Trends, developments and prospects
What is the general state of the construction sector in your jurisdiction, including current trends, notable recent transactions/developments and future prospects?
The construction sector in Brazil has been in recession in recent years. This has been partly as a result of the economic crisis and the ongoing Car Wash Operation, in which political leaders and Brazilian construction companies were investigated and later prosecuted for bribery and the misuse of public funds. The sector is now in the process of recovering, with foreign investment and construction activity on the rise.
Among the measures implemented to overcome the recession was the creation of the Investment Partnerships Programme in 2016. The programme was designed to attract private investment to infrastructure projects through partnership contracts and the privatisation of state-owned companies.
In 2018 the government auctioned 17 infrastructure projects, including the construction of a 7,152km transmission line across 13 states to generate 14,829 megawatts of energy. In the first quarter of 2019, 25 auctions are due to occur. Upcoming projects include:
- the concession of 13 airports;
- the concession and construction of 1,537km of a north-south railroad; and
- a public-private partnership for the construction and management of the Brazilian Air Force communication network.
What primary and secondary legislation governs the construction sector in your jurisdiction?
The legislation which primarily governs the construction sector in Brazil includes:
- the Brazilian Civil Code, particularly the chapter on construction contracts (Articles 610-626);
- the Civil Construction Law (4,864/1965);
- individual construction codes enacted by each municipality; and
- other applicable local laws.
Which authorities regulate the construction sector and enforce construction law, and what is the extent of their powers?
Individual municipalities regulate and enforce their own construction laws. Municipalities have the authority to delay or suspend the execution of a project and apply fines if necessary.
What licensing requirements and procedures apply to construction projects in your jurisdiction (eg, planning consents)?
Licensing requirements and procedures vary according to the nature of the project and the laws enacted by the municipality where the project is located.
Typically, a municipality must approve all construction projects before their commencement. The approval of a project requires compliance with:
- zoning ordinances;
- local construction codes;
- health and safety regulations; and
- other applicable regulations.
Compliance with environmental licences is also required, as discussed below.
Following approval of a project, the municipality issues a construction permission (according to its own laws and procedures), which must identify:
- the project owner;
- the engineer and architect responsible for technical aspects of the project; and
- the delivery date.
On conclusion of the project and before it is commissioned, several licences must be obtained, including:
- an occupancy permission;
- an operation licence (environmental);
- a fire department inspection licence; and
- the registration of the construction with the real property registry office.
Professional licensing and qualification
What licensing requirements and procedures apply to construction professionals, including any required qualifications?
Professional licensing is required for engineers and architects, who must be registered with the Engineering and Agronomy Regional Council (CREA) and the Architecture and Urbanism Council (CAU). To be eligible for registration, these professionals must hold an engineering, agronomy or architecture degree from an existing and certified higher education institution or university in Brazil. Professionals who perform construction-related activities without complying with these requirements may face both civil and criminal penalties.
Do any special rules and restrictions apply to foreign construction professionals?
Under Law 5,194/1966 and Resolution 444/00 of the Engineering, Architecture and Agronomy Federal Council (CONFEA), foreign construction professionals can work in Brazil provided that they are registered with the CREA or CAU. To register with these councils, foreign professionals must:
- hold a degree in engineering, agronomy or architecture from a foreign institution, which must be revalidated and certified in Brazil;
- be a construction professional according to the requirements set forth in international exchange conventions; or
- be a professional hired to work in Brazil due to national interest and a lack of professionals in the sector.
Such professionals are granted temporary registration at the discretion of CONFEA.
Project structures and relationships
What corporate/formal structures are available for construction projects in your jurisdiction? What are the advantages and disadvantages of each? Are any structures explicitly prohibited?
Corporate structures used for construction projects in Brazil include:
- Special purpose vehicles (SPVs), which are widely used, particularly for government contracts. Under SPVs, the employer, contractor and other parties involved in a project create a legal entity solely for the purpose of executing the project. Once the project is concluded, the SPV dissolves. All stakeholders bear the risks of a project through the SPV.
- Consortiums, under which the parties involved in a project join to execute the project. No legal entity is created; instead, a contract establishes the obligations of each contracting party. Parties are only liable for their individual obligations under the contract.
- Joint ventures, under which two or more companies create a business entity to execute different projects or perform activities related to a specific industry. Partners typically share risks, returns and the governance of the project.
Relationship management Are there any special considerations for managing relationships with:
(a) Joint venture partners (where applicable)?
Partners are free to allocate responsibilities among themselves.
(b) Contracting government entities in public-private partnerships (or other construction projects with a public element)?
The Public-Private Partnership Act (Law 11,079/2004) governs public-private partnerships (PPPs) at the federal level, but authorises states and municipalities to enact their own laws to govern their PPP projects. PPPs are established through a tender process and a subsequent contract entered into with the winning private entity. The contract price cannot be less than R10 million, and services granted cannot be limited to labour, machinery supply or the performance of public services.
An employer must authorise third parties to perform specific parts of a project, unless the parties agree otherwise. Depending on the type of construction contract, no relationship is established between the employer and the subcontractor. Thus, the contractor is liable for the subcontractor’s work.
(d) Architects, designers, engineers and any other related professionals?
There are no special requirements for managing relationships with construction professionals in private projects. For government projects, construction professionals must be selected through a tender process governed by the Public Procurement Law (Law 8,666/1993), which sets out the general rules for bidding procedures and government contracts.
(e) Any other relevant parties typically involved in construction projects?
Contracts and performance
Standard contract forms
What standard contract forms are used for construction projects in your jurisdiction? To what extent do parties deviate from these standard forms?
Standard contract forms have become more popular in recent years due to the influence of international employers. The most common standard forms are the following books published by the International Federation of Consulting Engineers:
- the Red Book, which provides the conditions for contracts relating to building and engineering works designed by employers;
- the Yellow Book, which provides the conditions for contracts relating to building and engineering works designed by contractors; and
- the Silver Book, which provides the conditions for contracts for engineering, procurement, construction and turnkey projects.
New engineering contracts, another standard form of contract that is published by the Institution of Civil Engineers, are also being used more regularly in Brazil.
Nevertheless, bespoke contracts (ie, contracts drafted according to the specific project) are still the most regularly adopted contractual form. The most used structures include the following:
- Design-bid-build (DBB) structures – these structures are widely used, particularly in government contracts. Under this structure, the employer designs (or hires a third party to design) the project and submit it to a tender process. The selected contractor performs the project. The employer is also responsible for entering into contracts with subcontractors and thus bears most of the risk associated with the project.
- Engineering, procurement and construction (EPC) structures – under this structure, the contractor acquires materials, supplies machinery and designs, executes and delivers the project. Some EPC contracts are also negotiated on a turnkey basis, whereby the constructor is also responsible for completing the commission tests and putting the project in operation. These activities must be performed according to the requirements and limitations provided for in the contract. The contractor bears all risks associated with the project and is liable for the execution of the project, unless the parties agree otherwise.
- Engineering, procurement and construction management (EPCM) structures – under this structure, the contractor manages the execution of the project. The contractor, on behalf of the employer, enters into separate contracts with subcontractors, as needed. Nevertheless, the contractor’s liability is limited to issues and claims associated with the project management.
- Alliance contracts – under this structure, the parties involved in the project align their interests and equally share the risks and profits that may arise from the alliance. The employer bears the expenses of the project.
Definition of ‘construction work’
How is ‘construction work’ legally defined?
The Brazilian Civil Code and the Civil Construction Law do not provide a definition of ‘construction work’. The Public Procurement Law defines ‘construction work’ as any construction project, renovation, manufacturing, enlargement or repair performed directly or indirectly by the contractor.
Are there any rules or restrictions on the governing law of construction contracts?
There are no restrictions on the governing law for contracts between private parties. Contracts subject to the Public Procurement Law must be governed by the laws of Brazil.
Are construction contracts subject to any formal requirements?
There are no formal requirements that must be observed in private contracts. In government contracts, formal requirements are set out by the Public Procurement Law, according to which the contract must be in writing and include:
- the name of the parties and their agents;
- the purpose of the service;
- the government act authorising the contract;
- the tender process registration number; and
- a governing law provision referring to the Public Procurement Law.
Are there any mandatory or prohibited provisions in relation to construction contracts?
The Public Procurement Law provides a list of mandatory provisions for government contracts, including:
- price and payment conditions;
- the work schedule; and
- the rights and obligations of each party, including:
- respective sanctions;
- the termination events; and
- the contractor’s obligation to maintain all qualifications required by the tender offer during the execution of the contract.
In private contracts, the parties must ensure that:
- they have legal capacity to enter into a contract;
- the object of the contract is legal; and
- a price is established in the contract.
Can any terms be implied in construction contracts?
Brazilian law has no provisions authorising the parties to imply the terms of a contract.
How are risks typically allocated between parties to construction contracts?
Risk allocation depends on the type of construction contract. Please see “Standard contract forms”.
Limitation of liability
How and to what extent can parties to construction projects contractually limit or exclude their liability?
Provided that both parties agree, they may contractually limit or exclude liability. However, an argument can be made under Brazilian law that such limitations do not apply in situations of gross negligence and wilful misconduct.
How are liquidated damages typically calculated and to which liabilities are they usually applied?
The Civil Code prohibits liquidated damages from exceeding the contract price. Liquidated damages may apply in the case of default or project delays and are typically agreed by the parties as a percentage of the contract price.
How are force majeure clauses treated in your jurisdiction? Is there a legal definition of force majeure events?
Under the Civil Code, a party to a contract cannot be held liable for damages arising out of force majeure events, unless the parties have agreed otherwise. The law does not define force majeure events. These events are determined on a case-by-case basis.
General performance obligations
What are the general performance obligations of contractors and employers?
Performance obligations vary according to the nature of the contract. For example:
- EPC contracts – contractors’ obligations are to design the project, acquire materials, supply machinery and execute and deliver the project according to employers’ specifications. Contractors are responsible for the results of the project. Employers’ obligations are to approve the executed project and to pay the contractor.
- EPCM contracts – contractors’ obligations are limited to issues relating to the management of the project. Employers’ obligations are to approve the executed project, pay management fees to the contractor and pay the individual subcontractors and suppliers.
- DBB contracts – contractors’ obligation is to execute the project. Employers’ obligations are to design the project, enter into contracts with specific contractors and suppliers and make payments.
- Alliance contracts – alliance contracts are based on the contracting parties’ cooperation. Each party has the obligation to perform the tasks assumed in the contract. The employer has the general obligation to pay the contracting parties and the project expenses.
How are project delays typically handled? Do any set rules, restrictions or procedures apply in this regard?
Project delays must be analysed on a case-by-case basis. Generally, if the delay is due to modifications requested by the employer, the parties may agree on a new delivery date. If not, the employer may be entitled to liquidated damages, if previously agreed by the parties.
To what extent can the parties make variations to the contract? Do any set rules, restrictions or procedures apply in this regard?
In contracts between private parties, the parties are free to agree on provisions relating to variations to the project, including price adjustments and new delivery dates. If the parties have not agreed on these provisions, the Civil Code applies.
Under the Civil Code, the employer bears the additional costs of the variations that it makes. The contractor may refuse variations that are disproportional or materially change the project. The parties must agree beforehand on variations that reduce the scope of work.
The contractor bears the costs of variations that it unilaterally makes to the contract, unless:
- the employer regularly inspects the project and does not object to the variations; or
- the variations were evident to the employer.
In government contracts, the government may make unilateral variations if there is:
- a change in the project or its specifications to make the technical requirements more suitable to the government’s purpose; or
- a need to adjust the contract price due to changes to the scope of the contract.
Both parties to government contracts may make variations to:
- substitute securities;
- the method of performance or supply due to a technical unfeasibility;
- the payment method due to unforeseen events; and
- the economic equilibrium of the contract.
In government contracts, the contractor is obliged to accept variations that increase or decrease the contract price by up to 25%. If the project is to repair a building or machinery, the contractor is obliged to accept variations that increase or decrease the contract price by up to 50%.
What are acceptable grounds for the termination of a contract?
In private contracts, the parties may agree on specific termination events. Typical grounds for the termination of a contract are:
- events of force majeure;
- breach of covenant; and
- material breach by any of the contracting parties.
In government contracts, the government may unilaterally terminate the contract if the contractor:
- does not comply with project specifications;
- unreasonably delays the project;
- unreasonably interrupts the construction work;
- delegates services to unauthorised subcontractors; or
- does not comply with the regulatory framework.
The contractor may terminate government contracts only if termination events were previously specified in the tender offer and the termination is convenient to the government.
Remedies for breach
What remedies are available for the breach of construction contracts?
The parties are free to agree on the remedies available for the breach of construction contracts except for punitive damages, which are prohibited under Brazilian law. Typically, the remedies available for the breach of construction contracts are:
- specific performance;
- liquidated damages;
- expectation damages (including consequential and incidental damages); and
- reliance damages.
Brazilian courts have ruled that if the parties have agreed on a liquidated damages provision, they considered that the prescribed amount would cover all damages and expenses to which the non-breaching party would be entitled. Thus, the non-breaching party cannot aggregate liquidated damages to other damages.
Types of financing
What types of financing are used for construction projects in your jurisdiction? Which are the most common? Are there any restrictions on available financing methods?
The federal government is the major source of financing through:
- the Brazilian Development Bank (BNDES), which is the main financing agent for development in Brazil;
- other state-owned banks (ie, Caixa Econômica Federal and Banco do Brasil); and
- funds provided by the World Bank and other international financial institutions.
Other sources of financing for construction projects include:
- commercial banks;
- local development banks (ie, Banco do Nordeste do Brasil); and
- infrastructure bonds.
Restrictions on financing methods vary according to:
- the financing method;
- the project price;
- the employer’s revenue; and
- the type of construction project (ie, construction of infrastructure projects relating to public welfare may need to meet specific financing conditions).
What forms of security are used in construction project financing?
The most commonly used forms of security in construction project financing are:
- pledge agreements, whereby the parties may agree on the pledge of shares, assets, machinery or receivables;
- mortgage over the construction property;
- letter of credit or other forms of bank guarantees; and
- performance bonds.
The registration of security with the public registry is required for the perfection of a lender’s security rights.
Methods and timing
What are the typical methods and timing of payment for construction work? Are there any restrictions on ‘pay when paid’ and ‘pay if paid’ provisions? Do any other rules, restrictions or procedures apply?
The typical payment methods are:
- payment premised on physical progress of the work – whereby the contractor provides the employer with a measurement report of the physical progress or the employer verifies the physical progress of the work; payments are usually made on a monthly basis and on the employer’s approval of the work; or
- payment by milestone – whereby the contractor is paid according to the completion and approval of certain milestones by the dates provided in the project schedule.
How can the contractor secure itself against non-payment by the employer? Under what circumstances can the contractor suspend work for non-payment?
Contractors may resort to the same forms of security for project financing described in “Financing”. In addition, under the Civil Code, a defaulting party cannot request contractual performance from the other party. Accordingly, the courts have allowed contractors to suspend work for non-payment when they:
- have fulfilled obligations under the construction contract; and
- are entitled to payment due to the fulfilment of such obligations.
The Public Procurement Law also authorises the contractor to suspend work if the government has not made the payment for the performed obligations within 90 days of performance.
How can subcontractors secure themselves against non-payment by the contractor? Under what circumstances can subcontractors suspend work for non-payment?
The same forms of security and circumstances that allow the suspension of work available to contractors are available to subcontractors.
On what grounds can payments be withheld?
Unless otherwise agreed by the parties in the construction contract, the employer may not withhold payment for the work performed.
What recourse is available to employers in the event of the contractor’s insolvency?
If the contractor has issued a performance bond or another form of guarantee, the employer may enforce the guarantee if the contractor becomes insolvent. Enforcement must occur before the filing of a potential judicial reorganisation or bankruptcy proceeding. However, if the guarantee relies on assets that are essential to the contractor’s business activity (eg, machinery), the contractor may challenge the enforcement in the courts.
Some construction contracts consider contractor insolvency to be a termination event. If the contract so provides, the employer may terminate the contract. However, the contractor may challenge the termination based on the argument that the contract is necessary to maintain its business activity and thus its ability to pay creditors. In this case, a court order may prevent the employer from terminating the contract.
After a contractor files a request for judicial reorganisation, the employer should notify the court-appointed trustee of any credit owed by the contractor. Potential credits will be included in the credits list and will be subject to the payment schedule.
After the contractor files for bankruptcy, the court-appointed trustee may terminate the contract. Potential amounts owed to the employer will also be included in the credits list and will be subject to the payment schedule.
What mandatory insurance coverage applies to parties involved in construction projects? Is any additional coverage recommended?
The mandatory insurance coverage for construction projects includes:
- insurance for bodily and physical injuries related to construction projects in urban areas;
- insurance for buildings which are divided into independent units;
- insurance to guarantee compliance with the obligations assumed under the construction contract; and
- insurance against fire or total or partial destruction.
Some labour conventions also require life and personal accident insurance for employees in the construction sector. In addition, in government contracts, the employer may have to purchase performance bond insurance if the tender offer requires.
Additional insurance coverage is also recommended for, among others:
- engineering risks;
- environmental risks; and
- third-party liability.
What tax liabilities arise in relation to construction projects?
Tax liabilities may arise according to the nature of the project. Taxes that are typically levied at the federal level include:
- import duties over goods or machinery; and
- social contribution on the net revenue of the company created to execute the project.
Taxes that are typically levied at the state and municipal levels are:
- the Brazilian tax on services (ISS);
- the tax on urban property and land; and
- the tax on commerce and services (ICMS).
Are there any tax incentive schemes to promote construction and development in certain areas?
The Special Incentives Regime for Infrastructure Development is a programme created by the Brazilian government and provides tax exemption on the acquisition of goods and inputs for infrastructure projects.
In addition, states and municipalities can reduce the ICMS, ISS and other applicable taxes to promote construction and development in the region.
What environmental protection legislation and regulations apply to construction projects in your jurisdiction?
The main environmental legislation and regulations applied to construction projects are:
- the Federal Constitution, particularly the environmental section (Article 225);
- the National Environmental Policy (Law 6,938/81), which is the basis of Brazilian environmental protection;
- the National Policy on Water Resources (Law 9,433/1997);
- the National Policy on Solid Waste (Law 12,305/2010); and
- regulations issued by the National Environment Council (CONAMA).
Local laws may also provide further environmental protection.
What environmental authorisations and certifications are required for construction projects and how are they obtained?
Environmental authorisations and certifications vary according to, among others, the type of project and the geographic location. Typically, there are three licences required for construction projects:
- preliminary licences;
- installation licences; and
- operation licences.
Preliminary licence This licence indicates that the geographic location, design and environmental feasibility of the project have been approved and establishes conditions to be met during the implementation of the project. To obtain a preliminary licence, an employer must provide:
- detailed information on the project;
- an environmental impact assessment; and
- an environmental impact report describing the potential environmental impact of the activity to be performed and the measures to mitigate such an impact.
The preliminary licence is valid for a limited period and renewal may be needed during the execution of the project.
Installation licenceThis licence authorises:
- the commencement of construction work in accordance with the approved project;
- environmental mitigation measures and programmes to be implemented in the area; and
- the conditions (previously established) that must be observed during the execution of the work.
Operation licenceThis licence authorises the operation of the developed project. It is issued after the conclusion of the construction work and the inspection of the developed project by the relevant environmental authorities.
‘Green’ regulations and incentives
Are there any regulations or incentive schemes in place to promote the construction of energy-efficient and low-carbon buildings?
There are no incentive schemes in place to promote sustainable construction projects. However, Brazil is a party to both the UN Framework Convention on Climate Change and the Paris Agreement.
In 2018 the Senate passed a law to authorise tax exemption in the construction of energy and water-efficient buildings. This law has yet to be passed by the House of Deputies.
Employment and labour law
What employment and labour legislation applies to construction projects in your jurisdiction? What rights and protections are provided to construction workers?
Employment and labour are regulated by the Brazilian Federal Constitution, the Consolidation of Brazilian Labour Laws (CLL) and other supplementary laws. The CLL provides the main rights and protection to construction workers, including the following provisions:
- a minimum wage;
- 13th salary (an extra monthly salary which is due to employees at the end of the year);
- 30 days of vacation;
- monthly payments to the unemployment compensation fund;
- a maximum working week of 44 hours and an overtime fee if the 44-hour weekly load is exceeded;
- sick-day leave;
- indemnification for death or permanent disability;
- uniforms and protective gear;
- maternity leave;
- protection so that employment rights cannot be waived by the employee; and
- additional pay for insalubrious or unhealthy working conditions.
Occupational health and safety
What occupational health and safety regulations apply to construction projects?
The main health and safety regulations which apply to construction projects are:
- the Federal Constitution, especially the section concerning the reduction of risk inherent to works through health, hygiene and safety rules;
- the Consolidation of Brazilian Labour Laws;
- administrative rulings enacted by the Ministry of Labour and Employment; and
- international labour organisation conventions.
What types of employment contract are typically used for constructions work? Are there any mandatory or prohibited provisions in relation to employment contracts?
Under the CLL, there is an employment contract when an employee:
- renders regular services to the employer;
- obeys the employer’s rules and orders; and
- receives a salary.
A written contract is not required. However, employers must register information relating to the employment agreement in the employee’s personal labour card; otherwise, the labour authorities may impose penalties on the employer.
In the construction sector, the most common types of employment contract are:
- employment contracts with indefinite terms;
- temporary employment contracts, which:
- cannot exceed four years (consisting of an initial two-year term and one two-year extension); and
- must be related to a transitory business or project; and
- experimental contracts, which cannot exceed 90 days.
It is also common for employers to hire service providers through an intermediary company. This type of contract cannot exceed 180 days and no employment relationship is established between the employer and the service provider. However, the employer must guarantee minimum conditions of health, safety and hygiene throughout the performance of the work.
What rules, restrictions and considerations apply to the hiring of foreign workers?
The CLL and the Immigration Act (Law 13,445/2017) apply to the hiring of foreign workers.
The CLL restricts the number of foreign workers to a maximum of one-third of a company’s workforce and guarantees foreign workers the same labour rights and protection afforded to Brazilian nationals.
The employer must request a work permit from the Immigration General Coordination, an agency that is part of the Ministry of Labour and Employment. Following approval of the work permit request, the employee must obtain a work visa from the immigration authorities.
What regulations and procedures are in place to combat corruption, bribery, fraud, collusion and other dishonest practices in the construction sector in your jurisdiction?
The laws and procedures in place to combat corruption and other dishonest practices are provided in:
- the Penal Code (Article 333), which provides for criminal sanctions for individuals who offer or promise unlawful advantages to public officials to compel the official to do, omit or delay an official act;
- the Public Procurement Law (particularly Articles 90-95), which imposes sanctions on parties involved in fraud in tender processes; and
- the Anti-Corruption Act (Law 12,846/2013), which:
- governs the administrative proceedings and the penalties which apply to companies that commit harmful acts against the government;
- governs the leniency agreement that companies involved in such acts may enter into with the competent authorities; and
- establishes civil and criminal penalties which apply to those companies at the judicial level.
The Anti-Corruption Act provides for the creation of a committee of no less than two government employees to investigate a company accused of practising harmful acts against the government. The committee may request:
- any judicial relief needed to conduct the investigation, including phone tapping and access to the company’s banking information; and
- the piercing of the company’s corporate veil to extend the investigation to partners, stakeholders, officers and managers.
What best practices are advised to ensure compliance with the relevant anti-corruption rules?
In 2015 several regulations were enacted to supplement the Anti-Corruption Act, including Decree Law 8,420/2015, which encourages companies to incorporate an integrity programme.
In 2016 the Brazilian Chamber of the Construction Industry published ethics guidelines to ensure compliance with anti-corruption rules and incorporation of integrity programme in the construction sector. According to the guidelines, construction companies are advised to:
- adopt measures to ensure high leadership commitment to the company’s core principles;
- create a committee of ethics and compliance;
- draft an ethics code and compliance policy tailored to the company’s principles;
- develop a behaviour code and establish penalties for its violation;
- establish communication channels and denouncements;
- promote training and team discussions on the company’s ethics code, compliance policy and anti-corruption rules;
- circulate internal written statements (or other forms of internal communication) to emphasize the company’s compliance policy and anti-corruption rules;
- perform due diligence on personnel and internal systems to assess compliance with anti-corruption rules; and
- perform due diligence on contractors, suppliers and other business partners to assess their compliance with anti-corruption rules; among others.
Following the Car Wash Operation, major construction companies have established their own best practices, which typically include the actions described above, to ensure compliance with anti-corruption rules.
What courts are empowered to hear construction disputes in your jurisdiction? Are there any specialist construction courts?
There are no specialist courts for construction disputes. Local civil courts are empowered to hear construction disputes unless the parties have agreed to submit the dispute to a private dispute resolution system, such as arbitration (please see “Arbitration” for further details) or a dispute board.
Dispute boards are a recently introduced method for conflict resolution and are mostly adopted in long-term construction contracts. Dispute boards consist of a committee, which is formed at the beginning of a project by independent professionals who should familiarise themselves with the project during the contract. In the event of conflicts during the execution of a project, the board encourages a settlement or issues a decision or recommendation.
There are three types of dispute board:
- a dispute review board, which solely issues recommendations;
- a dispute adjudication board, which issues binding decisions on the parties; and
- combined dispute boards, which issues both recommendations and decisions.
Currently, there are two proposals for laws that would regulate dispute boards in Brazil, both of which are awaiting a vote by the Senate and the House of Deputies. The city of Sao Paulo has already enacted Law 16,873/2018 regulating the use of dispute boards in contracts with the municipality.
What issues are commonly the subject of construction disputes?
Construction disputes may arise in a variety of situations. Typical claims are related to:
- project delay;
- non-payment or payment delay;
- party liabilities arising from risks associated with the construction project; and
- non-compliance with technical aspects of the project.
Statute of limitations
What is the statute of limitations for filing construction-related claims?
The Civil Code specifies statutes of limitations for a number of claims. The statute of limitations varies according to the claim. For example, the statute of limitations for liability claims is three years and the statute of limitations for claims relating to the contractor’s implied warrant of project fitness is five years. The statute of limitation for claims that do not fall within a shorter limitation period specifically provided by law is 10 years.
Is pre-litigation mediation required or advised for construction disputes?
The Civil Procedure Code and the Mediation Law (13,140/2015) govern mediation involving individuals, private entities and government entities at the judicial and extra-judicial levels.
Pre-litigation mediation is not mandatory, unless the contract states that it is. Nevertheless, parties are encouraged to attempt mediation. Under the Civil Procedure Code, judges must schedule a mediation session or conciliation hearing at the early stages of most lawsuits.
How often is arbitration used to resolve construction disputes? What arbitration forms and institutions are typically used?
The use of arbitration has increased in Brazil over the past decade. In 2017 Brazil came seventh in the International Chamber of Commerce worldwide case rankings. For a long time parties to construction disputes in Brazil have favoured arbitration over litigation. For example, around 40% of the proceedings pending before the Business Mediation and Arbitration Chamber (CAMARB) are related to the construction and energy sectors.
Arbitration in Brazil is governed by the Arbitration Act (Law 9,307/1996), which sets out the main rules and procedures to be observed in arbitral proceedings. In 2015 the Arbitration Act was amended to, among other things, expressly authorise government and government entities to settle disputes through arbitration.
Brazil is also a party to international conventions relating to arbitration (eg, the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards and the Inter-American Convention on International Commercial Arbitration).
Typically, parties engage in institutional arbitration, where the dispute is managed by a selected institution under its own procedural rules. The most commonly used local arbitral institutions are:
- the Centre for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada;
- the Centre for Conciliation, Mediation and Arbitration of the Sao Paulo Industries Centre and the Sao Paulo Federation of Industries;
- the American Chamber of Commerce of Brazil;
- the CAMARB;
- the BM&F Bovespa Market Arbitration Chamber; and
- the Getulio Vargas Foundation Chamber of Conciliation and Arbitration.
The most commonly used international institutions in Brazil are:
- the International Chamber of Commerce;
- the International Centre for Dispute Resolution; and
- the London Court of International Arbitration.
Parties may also engage in ad hoc arbitration, which is not administered by any arbitral institution. During ad hoc arbitration, parties may agree on rules specifically tailored to their disputes, but in most cases, they tend to agree that the dispute will be governed by the Rules of Arbitration provided by the UN Commission on International Trade Law.