The necessity of exploring new alternatives on dispute resolutions in the Mexican Construction Industry

It is known that construction projects are subject to several conflicts between the parties in a contract. Thus derived, for example, from different points of view on the costs (who absorbs certain costs, who is responsible for some other costs, is it applicable to request the reimbursement of specific costs); on the interpretation of the parties’ obligations, or even differences in decisions like whether to go or not to a conciliation process before, or instead of arbitration or a judicial action.

In Mexico, those problems are seen every day, with unnecessary delays on construction projects and increased costs. The issue is that even when such problems are well known, there are few economic solutions for resolution and the parties still end up in arbitration or judicial trials, which ultimately are likely to result in greater costs for construction projects.

For instance, in Mexico the solution proposed is to draft one contract per project and many companies prefer to perform/design its own model of contract for each project. The main issue with this practice is that when that model of contract has one defect, that defect will appear in each subsequent project that uses the same model of contract.

Now, lets imagine that the “infected” clause is the one correspondent to the dispute resolution mechanism. The defect in the whole contracts will be a “pathological clause”, which can make it difficult to proceed appropriately on how to claim any concept to the other party.

The situation does not end there. For example, if there is a public project you need to sign a contract with and authority (administrative contract) in which the particular person or company which result awarded in the tender process will act as “contractor” and the government (authority) will act as the owner.

The authority is entitled to the “principle of legality” which consists in that the authority can just act in accordance to what is strictly established in the applicable law. Thus, the general rule for administrative contracts is to agree that the competent authority to resolve any dispute generated by the interpretation or execution of the administrative contract, will be the Federal Tribunal for Administrative Justice.

Notwithstanding the foregoing, it is worth to mention that several authorities in Mexico now opt for arbitration as the dispute resolution method, when the project demands it.

Taking into account the “principle of legality” aforementioned, the authority can only agree, among others, on the mechanism for dispute resolution established in the law. In this regard, and as mentioned previously, the authorities usually agree to solve the disputes via jurisdictional or arbitration. xiv

All these matters are connected and any one element that is misunderstood can cause issues, for example, a lack of knowledge of the legislative model, the different methods dispute resolution, the costs to the construction industry of such disputes etc.

If the private practice in construction were open and if the legislation for public construction contracts expressly accepted the of the use of special model of contracts, this could help to ensure there are less conflicts on the interpretation and execution of the contracts like the ones mentioned in this article, but specifically, on suitable alternative dispute resolutions and their usage in order to solve issues that arise.

In that regard, there is a tangible necessity to be open and to adopt the use of models of construction contracts like FIDIC. Using FIDIC contracts will result in adopt, inter alia, the dispute resolutions stablished in them.

The adoption of FIDIC contracts in Mexico for the construction industry will impact several areas such as the implementation of different dispute mechanisms like Dispute Boards, which would have positive economic impacts in the industry, because huge amounts usually spent in arbitration or litigation. The experience in Latin America, specifically in countries like El Salvador, Perú and Colombia where the Dispute Boards has been adopted in magnum projects, support this statement.

Not only the experience in some other countries, but also the current economic and health situation derived from the COVID-19 pandemic would make the Mexican Construction industry has to look to different alternatives to solve the disputes. One first and solid step would be to adopt the model of contracts that offer that kind of solutions, just like FIDIC’s. from of contract. It is worth to mention that recently, Mexican Authorities has submitted a project of Law, in order to implement and enforce some alternative dispute resolutions.

However, what is suggested in this article seems no to be part of a near future, since the project of law mentioned before is conservative in the Alternative Dispute Resolutions proposed, and only considers negotiation, mediation and conciliation. Thus, it is the opportunity for the private sector to try to innovate in some other ADRs as the proposed in FIDIC contracts.

Juan Pablo Sandoval, Mexico.

Juan Pablo Sandoval gained his law degree from Universidad Iberoamericana, Mexico City, obtaining the “San Ignacio de Loyola Medal”, as well as the “Excellency Award” for the score he obtained in the National Official Test. He has a post-graduate degree in arbitration from the Escuela Libre de Derecho and the ICC.

He has a wide range of experience in litigation and arbitration in both sectors, national and international and has participated in international web panels organized by the Asociación Latinoamericana del Derecho de la Construcción (ALDEC) – the Latin American Association for Construction Law.

Juan Pablo is a key member of the dispute resolution team in COMAD, S.C, a law firm specialized in construction law.