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?
Pursuant to the provisions of conflict law, the Peruvian Civil Code has endorsed the Party Autonomy principle, which allows contracting parties to freely agree on the law that will govern the contract as well as the interpretation of the obligations contained therein, provided that such agreements do not interfere with international public policies or generally accepted good conduct.
In this sense, construction contracts for projects developed in the region could include clauses that expressly determine a choice of foreign law without affecting its validity, except for the limitations stemming from international public policies or generally accepted good conduct.
Last verified on Wednesday 19th June 2019
Are there any formalities applicable to construction contracts?
In accordance with article 143 of the Peruvian Civil Code, construction contracts are not required to be subject to any formalities to be deemed as valid and effective under the Peruvian law.
Last verified on Wednesday 19th June 2019
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?
According to article 1123 of the Peruvian Civil Code, unpaid creditors have a retention right against their debtors, under which the unpaid creditor is allowed to maintain possession of the debtor's assets until the payment obligation is sufficiently guaranteed or fulfilled.
However, it must be noted that assets intended to fulfil obligations or guarantees by a person other than the debtor cannot be subject to retention.
Moreover, retention rights can only be granted by law or when a connection between the payment obligation and the assets that are being retained exists. Therefore, to exercise retention right over the works performed, unpaid contractors shall meet the above conditions.
As for lien waivers, contractors are not bound to grant lien waivers under Peruvian law. Nonetheless, receipt of lien waivers is deemed acceptable in our jurisdiction and can always be negotiated and agreed upon on in construction contracts as conditions of work payments.
Last verified on Wednesday 19th June 2019
Are there any strict liabilities that extend to owners of construction projects in your jurisdiction?
In Peru, strict liabilities are applicable to environmental obligations. Pursuant to article 142 of Law No. 28611, the General Environmental Law, any individual or legal entity that, by means of use or exploitation of an asset or by carrying out a certain activity, may create damage to the environment or third parties, will be deemed strictly liable and shall assume all costs related to the measures for mitigating and compensating the damages, as well as any costs related to the surveillance, monitoring and mitigation of the damaging activity. In the specific case of construction contracts, the owner of the construction project will be held liable.
Last verified on Wednesday 19th June 2019
Do owners typically negotiate a full pass-through of liabilities from their revenue contracts to contractors?
Likewise, in the construction sector, the terms of the contract often regulate a liquidated damages clause, which is triggered by the contractor’s failure to fulfil, either wholly or in part, its contractual obligations. The amount payable for this concept shall provide compensation for all the additional costs that project owners will have to assume in this event, including the liabilities arising from the revenue contracts of the owner. In this way, liabilities of the owner from its revenue contracts are usually transferred to the contractor, indirectly, through the liquidated damages.
Nonetheless, some construction contracts can stipulate a direct pass-through to the contractor of certain liabilities from revenue contracts. Examples of this are the concession agreements that regulate liquidated damages for liabilities arising from the construction phase.
Last verified on Wednesday 19th June 2019
What are the most common pricing modalities in your jurisdiction? Is one modality more prevalent in certain types of projects than others?
The most common systems for the payment of rates in project are the lump-sum and unit price pricing modalities.
In the lump sum modality, the contractor formulates its offer for an integral fixed amount and for a certain period of execution. A lump sum pricing contract is often justified when the rates are purely for evaluating any variations in the work that may arise, providing in this way that the risk for any cost variations is effectively run by the contractor.
On the other hand, in the unit price modality the contractor formulates its offer by proposing unit prices based on the quantities to be contracted, which are valued in relation to the cost of their actual execution, during a specific execution period. A unit price modality is often justified when the quantities required by the owner are not precisely known.
This notwithstanding, the contracting parties may agree upon a price adjustment clause that recognises variations in the project.
Last verified on Wednesday 19th June 2019
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?
Construction project permits can vary depending on nature, characteristics and regulation that govern it. In general, the individual or legal entity acting as the project holder should obtain the following administrative authorisations or concessions to carry out the activities that the project involves. Such permits and authorisations may include:
In accordance with Law No. 27446, the Law on the National System of Environmental Assessment, environmental certifications are classified as it follows:
• Category I - Environmental impact statement – includes those projects whose execution doesn’t cause significant negative environmental impacts.
• Category II - Semidetached environmental impact study – includes projects whose execution may cause moderate environmental impacts and whose negative effects can be eliminated or minimised by adopting easily applicable measures.
• Category III - Detailed environmental impact study – includes those projects whose characteristics, size and/or location, can produce significant negative environmental impacts, quantitatively or qualitatively, requiring in-depth analysis to review their impacts and propose the environmental management strategy correspondent
Therefore, to be granted the operating permits, authorisations or licences that enables the activities to be develop within the framework of a project, when the competent authority determines that they may affect the collective rights of indigenous or tribal peoples located within the area where the relevant project will be developed, the state must carry out a prior consultation process.
The maximum term for this process is 120 calendar days, at the end of which the competent state entity will decide on the approval of the administrative measure and granting of permits, if applicable.
Last verified on Wednesday 19th June 2019
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?
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.
Last verified on Wednesday 19th June 2019
Does your jurisdiction provide statutory protection for ‘unforeseeable’ or similar risks? Do such statutory protections supersede contractual allocations of risk?
‘Unforeseeable’ or similar risks are included under the legal “force majeure event”, which, in accordance with article 1315 of Peruvian Civil Code, is an extraordinary, unforeseeable and irresistible event beyond the reasonable control of a party and, therefore, none of the parties is responsible for breach or partial, untimely or faulty compliance of contract.
However, parties are not required to provide this protection and, in that sense, contracts may include clauses regarding force majeure events, limiting or extending its application scope pursuant to their respective agreements.
Last verified on Wednesday 19th June 2019
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?
Contractual clauses granting cost or schedule relief should be strictly interpreted in the event of disputes, on the condition that such clauses are compatible with the Peruvian legal framework, the international public policies and generally accepted proper conducts.
The Peruvian conflict law does not foresee special rules regarding the evidence required to support cost or schedule relief claims. Nevertheless, it must be noted that, according to the Peruvian Procedural Code, any evidence that violates any individual subjective rights would be invalid in court.
Last verified on Wednesday 19th June 2019
Does your jurisdiction recognise economic equilibrium clauses? Have any such clauses been utilised in practice?
Peruvian jurisdiction does recognise economic equilibrium clauses included in contracts. Nowadays, contracts such as concession agreements contain economic equilibrium clauses to be executed in certain situations, in accordance with the Regulation Legislative Decree that regulates the promotion of private investment through public–private partnerships:
The Contracts may include provisions on the economic and financial balance in which it is specified that their reinstatement may be invoked by any of the parties, only when it is significantly affected owing to the change in applicable laws, to the extent that such changes have direct impact with economic or financial aspects, related to the variation of income or costs assumed by the investor.
Moreover, a standard economic equilibrium clause may provide exceptions in which it will not apply.
Last verified on Wednesday 19th June 2019
How significant is the impact of labour unions on construction projects in your jurisdiction?
In Peru, the union with the highest representation is the Federation of Civil Construction Workers of Peru (FTCCP), which gathers the largest number of local unions and workers under the special civil construction regime.
In that sense, at the industrial level, collective bargaining takes place mainly through the FTCCP. The aforementioned union annually promotes collective bargaining with the Construction Chamber of Peru (CAPECO), usually resulting in the minimum wage increase for the workers represented and improvements in their working conditions.
Giving the scope of representation of the FTCCP, companies in the construction sector must apply this collective agreement to workers hired under the special civil construction regime, even if the employees are unaffiliated or are not affiliated to a union that belongs to the FTCCP.
It should be noted that, at the level of construction projects, it is common for complementary collective bargaining to be carried out through the workers' committee of local industry unions.
Last verified on Wednesday 19th June 2019
Highlight any significant public procurement law provisions applicable to public construction project tenders.
Procedures for the award of public works contracts that use public funds are regulated by Government Procurement Law, Law No. 30225 (the GPL) and its regulations, Supreme Decree No. 344-2018-EF (the RGPL). According to the provisions established in the regulations, public entities shall conduct procurement of works by means of public tender, simplified award and direct procurements.
As stated by the GPL, public entities must select the method of procurement depending on the following conditions:
Likewise, the procurement of works may be awarded in the form of a lump sum payment (when the quantities are exactly determined a priori), a unit prices payment (when the quantities cannot be exactly determined a priori) or a mixed scheme of lump sum, rates or unit prices payment (when some quantities can be exactly determined a priori while others cannot).
For work contracts, the tender documents shall state the lump sum prices, unit prices or mixed payment, as appropriate, for the performance of the works, and such prices must cover all duties, taxes and other levies.
To act as a participant, bidder, contractor or subcontractor of the government it is required to be registered with the Providers National Registry. Likewise, if as result of the procurement process, the contractor is awarded the work contract, they must first be registered in the National Register of Suppliers and must comply with the rest of rules set upon the regulation, including (i) requirements regarding the creation of a security right in favour of the public entity; (ii) restrictions in relation to the awarding of subcontracts; (iii) restrictions in connection with the amendments that may be agreed; and (iv) regulations in relation to the arbitration process.
Last verified on Wednesday 19th June 2019
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?
Yes, contractors commonly carry out construction activities through consortia. The responsibility assumed by each of the members of a consortium is regulated by Law No. 26887, the General Corporations Law, which states that the members of the consortium will be joint and severally liable against third parties when previously agreed or required by the law.
However, as a general rule, pursuant to article 447 of the Law No. 26887, each member of the consortium connects individually with third parties in the performance of the assigned activity, individually acquiring rights and assuming obligations and liabilities.
Last verified on Wednesday 19th June 2019
Are time-bar clauses for claims enforceable in your jurisdiction? Do courts in your jurisdiction interpret these provisions strictly?
Peruvian law recognises time-bar clauses as valid and enforceable provided that the periods established in those provisions do interfere or contradicts the statute of limitation established by the applicable law.
For example, according to Law 29946, Insurance Contract Law, the general time period for bringing a claim under a policy is 10 years from the occurrence of a claim. Therefore, time-bar clauses in insurance contracts must take into account this time period.
In this regard, it is also important to consider the provisions of the Regulation of Law No. 30225, Law on Procurement, according to the following detail:
Infractions committed by a consortium during the selection procedure and the execution of the contract, are imputed to all the members of the same, applying to each of them the sanction that corresponds to it, except that, due to the nature of the infraction, the promise formal, consortium contract, or the contract subscribed by the entity, liability can be individualised. The burden of proof of individualisation corresponds to the alleged offender.
Last verified on Wednesday 19th June 2019
Are limitations of liability enforceable in your jurisdiction? What are the exclusions for such limitations?
Peruvian legal framework recognises limitations of liability as valid and enforceable provisions. However, it must be taken into consideration that article 1328 of the Peruvian Civil Code forbids any stipulation that excludes or limits the liability for wilful misconduct, gross negligence or in violation of Peruvian public policy rules of the debtor or of the third parties acting under the orders of the debtor.
As a result, limitations of liability concerning direct damages are only valid and enforceable in cases where such damages are caused by slight negligence and are not caused by a breach of obligations under Peruvian public policy rules.
Last verified on Wednesday 19th June 2019
Are exclusive remedy clauses enforceable in your jurisdiction?
The Peruvian Civil Code has endorsed the principle of contractual freedom, by virtue of which private parties can freely agree upon an exclusive remedy for breach of contract caused by slight negligence.
Notwithstanding the above, for scenarios of wilful misconduct and gross negligence cannot be supressed by the parties, Peruvian law has envisaged as mandatory remedies the following compulsory enforcement or termination of the contract for cause. In either case, damages can be requested by the affected party.
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.
Last verified on Wednesday 19th June 2019
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?
Damages clauses are required in Peru. According to the Civil Code, the parties can set in advance the liquidated amount for the damages. Also, it is common that contracts establish penalties for the breach or delay of certain contractual obligations, which must be paid to the creditor.
Moreover, the Civil Code (article 1346) establish that the courts can reduce the amount of a penalty at the request of the debtor when it is demonstrated that the amount exceeds the actual damage caused to the affected party.
On the other hand, unless the parties have agreed to a clause of "additional damages", it is not possible to increase the amount by way of agreed penalty to recognise the greater damages, even if these can be proven.
Last verified on Wednesday 19th June 2019
How is force majeure governed in your jurisdiction? Are carve outs to general force majeure provisions provided by law enforceable?
As mentioned in question 9, the Civil Code regulates the concept of force majeure as an extraordinary, unpredictable and irresistible event. According to this definition, Peruvian law recognises – as a general rule – that these events constitute risks not attributable to the parties; cases of force majeure are exemptions of liability. However, the parties can decline this legal protection.
Last verified on Wednesday 19th June 2019
What instruments are typically used as performance security in your jurisdiction? Are such instruments liquid?
The most common performance security in construction contracts is the letter of guarantee issued by a bank or other financial institution. As a general practice, it is required that the letters of guarantee are irrevocable, liquid and automatically executed (that is, they can be settled with the only presentation of the letter accompanied by the corresponding request of the interested party).
Depending on the duration of the project, the contracts will establish the obligation on the part of the contractor to renew the letters of guarantee presented.
Last verified on Wednesday 19th June 2019
How is concurrent delay in construction projects treated in your jurisdiction?
The Civil Code recognises that, in contracts with reciprocal benefits, the delay of one of the parties suspends the fulfilment of the obligation borne by its counterpart. In that sense, the treatment of the Peruvian legal framework of concurrent delay applies to cases in which both parties incur a delay. Following this provision, in a construction contract, it is assumed that none of the parties would be considered in default until the interested party fully complies with its obligations or at least guarantees such performance.
Last verified on Wednesday 19th June 2019
Does your jurisdiction recognise degrees of negligence and culpability?
The degrees of contractual responsibility recognised by the Peruvian Civil Code are the following:
Last verified on Wednesday 19th June 2019
Is there a distinction in your jurisdiction between consequential losses and those resulting ‘naturally’ from a breach of contract?
Peruvian legislation does not recognise this classification; however, the Civil Code establishes that compensation for damages caused by contractual breaches includes those that are an immediate and direct consequence of that breach.
Regarding the compensation of these damages, the breach of a contract is due to a situation of slight negligence, the compensation is limited to foreseeable damages. Otherwise, if the breach was due to a situation of gross negligence, the compensation will be for foreseeable and unpredictable damages.
Finally, the aforementioned provisions are extended if the parties agree so in the contract.
Last verified on Wednesday 19th June 2019
Are there mandatory provisions in connection with the transfer of title of works or materials delivered in your jurisdiction?
Our legislation establishes that the construction works carried out on buildings, are considered an integral part of the real property. For that reason, they are considered the property of the landowner.
Thus, the Peruvian Civil Code establishes the following transfer rules:
Last verified on Wednesday 19th June 2019
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?
According to the Peruvian tax laws, the contracts, invoices and other payment documents that are present must meet certain requirements to be valid for the fiscal authorities.
In the case of resident contractors, the requirements that payment requests must observe are specified in the Regulation on Payment Receipts. However, in the case of non-resident contractors, these requirements can be found in the consolidated text of the Income Tax Law.
Additionally, it is important to remember that for tax purposes, any payment must be made through the Peruvian financial system, otherwise the payer may not deduct the payment as an expense or cost.
Likewise, Peru does not specify a time limit to pay an invoice to a contractor, depending on the agreement between private parties.
Regarding compensations, deductions, withholdings or withholdings made by the owner of the payments owed to the contractors, Peruvian law does not contain any mandatory rule that prohibits the owners from agreeing on such rights. Consequently, the limits for the exercise of these rights will depend on what the parties have agreed.
From the fiscal authorities’ point of view, the contractor must accept the withholding tax (or any other deduction that is considered a fiscal obligation) according to the Peruvian tax laws.
Last verified on Wednesday 19th June 2019
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?
The Peruvian regulatory framework does not require the contracting of insurance policies for construction projects with local insurers, nor does it restrict the payment of insurance income abroad or to third parties.
Last verified on Wednesday 19th June 2019
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?
The tax regime for construction projects developed in Peru developed by legal entities is the same as for other economic activities.
Thus, for example, the Third Category Income Tax levies the income obtained from carrying out business activities by natural and legal persons. Generally, these rents are produced by the joint participation of the investment of capital and labour. The rate of this tax is 29.5 per cent.
On the other hand, the IGV, or general sales tax, taxes all phases of the production and distribution cycle, is aimed at being assumed by the final consumer, normally found in the purchase price of the products that it acquires. The rate of this tax is 18 per cent.
However, there are specific characteristics of the tax regime of domiciled companies that develop construction projects. We have a series of tax benefits that are applicable to them, which make foreign investments in Peru attractive.
One of these benefits is the Special Regime for Early Recovery of IGV (the Regime). This Regime consists of the return of the IGV that was subject to the following activities and assets as part of the pre-productive stage of an investment process:
It is important to point out that these goods and activities must be used by the beneficiaries directly in the execution of an investment commitment that they sign with the state.
The beneficiaries of this Regime may be natural or legal persons who carry out economic activities qualified as third category income, provided that they meet the following requirements.
Based on the aforementioned, the aforementioned pre-productive stage begins with the signing of the contract with the state or from the start date of the investment schedule, until before the start of the operations stage. This last stage begins with the exploitation of the project.
Last verified on Wednesday 19th June 2019
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?
Yes, there are implied warranties for contracts that involve the transfer of ownership, possession or use of goods and property, in accordance with the Civil Code.
Among these guarantees are the following: compensation for eviction, compensation for hidden defects and aguarantee of "precise operation".
Last verified on Wednesday 19th June 2019
What is the statute of limitations for contractual and non-contractual claims in your jurisdiction?
According to article 2001 of the Civil Code, the statute of limitations for exercising the right of claims arising from a contract is 10 years.
On the other hand, the statute of limitations for exercising the right to extracontractual claims is two years. Notwithstanding the foregoing, the claims related to construction contracts have certain additional limitations.
Thus, the Civil Code establishes that for any claim against the contractor for defects in works or construction, the limitation period will be six months to notify the claim (counted from the receipt of work) and one year to submit the claim (counted from the day the work was completed).
Likewise, the aforementioned regulatory title indicates that, for claims related to the deterioration of the construction or the detection of a serious defect in the same, the limitation period is six months to notify the claim (counted since such situation becomes known) and one year to file the claim (counted from the day following the notification).
Last verified on Wednesday 19th June 2019
Describe any local arbitration institutions and any specialised construction law courts in your jurisdiction.
There are no specialised construction law courts in our jurisdiction. Notwithstanding this, arbitration institutions such as the Centre of National and International Arbitration of the Chamber of Commerce of Lima and the Centre for Conflict Analysis and Settlement of the Pontificia Universidad Católica del Perú are usually included in construction contracts. Alternatively, the last of the above-mentioned institutions has implemented dispute boards as a dispute settlement mechanism for the construction industry.
Last verified on Wednesday 19th June 2019
Are agreements to mediate enforceable? Are there any mandatory mediation provisions for construction contracts in your jurisdiction?
The Peruvian legal framework does not regulate mandatory mediation provisions for constructions contracts. However, parties can establish in the contract a direct negotiation as a prior step before the arbitration court.
Even so, our legislation indicates that for judicial procedures it is an obligatory requirement that the parties reach agreement.
Last verified on Wednesday 19th June 2019
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?
Dispute boards had not been used in Peru as a mechanism of conflict resolution until recently.
Pursuant to the GPL and its regulations, the RGPL, parties can freely choose to submit certain disagreements arising out of or in connection with the construction contracts to the Dispute Resolution Board when the value of the dispute represents an amount equal to or greater than 5 per cent of the updated contract. The decision issued by the Dispute Resolution Board is binding immediately as of the notification. The lack of fulfilment of the decision entitles the other party to terminate the contract.
Last verified on Wednesday 19th June 2019
Discuss recent trends in your jurisdiction affecting large-scale construction projects.
In our experience, large-scale construction projects are related to infrastructure projects granted by the Peruvian government to private companies. Private parties may engage in these projects by means of public tender or bid.
Last verified on Wednesday 19th June 2019