall comply with the conditions required in the aforementioned regulations. This includes: (i) requirements in connection with guarantees that shall be submitted; (ii) restrictions in connection with the subcontracts that may be entered into; (iii) restrictions in connection with the amendments that may be agreed; and (iv) regulations regarding the arbitration process that may take place if a controversy arises between the parties during the term of the contract.

  26. 14.

    Do contractors commonly carry out construction activities through consortia or other types of joint ventures? Under these arrangements in your jurisdiction, are joint venture partners jointly and severally liable for their obligations?

  27. In the Peruvian market it is not uncommon for contractors to carry out construction activities through a consortium.

    In connection with the responsibility assumed by each of the members of a consortium, the Peruvian General Corporations Law (Law No. 26887) states that the members of the consortium will be joint and severally responsible against third parties only if this is agreed in a contract or established by law.

    In those cases in which the constructor is a consortium, it is common for the applicable construction agreement to include provisions: (i) declaring that the members of the consortium shall be jointly and severally liable for the obligations assumed pursuant to such agreement; and, (ii) forbidding the consortium to modify the participation percentage that corresponds to each member of the consortium without the prior written approval of the owner of the construction project.

  28. 15.

    Are time-bar clauses for claims enforceable in your jurisdiction? Do courts in your jurisdiction interpret these provisions strictly?

  29. As a general rule, time-bar clauses are enforceable in Peru as long as the periods established in those clauses do not result contrary to the statute of limitation provided by the applicable law. 

  30. 16.

    Are limitations of liability enforceable in your jurisdiction? What are the exclusions for such limitations?

  31. As a general rule, limitations of liability are enforceable. However, when it comes to ‘direct damages’, limitations of liability are only valid and enforceable in cases where such damages are originated by slight negligence and are not caused by the breach of obligations that derived from Peruvian Public Policy rules. Therefore, any kind of limitation of liability for ‘direct damages’ will be invalid if those damages were caused by wilful misconduct, gross negligence or in relation with Peruvian Public Policy rules. The aforementioned is regulated in the Peruvian Civil Code.

  32. 17.

    Are exclusive remedy clauses enforceable in your jurisdiction?

  33. Parties are free to agree in advance any exclusive remedy for breach of contract caused by slight negligence.

    In cases of wilful misconduct and gross negligence, Peruvian legislation provides certain remedies that, as a general rule, cannot be supressed by the parties: (i) compulsory enforcement, or (ii) termination of the contract for cause. In either cases, damages can be requested. Nonetheless, parties are free to implement certain rules or conditions for the enforcement of any of those remedies, such as notice periods, penalties, formalities, among others.

  34. 18.

    Are liquidated damage provisions enforceable in your jurisdiction? Are there any limitations on the formulation of such liquidated damages? Does local law allow courts in your jurisdiction to reduce the amount of liquidated damages provided in a construction contract?

  35. In accordance with the provisions contained in the Peruvian Civil Code, damages can be liquidated in advance by the parties by agreeing penalties: (i) for cases of breach of certain obligations assumed in the contract, or (ii) for cases of delay of specific obligations assumed in the contract. In both cases, such obligations must be identified.

    Unless a clause of ‘further damages’ is agreed when incorporating a penalty, it is not possible to claim a higher amount for damages even if they can be proved. Regarding a reduction, the Peruvian Civil Code establishes that the party to whom the penalty is applied is able to judicially request a reduction of the amount of the penalty if it can be proved that such amount exceeds the real damages caused to the affected party.

  36. 19.

    How is force majeure governed in your jurisdiction? Are carve outs to general force majeure provisions provided by law enforceable?

  37. Force majeure is regulated in the Peruvian Civil Code. As mentioned in question 9, such article provides legal protection for risks that qualify as extraordinary, unforeseeable and irresistible (ie, not attributable risks). Nonetheless, parties are able to suppress or extend such protection if they agree so in the contract. 

  38. 20.

    What instruments are typically used as performance security in your jurisdiction? Are such instruments liquid?

  39. In the Peruvian private sector, the most common performance security for construction contracts is the letter of guarantee issued by a financial entity, such as a bank. Those letters of guarantee are liquid and enforceable with the sole presentation of the letter accompanied by the corresponding request of the interested party.

  40. 21.

    How is concurrent delay in construction projects treated in your jurisdiction?

  41. From all the possible ‘concurrent delay’ scenarios, the Peruvian Civil Code expressly regulates only the case of a concurrent delay of both parties: in construction contracts, both the contractor and the owner. It states that in such scenario, none of the parties would be considered to be in a breach of contract situation until the interested party either completely performs its obligations or at least guarantees such performance. For any other case of concurrent delay, the general provisions of the Peruvian Civil Code will be applicable.

  42. 22.

    Does your jurisdiction recognise degrees of negligence and culpability?

  43. The Peruvian Civil Code expressly recognises the following degrees of contractual liability: slight negligence, gross negligence and wilful misconduct. Slight negligence applies to the person who omits the ordinary diligence required by the nature of the obligation and that is appropriate due to the circumstances of the people, time and place. Gross negligence applies to the person who does not perform its obligations due to serious negligence. Wilful misconduct applies to the person who deliberately does not perform his or her obligations.

  44. 23.

    Is there a distinction in your jurisdiction between consequential losses and those resulting ‘naturally’ from a breach of contract?

  45. It must be noted that Peruvian law does not recognise the mentioned damage classification. The Peruvian Civil Code establishes that compensation for damages caused by a breach of contract includes all the damages that are immediate and direct consequence of such breach. Notwithstanding this, if the breach of contract was due to a situation of slight negligence, then the compensation mentioned before is limited to the damages that could be foreseen at the time of concluding (signing) the contract.

    The aforementioned represents the general rules provided by the Peruvian Civil Code for damages caused by breach of contract. Such provisions can be expanded if the parties agree so in the contract. 

  46. 24.

    Are there mandatory provisions in connection with the transfer of title of works or materials delivered in your jurisdiction?

  47. Works performed on a real property, such as buildings, are considered as integral parts of the real property and therefore owned by the land owner.

    The Peruvian Civil Code states the following transfer rules. The transfer of ownership of real properties is effective at the sole consensus of the parties or at any other moment expressly agreed by them. On the other hand, regarding moveable goods (such as materials or works performed in moveable assets), the general rule provided by the Peruvian Civil Code is that ownership is transferred at the moment of the physical delivery of such moveable goods. However, according to the different circumstances, the Peruvian Civil Code regulates other mechanisms that the parties can perform, if applicable. 

  48. 25.

    Must a contractor fulfil specific requirements when presenting an application for payment in your jurisdiction? What is the maximum time provided by law to pay an invoice from a contractor? Do local laws allow owners to make set-offs, deductions, withholdings or retentions from payments due to contractors, and are there any limitations on the circumstances in which owners can exercise these rights?

  49. Yes, the contractor must fulfil certain requirements in order to issue an invoice requesting payment. Such requirements are detailed in the Peruvian Receipts Regulations. Otherwise, the invoice will not be considered as a valid document for tax purposes. Additionally, bear in mind that for tax purposes, any payment must be made by using the Peruvian financial system. If not, the payer will not be able to deduct such payment as expense or cost.

    Note that, legally, there is not a maximum period of time to pay an invoice to a contractor. This would depend on what the parties agree.

    Regarding set-offs, deductions, withholdings or retentions made by the owner from payments due to contractors, from a contractual perspective, Peruvian law does not contain any mandatory rule that prohibits owners to exercise such rights if it has been agreed in the corresponding contract. Limitations on the circumstances in which owners can exercise these rights will depend on what has been agreed by the parties. On the other hand, from a tax standpoint, the contractor must accept the tax withholdings or retentions (or any other deduction that is considered as a tax obligation) as required by Peruvian tax laws.   

  50. 26.

    Must insurance policies for construction projects in your jurisdiction be placed with local insurers? Are there restrictions in your jurisdiction regarding the payment of insurance proceeds offshore or to third parties?

  51. Peruvian legislation does not contain any mandatory provision that establishes that insurance policies for construction projects must be placed with local insurers. Also, there are no restrictions in Peruvian law regarding the payment of insurance proceeds offshore or to third parties. 

  52. 27.

    Briefly describe the tax regime applicable to construction projects. Are withholding and value added taxes applicable? Are construction contracts typically structured so that onshore and offshore work are performed by separate contractors?

  53. Yes, in the case of infrastructure projects, onshore (local) and offshore (foreign) work are typically performed by separate contractors. Below you will find a summary of the tax regime applicable.

    Income tax

    Domiciled legal entities – including consortiums with independent accounting – and permanent establishment (PE) are subject to the Annual IT, as follows: for fiscal year (FY) 2015 and 2016: 28 per cent; for FY 2017 and 2018: 27 per cent; for FY 2019 onwards: 26 per cent. Expenses incurred to generate taxable income (including interest) or the maintenance of the source are deductible; unless the law states otherwise. Losses can be carried forward, as follows: (i) for four years; or, (ii) indefinitely but only offsetting up to 50 per cent of net income earned during each financial year.

    Income is recognised as accrued. However, construction companies can recognise income based on the amounts received for each project only.

    Dividends distributed or paid to non-domiciled shareholders or domiciled individuals are subject to an IT withholding, as follows: for FY 2015 and 2016: 6.8 per cent; for FY 2017 and 2018: 8 per cent; for FY 2019 onwards: 9.3 per cent. Dividends paid to domiciled legal entities are not taxed.

    Temporally, domiciled taxpayers are entitled to depreciate construction works used for business development at a rate of 20 per cent per FY (instead of using the general rate of 5 per cent), if at 31 December 2016 the construction is advanced at 80 per cent, among other conditions.

    Services provided by non-domiciled taxpayers in Peru are subject to a 30 per cent IT withholding. The rate is 15 per cent for technical assistance services (including engineering) economically used in Peru, under certain conditions. Peruvian law does not include construction projects as a case of PE neither has it specified the minimum amount of time that may trigger a PE; however, tax treaties signed by Peru do contain clauses about PE in construction projects.

    Value added tax

    An 18 per cent VAT is levied on: (i) the sale of moveable property in Peru; (ii) services performed in Peru; (iii) the use of services provided by non-domiciled entities; (iv) import of goods; (v) construction contracts within Peru; and (vi) the first sale of real property made by the contractor. The VAT taxpayer is the seller or the provider or the contractor, but the economic burden of this tax is borne by the buyer or user. VAT is paid on a monthly basis and is determined by the difference between the output VAT (payable) and the input VAT (credit paid on acquisitions).

    Deposits and warranties are exempt from VAT if they do not exceed 3 per cent of the total amount of the sale. In the case of the first sale of real property by the contractor, it is deemed that the land value is equal to 50 per cent of the purchase price.

    The use of services in Peru will be exempt from VAT when the compensation is included in the custom value of imported goods, whose import is subject to VAT.

    Most services are subject to a system of advance payment of a percentage of VAT (detracciones). This percentage is 4 per cent for construction contracts.

    Until 31 December 2018 there is a VAT exemption on lease agreements, aiming to promote the leasing of residential real property by individuals.

    The import of goods under an EPC agreement with a non-domiciled contractor is not subject to this VAT. Additionally, if under this agreement, the custom value of the goods is included in the compensation for the service, such goods will not be subject to import VAT.

    Customs duties

    Custom duties are levied on the customs CIF value of imported goods at a rate of 0, 6 or 11 per cent, depending on the classification of the WTO. The definitive import of goods is also subject to the VAT Perception System, pursuant to which the importer must make an advanced payment of the VAT by applying the percentages of 10, 5 and 3 per cent on the customs CIF Value plus other charges.

    Municipal taxes

    A real property tax is levied annually on the value of urban or rural property, applying a progressive cumulative rate of 0.2, 0.6 and 1 per cent.

    Transfers of real estate are subject to a 3 per cent transfer tax to be paid by the acquirer on the highest of the sale price or the tariff value, with a deduction of 10 Tax Units (S/ 39,600). The first sale of properties performed by construction companies is not subject to the transfer tax, except on the value of the land.

  54. 28.

    Are there any statutorily mandated or implied warranties under the laws of your jurisdiction? What is the minimum defect liability period in your jurisdiction? Are there specific minimum defect liability periods for certain types of works?

  55. The Peruvian Civil Code regulates certain implied warranties for contracts involving the transfer of ownership, possession or use of goods and properties. For example, the mentioned code regulates compensation for eviction, compensation for hidden defects and the guarantee of ‘accurate operation’. In this last case, parties are free to agree the scope of such warranty.

    Additionally, it must be noted that, as mentioned in question 29, a special regulation is also applicable to construction contracts when it comes to claims for the inaccuracy of the performed work or construction, or to claims regarding the destruction of the construction or the detection of a severe defect in the same. 

  56. 29.

    What is the statute of limitations for contractual and non-contractual claims in your jurisdiction?

  57. The Peruvian Civil Code contains the general rules for the statute of limitations for contractual and non-contractual claims in Peru. The statute of limitations period for contractual claims is 10 years, while for non-contractual claims the statute of limitations is two years.

    However, for claims regarding construction contracts there is a special statute of limitations. The Peruvian Civil Code establishes that for any claim against the contractor due to an inaccuracy of the performed work or construction, then the statute of limitations period is six months to notify the claim (counted from the receipt of the work) and one year to file any suit (counted from the day the work was finalised). In a similar way, the Peruvian Civil Code dictates that for any claim regarding the destruction of the construction or the detection of severe defect in the same, the statute of limitations period is six months to notify the claim (counted from the discovery of such situation) and one year to file any suit (counted from the following day after such notification).

  58. 30.

    Describe any local arbitration institutions and any specialised construction law courts in your jurisdiction.

  59. There are no specialised construction law courts in our jurisdiction. Notwithstanding this, arbitration institutions such as the ‘Center of National and International Conciliation and Arbitration of the Chamber of Commerce of Lima’ and the ‘Center for Conflict Analysis and Settlement of the Pontificia Universidad Católica del Perú’ are usually included in construction contracts. Alternatively, the last of the mentioned institutions has implemented ‘Dispute Boards’ as a dispute settlement mechanism for the construction industry.

  60. 31.

    Are agreements to mediate enforceable? Are there any mandatory mediation provisions for construction contracts in your jurisdiction?

  61. As a general rule, mediation – as a legal figure – is not expressly regulated in Peru. However, parties are free to agree in a contract that a ‘direct negotiation’ must be performed by and between them as a necessary previous step before going to court or arbitration in case of a contractual claim.

    On the other hand, it must be noted that for judicial procedures, conciliation (before an authorised Conciliation Centre) is mandatory before going to court, except for certain claims detailed in the applicable law. When applicable, the conciliator acts as a facilitator that helps the parties to reach an eventual settlement, which will be considered enforceable before the courts.

  62. 32.

    How prevalent are dispute adjudication boards appointed by the parties in construction contracts in your jurisdiction? Are agreements to submit disputes to dispute adjudication boards enforceable?

  63. Dispute adjudication boards are beginning to be used in Peru. The new Peruvian Public Procurement Law (approved by Law 30225) has included dispute adjudication boards as a mechanism to prevent and resolve disputes in certain construction contracts; specifically, for those of which the value is equal to, or greater than, 20,000,000 pesos. Nevertheless, dispute adjudication boards are not mandatory in public procurement contracts.

    The decision issued by the Dispute Resolution Board is immediately binding since the notification. The lack of fulfilment of the decision entitles the other party to terminate the contract.

  64. 33.

    Discuss recent trends in your jurisdiction affecting large-scale construction projects.

  65. Nowadays, large-scale construction projects are mostly limited to infrastructure projects, assigned by the Peruvian government to private companies (individually or in consortiums / joint ventures) after a public tender or bid. Also, it is very common that those projects are performed through a public-private partnership between the government and private companies. Concession agreements are the most common form of public-private partnerships used for major infrastructure projects. 

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Questions

  1. 1.

     Are construction contracts for projects developed in your jurisdiction required to be governed by local law? Are foreign choice-of-law clauses enforceable in contracts for construction projects developed in your jurisdiction?


  2. 2.

    Are there any formalities applicable to construction contracts? 


  3. 3.

    Are contractors entitled to impose mechanics’ or similar liens on work performed in order to secure payment in your jurisdiction? Are lien waivers from contractors and subcontractors enforceable in your jurisdiction? Are these commonly used in your jurisdiction? Can payments to contractors be contingent on receipt of lien waivers?


  4. 4.

    Are there any strict liabilities that extend to owners of construction projects in your jurisdiction?


  5. 5.

    Do owners typically negotiate a full pass-through of liabilities from their revenue contracts to contractors?


  6. 6.

    What are the most common pricing modalities in your jurisdiction? Is one modality more prevalent in certain types of projects than others?


  7. 7.

    What are the key approvals and permits required for a construction project? What is the typical cost and timing to obtain or fulfil such approvals, permits and obligations for large-scale infrastructure projects in your jurisdiction?


  8. 8.

    Are subsurface conditions a common source of delays for construction projects in your jurisdiction? Do the laws of your jurisdiction permit the parties to freely allocate this risk contractually?


  9. 9.

    Does your jurisdiction provide statutory protection for ‘unforeseeable’ or similar risks? Do such statutory protections supersede contractual allocations of risk?


  10. 10.

    Will the laws of your jurisdiction strictly interpret contractual provisions granting cost or schedule relief? Or is there flexibility to arrive at ‘equitable’ solutions even if contrary to contractual provisions? Are there any specific rules in your jurisdiction regarding the evidence required to support cost or schedule relief claims?


  11. 11.

    Does your jurisdiction recognise economic equilibrium clauses? Have any such clauses been utilised in practice?


  12. 12.

    How significant is the impact of labour unions on construction projects in your jurisdiction?


  13. 13.

    Highlight any significant public procurement law provisions applicable to public construction project tenders.


  14. 14.

    Do contractors commonly carry out construction activities through consortia or other types of joint ventures? Under these arrangements in your jurisdiction, are joint venture partners jointly and severally liable for their obligations?


  15. 15.

    Are time-bar clauses for claims enforceable in your jurisdiction? Do courts in your jurisdiction interpret these provisions strictly?


  16. 16.

    Are limitations of liability enforceable in your jurisdiction? What are the exclusions for such limitations?


  17. 17.

    Are exclusive remedy clauses enforceable in your jurisdiction?


  18. 18.

    Are liquidated damage provisions enforceable in your jurisdiction? Are there any limitations on the formulation of such liquidated damages? Does local law allow courts in your jurisdiction to reduce the amount of liquidated damages provided in a construction contract?


  19. 19.

    How is force majeure governed in your jurisdiction? Are carve outs to general force majeure provisions provided by law enforceable?


  20. 20.

    What instruments are typically used as performance security in your jurisdiction? Are such instruments liquid?


  21. 21.

    How is concurrent delay in construction projects treated in your jurisdiction?


  22. 22.

    Does your jurisdiction recognise degrees of negligence and culpability?


  23. 23.

    Is there a distinction in your jurisdiction between consequential losses and those resulting ‘naturally’ from a breach of contract?


  24. 24.

    Are there mandatory provisions in connection with the transfer of title of works or materials delivered in your jurisdiction?


  25. 25.

    Must a contractor fulfil specific requirements when presenting an application for payment in your jurisdiction? What is the maximum time provided by law to pay an invoice from a contractor? Do local laws allow owners to make set-offs, deductions, withholdings or retentions from payments due to contractors, and are there any limitations on the circumstances in which owners can exercise these rights?


  26. 26.

    Must insurance policies for construction projects in your jurisdiction be placed with local insurers? Are there restrictions in your jurisdiction regarding the payment of insurance proceeds offshore or to third parties?


  27. 27.

    Briefly describe the tax regime applicable to construction projects. Are withholding and value added taxes applicable? Are construction contracts typically structured so that onshore and offshore work are performed by separate contractors?


  28. 28.

    Are there any statutorily mandated or implied warranties under the laws of your jurisdiction? What is the minimum defect liability period in your jurisdiction? Are there specific minimum defect liability periods for certain types of works?


  29. 29.

    What is the statute of limitations for contractual and non-contractual claims in your jurisdiction?


  30. 30.

    Describe any local arbitration institutions and any specialised construction law courts in your jurisdiction.


  31. 31.

    Are agreements to mediate enforceable? Are there any mandatory mediation provisions for construction contracts in your jurisdiction?


  32. 32.

    How prevalent are dispute adjudication boards appointed by the parties in construction contracts in your jurisdiction? Are agreements to submit disputes to dispute adjudication boards enforceable?


  33. 33.

    Discuss recent trends in your jurisdiction affecting large-scale construction projects.


Other chapters in Construction 2016

  • Brazil
    Arap, Nishi & Uyeda Advogados (São Paulo)
  • Chile
    Reymond & Cía
  • Peru
    Miranda & Amado Abogados