Construction

Last verified on Wednesday 19th July 2017

Chile

Alfonso Reymond Larraín and Rodrigo Riquelme Yanez
Reymond & Cía
  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. Our civil and commercial legislation relates construction contracts to national legislation. However, if there are elements of internationality in these contracts, the parties have the power to determine the law applicable to their contractual relationship, that is, the substance of the dispute. Today, regulations such as those of the International Chamber of Commerce (ICC) indicate that the parties can freely agree to the legal rules that the arbitral tribunal must apply to the substance of the dispute, which can be a foreign one. As a result, the parties may opt for the application of international regulations, subjecting them to general principles of law, lex mercatoria, UNIDROIT Principles for International Commercial Contracts, etc.

  3. 2.

    Are there any formalities applicable to construction contracts? 

  4. No. As a general rule, this is a consensual contract. The foregoing does not prevent them from being stated in writing. Only contractual relationships governed by the Ministry of Public Works are regulated with special formalities when it is part of the contract or that they relate to the state through it (Regulation for Public Works Contracts Supreme Decree MOP 75, 2004).

  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. Contractors and owners may agree on any type of guarantees – mortgage, pledge, banking security, etc – to secure their respective obligations, and those liens are enforceable. Notwithstanding, guarantees of payments to a contractor are not commonly guaranteed, except for corporate guarantees issued by the owner’s controller and by the general implied warranty of the debtor over all of its patrimony, but not allocated to a specific asset.

  7. 4.

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

  8. In civil matters, liability for damages caused by the ruin of buildings is objective in nature, where fault is ignored. It suffices that the complainant establishes the existence of damage and that it comes from a construction defect, from the materials or from the land, or from a failure, error or defect in the construction. The construction company may defend itself by pointing out that the damage caused is not owing to a defect or fault attributable to the construction, since the company strictly complied with current regulations on the matter, but that it is a direct consequence of a fortuitous event or fact of nature impossible to foresee and resist, and for which it is not responsible.

    In labour matters, Law No. 20.123, to regulate work under subcontracting, introduced reforms that have a significant impact on the matter. The new article 183 E introduced in the Labour Code should be borne in mind:

    Without prejudice to the obligations of the main company, contractor and subcontractor with respect to their own workers under article 184, the main company must adopt measures necessary to effectively protect the life and health of all workers working at their work, enterprise or site, whatever their dependence, in accordance with the provisions of article 66 bis of Law No. 16.744 and article 3 of the Supreme Decree No. 594, of 1999, of the Ministry of Health [paragraph 2]. In cases of construction of buildings for a single fixed price, the obligations and responsibilities indicated in the preceding paragraph will not proceed when the person who orders the work is a natural person. [paragraph 3] Without prejudice to the rights that are recognised, in this paragraph 1, for the worker under a subcontracting system, in respect of the owner of the work, enterprise or site, the worker shall enjoy all the rights recognised by the labour laws in relation to its employer.

    With regard to the responsibility of the contractor and subcontractor, they respond “with respect to their own workers under article 184” of the Labour Code, which in turn obliges them “to take all necessary measures to effectively protect the life and health” of them, “maintaining the appropriate conditions of hygiene and safety in the works, as well as the necessary tools to prevent accidents and occupational diseases” and “to provide or guarantee the necessary elements so that workers have access to timely and adequate medical, hospital and pharmaceutical care in case of accident or emergency”.

    Regarding the responsibility of the main company, Law No. 20.123 introduced notable aspects, thus derogating the “subsidiary" responsibility of the owner of the work, enterprise or site contemplated in the former article 64 of the Labour Code, now expressly established in paragraph 1 of the new article 183 E of this legal body as a direct obligation of the main company to “take the necessary measures to effectively protect the life and health of all workers who work at their work, enterprise or site, whatever their dependence”.

  9. 5.

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

  10. As a general rule, no. Except in matters of civil liability, those that are commonly insurance matters.

  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 construction contracts it is possible to find, by virtue of the price modality, as a general rule, (i) a unit price series contract, which is the one in which it is established that the payment for the contracted work is the figure that results from adding up the quantities of work actually done, multiplied by the unit price realised by the contractor. In this type of contract it is not required to have completely finished the detail design to request a proposal and the approximate value of the work can be known in advance; (ii) a lump-sum contract is one in which it is agreed that the contractor will do the totality of a work for a fixed sum of money, which will be paid by the owner for which it is necessary that the project must be fully defined. In this type of contract, the owner knows the total cost of the work from the outset. However, this rule is not absolute, as in the case of extraordinary works or modifications to the project, the price may vary. In this type of contract, often called turnkey, the contractor is obliged to deliver a completed construction and in a state of operation against the delivery of a fixed amount, divided into previously agreed terms, according to the progress of the work; and, (iii) contracts through delegated administration where the owner delegates the administration of the work to the contractor, paying all the expenses incurred during the construction of the work. This contract by administration is based on the fixing of some prices of labour and materials on the part of the constructor and, according to them, these are invoiced to the contractor for the works performed commissioned by the work. The constructor’s commitment is limited to fixing the amount to be invoiced for each month of labour and for each unit of material used, but without ensuring, in any case, the number of hours or the quantities to be used in each unit of work. On top of the total invoicing of labour and materials consumed, the builder charges a fixed percentage to cover its fixed expenses and commercial profit. Therefore, the total amount to be charged for these items increases as the total volume of labour and materials increases, regardless of the total volume of work performed. 

  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?

  14. In general, and in consideration of the provisions of article 116 of the Urbanism and Construction Law, “The construction, reconstruction, repair, alteration, extension and demolition of buildings and urbanisation works of any nature, whether urban or rural will require building permission.” The Director of Municipal Works grants this permit.

    From an environmental point of view, the Information System on Permits and Authorisations of Environmental Content aims to facilitate the identification of environmental regulations and sectoral environmental permits applicable to projects and activities that are submitted to the Environmental Impact Assessment System (SEIA). Within the framework of SEIA, the concept of environmental regulations, or applicable environmental regulations, includes those rules whose objective is to ensure the protection of the environment, the preservation of nature and the conservation of environmental heritage, and impose an obligation or requirement whose compliance must be accredited by the owner of the project or activity during the evaluation process.

    Law No. 19.300, on General Rules of the Environment, provides that the owner of any project and activity that is submitted to the SEIA is obliged to identify the environmental regulations applicable to its project or activity and to indicate how it will comply with the same. If the competent authority favourably rates the project or activity, the resolution issued by the competent authority will certify that the project or activity complies with the applicable environmental regulations. On the other hand, the same Law establishes that all permits or pronouncements of an environmental nature that must or may be issued by other state agencies in respect of projects or activities subject to the SEIA, must be granted through this system.

  15. 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?

  16. Soil conditions are often a source of delays for projects and consequently conflicts in general. Article 2003 of the Civil Code No. 2 allows judicial review of the lump-sum contract, and constitutes a clear exception, expressly enshrined in the aforementioned legal text, to the principle of invariability of the lump sum price.

    If unknown circumstances, such as a hidden flaw in the soil, cause costs that could not be foreseen, the company must be authorised for them by the owner; and if it refuses, it may occur to the judge to decide whether or not it has had to anticipate the surcharge work and to set the price increase that corresponds for this reason.

    Some owners seek to limit or escape liability arising from the delivery of incorrect data on physical soil conditions. They usually do this through a clause stating that the data are not part of the contract documents or anything that states that the owner and the architect or engineer is not responsible for any errors or inaccuracies that may be found.

  17. 9.

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

  18. No. These protections are contractual only.

  19. 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?

  20. If a contract is pending, extraordinary, unforeseeable, and supervening circumstances are generated upon entering into an administrative contract, but transitory, that alter the economic-financial equation to the detriment of the contractor, and the contractor is not in breach of fulfilling its obligations, the obligation arises for the administration to assist it so that it can fulfil, or continue to fulfil the contract. This has occurred in arbitral justice and occasionally in ordinary justice.

    Inevitability it is thus a legal device that allows the contractor to obtain a mandatory adjustment and/or termination of the contract, as remedies tending to reduce their burden on the limits provided by the contractors at the time of entering into the act, in the case of revision or readjustment of the contract, or the release of obligation directly, in case of termination of the contract.

    It is a condition for it to be invoked that the circumstance that causes an economic imbalance is outside the will of the parties. This institution is based on equity, good faith and unjust enrichment. 

  21. 11.

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

  22. Yes. In public procurement, and specifically in the contract for the concession of public works, the existence of the economic and financial equilibrium that the parties had at the time of contracting is recognised; it must be maintained throughout the performance of the contract. This has led to the introduction of stipulations that give some flexibility to the benefits that are their objective, in order to maintain the economic–financial equilibrium expected at the time of it being entered into. In addition, it is to be recognised that the administration may affect the contract to which it is a party, with powers that are its own, whether they are entered into the contract (and thus will be explicit contractual clauses) or not (and will be an exercise of extra-contractual powers or implicit prerogatives).

    Due to the legal inequality of the parties, both the jurisprudence of our courts of law and of the Office of the Comptroller General of the Republic and doctrine have specified that the right which the private contractor holds of which the Administration keeps the economic–financial equilibrium of the contract unchanged, must be recognised and respected, which will result in the right to be compensated for incidents, or the product of unforeseeable circumstances or force majeure or arising from, or attributable to, the administration itself, or as compensation for the exercise of an ius variandi of it. 

  23. 12.

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

  24. The low level of unionisation in Chile and its impact on the low percentage of workers who collectively trade in a characteristic that is transversal to all sectors of the economy. The regulatory framework of trade union organisations and the development of collective bargaining are established in the Labour Code.

    In Chile, there is a decreasing trend exhibited in the number of unions, in the number of affiliated workers and the unionisation rate of workers.

    Notwithstanding the foregoing, on 8 September 2016, Law 20.940 was published in the Official Journal, which, as expressed, “modernises the labour relations system”. The Labour Reform has as its declared objective to develop labor relations in such a way that they are modern, fair and balanced between the parties, in which dialogue and agreement prevail. The way in which this objective is sought is to broadly increase the power of trade unions and to introduce major changes in collective bargaining regulations aimed at improving the relative position of the working party vis-à-vis the employer.

    Among the many changes introduced by the Labour Reform, we highlight the following:

    Extension of the right to collectively bargain, recognition of the intercompany union as an active subject of regulated collective bargaining, modifies the right to information of the unions, modifies the right to extend benefits agreed in a collective contract, union ownership, bargaining by groups of non-unionised workers, a minimum floor for collective bargaining is established, it modifies the right to strike, it modifies the institution of minimum services and emergency equipment, it establishes a form for dismissal of workers (without jurisdiction) in retaliation for participation in collective bargaining, among other topics.

    All these changes have not yet had an effect on the economy because of their recent introduction.

  25. 13.

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

  26. The legal regime governing administrative procurement in Chile has varied substantially owing to the incorporation of two important pieces of legislation: Law No. 19.880, which establishes the rules of the administrative procedures governing the acts of the agencies of the State Administration, hereinafter LBPA, and Law No. 19.886, which regulates the rules of the administrative contracts of supply and provision of services, hereinafter LBCA or Procurement Law.

    Of interest is the creation of the Public Procurement Tribunal, which will hear of the action contesting illegal or arbitrary acts or omissions, occurring in the administrative procedures of procurement with public bodies governed by the LBCA, establishing a special procedure for said actions.

    The need for the creation of special courts of this nature in Chile derives, among other reasons, from the absence of a contentious administrative jurisdiction responsible for the hearing of these matters, which has generated the emergence of a series of actions that are known by both constituent bodies of the judiciary as well as administrative entities, among other control mechanisms. The need for a specialised court for administrative procurement derives from the characteristics or elements that distinguish it from civil procurement, complemented by the integration of Chile into international trade, given Chile’s subscription to treaties that clearly contain a series of requirements with respect to the body responsible for settling disputes between the administration (tenderers) and those involved in public procurement as bidders.

  27. 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?

  28. It is common for contractors to postulate and execute construction projects through consortia. In cases where the builder is a consortium, it is common for members to be jointly and severally liable for the obligations assumed under that agreement.

  29. 15.

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

  30. These clauses are lawful insofar as they do not contradict public order rules such as prescription. 

  31. 16.

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

  32. They are applicable. In Chile, only direct and foreseen damages are answered for if carried out with fault, but if one acts with willful misconduct or gross negligence, one answers in addition to the unforeseen. Indirect damages are never answered for because there is no causal relationship.

  33. 17.

    Are exclusive remedy clauses enforceable in your jurisdiction?

  34. They are applicable. They are called criminal clauses and are equivalent to compensation of anticipated damages defined by the parties, due to the existence of a breach of contract. As a general rule, it is incompatible to seek compensation for damages and the penalty.

  35. 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?

  36. They are applicable and there are limitations since our legislation establishes that it will proceed to demand the penalty in all the cases in which it has been stipulated, without it being able to be argued by the debtor that the non-execution of the agreement has not inferred damage to the creditor or produced benefit. If the penalty consists in the payment of a certain amount, it may be asked that everything that exceeds the double of the first is reduced from the second, this included in it.

  37. 19.

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

  38. It is regulated in article 45 of the Civil Code. “An unforeseen event that is not possible to resist, such as a shipwreck, an earthquake, the capture of enemies, acts of authority exercised by a public official, etc, is called force majeure or a fortuitous event....”

    Fortuitous event is an “unforeseen” event, that is, that its nature cannot be represented as something certain that will happen at a determined moment.

    Of legal interest is the fortuitous event as a releasing element from responsibility, reason why the unforeseen event that is not possible to resist must occur while the obligation is pending and has a fundamental effect: it makes it impossible to comply.

    The fortuitous event is seen "in abstracto" (like guilt). This means that it is not a question of ascertaining whether the obligor represented its occurrence. What matters is to know whether the subject who suffers it, given the nature of the event, could reasonably foresee it.

    There are three parts of the fortuitous event: (i) unpredictability; (ii) irresistibility; (iii) autonomy or independence of the will of the parties.

    The parties can modify who takes charge of the fortuitous event.

  39. 20.

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

  40. In the common use construction contracts I use the bank guarantee certificate. These are documents that have the objective of guaranteeing the fulfillment of a contracted obligation. Banks issuing them should carefully examine the background, requirements and conditions relating to acts, proposals, contracts, commitments, etc, that are guaranteed. The analysis that they make of each guarantee certificate emission proposal must cover both the technical and financial aspects of the operation that is guaranteed, in order to have a correct and real appreciation of the risks that are assumed. 

  41. 21.

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

  42. Those delays that involve more than two events that can cause delays in the schedule, one given by the contractor and the other by the project owner. If we take both events independently, either one of the two can cause changes in the contractual term, but if any one of them did not occur, the schedule would be affected by the other event. In other words, they are unrelated delays that concur in parallel in the critical path.

    The contractor usually uses the concurrence of this type of delay to defend himself from a claim for compensation, while the owner can use it to waive the contractor’s search for delay costs. 

  43. 22.

    Does your jurisdiction recognise degrees of negligence and culpability?

  44. Our Civil Code recognises three degrees of negligence or contractual fault:

    • gross negligence;
    • ordinary negligence; and
    • slight negligence.

    - Gross negligence, culpa lata, is that which consists in not managing the business of others with that care that even negligent and imprudent people usually employ in their own business.

    - Ordinary negligence is the lack of that diligence and care that people ordinarily employ in their own businesses.

    - Slight negligence is the lack of that diligence and care that a wise person employs in the administration of his or her important business.

    The general rule is ordinary negligence (if the law says nothing culpa leve applies). A standard emerges of what the ordinary person is. The guilt in civil matters is applied in the abstract, it compares the behaviour of a subject with an abstract behavior.

    The care required will be greater when it answers for negligible fault, likewise, the care required will be less when it answers for gross negligence.

    A debtor answers for gross negligence on contracts that are useful to the creditor. Now if the debtor is the only one who reports benefits from the contract, it will answer for ordinary negligence.

    Most contracts are for the benefit of both contractors, so the debtor answers for ordinary negligence.

    The proof of diligence or care lies with the party who should have used it.

    In principle, for the purpose of compensation, the type of negligence involved is indifferent, although in the case of gross negligence, there is an exception, since this negligence in civil matters is equivalent to willful misconduct, that is, it answers for anticipated and unforeseen damages.

  45. 23.

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

  46. Our legislation recognises the classification of anticipated and unforeseen damages. Preventive damages are those which are anticipated or could be foreseen at the time of the contract; unforeseen ones shall be those that are not.

    In principle, the debtor only answers for anticipated damages, and unforeseen ones only in two cases: when there is willful misconduct (including gross negligence), and when it has been stipulated so.

    The judge may only accept compensation for damages that the law has indicated as compensable, but the corresponding provisions must be deemed as merely supplementary to the will of the parties, since the contracting parties' stipulations may modify these rules. 

  47. 24.

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

  48. Works carried out on a property, such as buildings, are considered to be integral parts of the property and, therefore, are the property of the owner of the land. The Chilean Civil Code establishes that the transfer of the domain is made by the registration of the title in the registry of properties of the Real Estate Registrar of the community in which the property is located, and if this, by its location, belongs to more than one community, this registration must be practised in all of them. 

  49. 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?

  50. Yes, the contractor must meet certain requirements in order to issue an invoice requesting payment. Law 19.983 regulates the transfer and grants right of execution to the copy of the invoice that will be considered irrevocably accepted if it is not claimed against its content by one of the following procedures:

    • Returning the invoice and the waybill or waybills, if applicable, at the time of delivery; or
    • Claiming against its content within eight calendar days after its receipt, or in the period that the parties have agreed, which cannot exceed 30 calendar days. In this case, the claim must be brought to the attention of the issuer of the invoice by certified mail, or by other reliable means, together with the return of the invoice and the waybill or waybills, or together with the request for issuance of the corresponding credit note. The claim shall be deemed to have been made on the date of dispatch of the communication. 
  51. 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?

  52. There are no such restrictions in Chile.

  53. 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?

  54. Construction contracts, by general rule, are subject to VAT, which is 19 per cent, and said paid tax can be used as a tax credit. There are some cases with particular regulation in the case that the project deals with the construction of houses. In the case of public works concessions, construction contracts have VAT added and it is the Ministry of Public Works that bears it. On the other hand, construction companies are taxed through income tax at a rate of 24 per cent for 2017.

    Finally, for VAT purposes, the nationality of the construction company is indifferent. For income tax, this activity is taxed at a rate of 35 per cent for companies whose domicile is outside Chile.

  55. 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?

  56. In terms of civil liability arising from construction activity, the main rules are found in articles 2003 No. 3 and 2324 of the Civil Code, and in articles 17 to 19 of the General Law of Urbanism and Construction.

    Our doctrine is inclined – before these two existing statutes – to establish the right of option of the creditor of the obligation; the election if it goes to the norms of the Civil Code or the Norms of the General Law of Urbanism and Construction, in view of each particular case.

    The responsibility for damages caused by the ruin of buildings or constructions is objective, where fault is ignored. It suffices that the complainant establishes the existence of damage and that it comes from a flaw in construction, the materials or the ground, or from a failure, error or defect in the construction.

    The construction company may defend itself by pointing out that the damage caused is not due to a defect or fault attributable to the construction, since it strictly complied with the current regulations in the matter, but that it is a direct consequence of a fortuitous event or an event of nature impossible to foresee and resist, for which it is not responsible.

    Both the Civil Code and the General Law of Urbanism and Construction recognise the following cases of liability. As regards the (i) constructor, the Civil Code makes it responsible when it is a contract with a lump sum and when the building perishes or threatens ruin, in all or part, by a flaw in the construction, by a flaw of the land that the company had to recognise or a flaw in the materials used. Likewise, the General Law of Urbanism and Construction establishes that the builders are responsible for failures, errors or defects in construction, including works performed by subcontractors and for the use of defective materials or supplies. (ii) For the first owner-seller, the General Law of Urbanism and Construction establishes that it is responsible for all damages and losses arising from faults or defects in it, either during execution or after completion. Subsequently, the owner-seller has the right to repeat against those who are responsible for such failures or defects and (iii) other professionals involved, such as designers, submit to the general regime of liability by negligence, that is, they are responsible to the extent that it can be proved they have acted with negligence.

  57. 29.

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

  58. With respect to the subject of the prescription of actions filed in accordance with the norms of the Civil Code, the limitation period is five years counted from the delivery of the property. The doctrine has assimilated the delivery of the property to the date of final reception.

    Regarding the actions filed in accordance with the norms of the General Law of Urbanism and Construction, it is necessary to make a series of distinctions:

    (i) ten years, due to faults or defects in the supporting structure.

    (ii) five years, due to faults or defects in constructive elements or installations.

    (iii) three years, for faults or defects in terminations or finishings.

    (iv) five years for faults or defects not included in (i), (ii) and (iii) above or that are not similar or equivalent to those mentioned.

    In the case of letters (i), (ii) and (iv), the limitation periods are counted from the date of final acceptance. In the case of (iii), it must be counted from the date of registration of the property in the name of the buyer. 

  59. 30.

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

  60. In Chile there are two large institutions that maintain institutional arbitration: the Chamber of Commerce of Santiago founder of the Arbitration and Mediation Center (CAM) and the National Arbitration Centre. The CAM has recently launched dispute boards as a dispute settlement mechanism for the construction industry with an emphasis on litigation prevention. A large percentage of the arbitrations administered by these institutions are concerned with construction matters.

  61. 31.

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

  62. Mediation is voluntary in Chile. The CAM introduced the dispute board, which is an alternative and anticipated dispute resolution system, whereby an independent panel of experts, normally set up at the start of contract execution, assists parties in resolving their disagreements through informal assistance and recommendation or decision issuance, depending on the model adopted. By its nature, it operates in contracts with a certain technical content, such as those of construction that are of medium to long-term execution and in which the timely solution of some disagreement presents an especially attractive profit for the parties. In the field of public works concessions, with the amendment of the law, technical panels were introduced as a mandatory measure that seeks to solve contractual disputes of a technical and economic nature prior to litigation. This system is incorporated in the concession contracts that arose after the legal modification of Law 20.410 of 20 January 2010.

  63. 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?

  64. The CAM of the Chamber of Commerce of Santiago (CCS), the main institution of domestic arbitration in Chile, in the period between 2000 and 2010, reports that 22 per cent of arbitrations heard before this institution correspond to controversies in matters of construction and engineering works linked to them.

    In the domestic sphere the creation of the CAM in the year 1992 responded to the need to submit the controversies to an instance of greater specialisation, which, together with the flexibility and speed of arbitration, are the main advantages and causes by which these disputes are known and resolved, in a better way, in said place, to the detriment of ordinary justice. At the international level, arbitration is the most accepted means of resolving commercial disputes by the business community. It is estimated that 90 per cent of international contracts contain an arbitration clause. The above can be explained by the complexity and high amounts involved in those contracts related to engineering, construction and infrastructure matters, which lead to the inclusion of arbitration clauses in order to remove the hearing and resolution of disputes arising in the execution of such contracts from ordinary justice. Since ordinary justice and arbitration are the only options for resolving litigious matters in a binding manner between the parties, the business community has decided that said uniform system, for the advantages it provides, is arbitration and, especially, through arbitrators ex aequo et bono. 

  65. 33.

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

  66. It is common practice in construction matters that there is conflict between the parties. We have now seen a sustained increase in conflicts that have been resolved by judicial authority. Since public works concession contracts are the most common form for large infrastructure projects in Chile, it is important to review their jurisprudence, emanating from arbitral tribunals, where they have incorporated a concept such as respect for the economic–financial equilibrium of the contract, the equivalence of benefits and a concept of good faith from the perspective of collaborating with its contractual counterpart. Unfortunately, the judgments issued by these arbitral tribunals are being reviewed by the courts of appeal through the complaint, which is not the natural formula conceived in the Chilean concession system. In the matter of a public works contract, our ordinary courts of justice had to hear these highly specialised and complex trials despite their lack of experience specialisation, but have recently made good decisions for the construction industry, where the principle of full indemnity (Hospital Militar La Reina) and a revision of the mandate agreements (Constructora Meléndez) were recognised.

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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.


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