Costa Rica Coffee Guide

Construction Contract Key to Success

July 28, 2006

A well-structured and complete construction contract is the key to avoiding many problems when building in Costa Rica. The more attention to detail in the agreement, and the more accurately it reflects the way you envision your relationship with the builder and what you expect, the more likely the final product will meet your expectations and budget projections.

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

When possible, especially if you will not be able to dedicate a lot of your time to the construction and cannot or don’t want to oversee every aspect of the work, it is advisable to negotiate a contract usually referred to as llave en mano (turnkey contract), which, to varying degrees, basically leaves the purchasing of materials, control of workers, finishes, permits and, of course, construction, to the contractor. In this type of agreement, the materials and finishes are selected by the owner from an agreed-upon list or are specified in blueprints or an appendix to the contract.

The level of detail specified in the agreement regarding these materials and finishes is crucial to ensuring that the final product meets your expectations. If these details are being left for the architectural blueprints, it is important to make sure this happens, as not all professionals define details satisfactorily in their plans.

Many other elements should be present in construction agreements to offer the owner more protection, including:

?The property where construction will occur should be clearly identified, if possible including its registration (folio real) and survey (plano catastrado) numbers.

?The contract should clearly and expressly state that the contractor is responsible for the employees involved in the project, including all labor-related payments (cargas sociales), social security and worker’s compensation insurance. If this is not clear, the project owner runs the risk of assuming liability for these items, which may not be evident until after the end of construction, since Labor Ministry offices and Labor Courts can take a long time to process problems or complaints.

?The agreement should specifically address the issue of procuring building permits and all other government and municipal authorizations, specifying that the contractor is responsible for obtaining such permits and that associated fees and costs are included in the price.

?There should be a breakdown of the amounts to be paid at different stages, directly linked to specific progress made in the construction, such as roofing, electrical and mechanical installations, etc.

?The contract should include a specific deadline for completion of construction and clearly define what is understood by completion. The builder should incur penalties for not meeting the deadline. It is also advisable to include a provision addressing the possibility of delays beyond what the owner considers acceptable. Should such a delay occur, the owner should have the right (not the obligation) to either extend the term and continue charging penalties or terminate the contract and collect damages.

?Inspections and meetings among the owner, the contractor and the owner’s support team (mainly architect and engineers who prepared the blueprints) are essential to ensure that construction is progressing correctly, and their periodicity should be specified in the agreement.

?It is advisable to include a section on copyright, clearly stating who owns the intellectual property rights to what is built.

 

For more legal advice, contact Lang & Asociados at 204-7871 or visit www.langcr.com.

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