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Peru

Last Verified on Wednesday 19th June 2019

    • Peru

      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

    • Peru

      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

    • Peru

      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

    • Peru

      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

    • Peru

      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

    • Peru

      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: 

      1. Construction 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 the Unified Text of Law 29090, Supreme Decree 011-2017-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. The cost for this permit can vary from one municipality jurisdiction to another.
      2. Environmental impact certificate: The environmental certification is the prior instrument that all investment projects must prepare before being executed, foreseeing the significant negative environmental impacts that it could generate. This document should contain all the requirements and obligations of the owner are contained, as well as the activities that must be carried out to remedy the negative impacts.

      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

      1. Prior consultation process: In accordance with ILO Convention 169, Peruvian laws, regulations and jurisprudence guarantees the right of indigenous communities to be consulted on issues relating to their territories. As a result, Law of Consultation Right to Indigenous or Native Peoples, Law No. 29785, and its Regulations establishes that indigenous or tribal peoples are to be previously consulted about legislative or administrative measures which may affect them directly, and are to participate in the formulation, implementation and evaluation of plans and programmes for national and regional development that concern them.

      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

    • Peru

      ‘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

    • Peru

      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

    • Peru

      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

    • Peru

      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

    • Peru

      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:

      • A public entity shall engage in public tender if the referential value of the contract is equal or greater than US$540,000 approximately.
      • A public entity shall engage in simplified awards, if the referential value of the contract is less than US$540,000 approximately. Regarding the simplified awards, it should be noted that if the referential value equals or exceeds US$1,290,000 approximately, the entity in charge must also contract the supervision and control of the works.
      • A public entity shall engage in direct contracting if the specific procurements complies with one of the exceptions foreseen in article 27 of the GPL or if it is a case of expiration of a public-private partnership contract or project in assets within the legal framework of Legislative Decree 1362, Legislative Decree that Regulates the Promotion of Private Investment through Public-Private Partnerships and Projects in Assets.

      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

    • Peru

      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

    • Peru

      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

    • Peru

      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

    • Peru

      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

    • Peru

      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

    • Peru

      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

    • Peru

      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

    • Peru

      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

    • Peru

      The degrees of contractual responsibility recognised by the Peruvian Civil Code are the following:

      • slight negligence: when one of the contractual parties’ acts without the minimum diligence required by the nature of the obligation because of the circumstances referred to people, time and place;
      • gross negligence: when one of the contractual parties does not comply with its obligations in such a serious manner that it is reasonable to presume a malicious act; and
      • wilful misconduct: when one of the contractual parties deliberately fails to comply with its obligations.

      Last verified on Wednesday 19th June 2019

    • Peru

      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

    • Peru

      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:

      • Transfer of real estate (article 949): the transfer of ownership of the real estate is carried out and is effective through the exclusive consent of the parties or at any other time expressly agreed by them. In this sense, unless otherwise agreed, the conclusion of the contrary is sufficient to generate that the buyer becomes the property owner and no more formality is required (such as registration in Public Registries).
      • Transfer of movable goods (article 947): regarding movable goods (such as materials or works made in movable property), the property is transferred at the time of the physical delivery of the movable property, having to comply with the formalities established by law or agreement, if applicable. According to the different circumstances, the Peruvian Civil Code regulates other mechanisms that the parties can execute, if applicable.

      Last verified on Wednesday 19th June 2019

    • Peru

      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

    • Peru

      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:

      • imports or local acquisitions of new capital assets;
      • new intermediate goods; and
      • construction services and contracts.

      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.

      • To sign an investment contract with the state for the realisation of any economic activity that generates third category income. As part of this requirement it is important to bear in mind that the investment commitments of the contract may not be less than US$5 million, not including VAT, including the sum of all the tranches or stages.
      • That the project to be developed has a pre-productive stage equal to or greater than two years, counted from the start date of the investment schedule, contained in the contract to be subscribed.
      • Finally, approval by Ministerial Resolution of the competent sector is required, which must qualify if the natural or juridical person would benefit from the Regime or not, as well as the goods and services to which they will be applied. 

      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

    • Peru

      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

    • Peru

      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

    • Peru

      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

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