In Mexico, construction is usually governed on a state or even on a municipal level; however, there could be some specific works where federal laws will apply.
In general, the laws that govern construction projects in Mexico are, for public works (public procurement), the Public Works and Related Services Law and its regulations, and for private projects, the State Civil Code, the Commercial Code, and the specific terms agreed between the parties. Additionally, depending on the purpose of the project (e.g. oil & gas and power) a different package of rules must be followed, and the involvement of the community will be relevant since citizen or indigenous consultations are required for certain projects.
In Mexico, for all types of construction, and considering that construction is a highly regulated industry, different permits are required, and vary depending on the type and location of the project. However, in general, environmental, construction, land use and zoning, utilities, urban impact and civil protection authorizations and licenses are required.
The structure of the construction agreement is usually designed depending on the type of project, the scope and the parties involved, among other factors. However, the most used agreements are unit price, lump-sum, as well as management, administration, services, operation, as well as additional forms of ancillary and security documents, such as performance bonds. Trust agreements and joint ventures are also common in the Mexican market. In addition, for certain transactions, it is recommended to incorporate a Mexican special purpose vehicle.
Updates and new legislation
The Subcontracting Reform of 2021 and its impact on the Mexican construction industry
Although we do not expect any changes in the current framework, it is worth mentioning that during 2021, a subcontracting reform was adopted in Mexico, along with certain interpretative guidelines, with the aim of prohibiting the subcontracting of personnel in Mexico. This is defined as the act whereby “an individual or legal entity providing or making available its own employees for the benefit of another party”. The exceptions to such prohibition are the rendering of specialized services, which are not part of the corporate purpose or the main economic activity of the beneficiary of such services (such as construction services). In this regard, the guidelines imply that such reform will apply in those cases where workers of one person provide specialized services in the facilities of another.
Therefore, all construction companies providing specialized services in construction projects must obtain its registry with the Mexican Labor Ministry on a platform called REPSE, as a “specialized service provider”, to be able to provide services under any type of construction agreement or scheme. Since there is no general definition of the concept of specialized services, this issue should be addressed on a case-by-case basis.
If the construction company fails to comply with the provisions of the reform, the contractors, as well as the owner of the construction, could be subject to economic penalties determined by the labor authorities. In addition, construction companies that fail to deliver the information required by social security or tax laws may be subject to economic penalties.
In view of the foregoing, construction companies must comply with the new provisions of the subcontracting reform and those engaging the services of a construction company must request evidence that the contractors comply with such reform.
Construction market and industry forecast
The USMCA and current nearshoring opportunities for Mexico during 2023
The construction and development of industrial space in Mexico has seen a boost during 2022 due to the agreement between Mexico, USA, and Canada (USMCA), as such agreement promotes the arrival of new global investments and nearshoring opportunities, which require new space to house global companies. Consequently, we are confident that such investments will translate into growth in the construction of mixed-use buildings (housing, commercial, retail, corporate), industrial parks and manufacturing clusters and centers within different industry sectors.
For further information contact Juan Carlos Izaza, PCGA