This country-specific Q&A provides an overview to construction law in Colombia.
It will cover termination requirements and obligations, permits and licence, procurement, financing and security, and disputes as well as insight and opinion on challenges and opportunities.
This Q&A is part of the global guide to Construction. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/construction/
Is your jurisdiction a common law or civil law jurisdiction?
Colombia has a code based legal system organized as a typical civil law jurisdiction. Since it is a legal system with a legislative origin, it is founded on the "written law" as opposed to the common or judicial law. And therefore, our legal system has its roots in Roman Law and is heavily influenced by the French system as well as the Spanish legal traditions, which establishes written codification of its laws. However, the role of case law, thus minimized by the tradition of codification, it has begun to gain more importance along the years.
What are the key statutory/legislative obligations relevant to construction and engineering projects?
Legislative obligations applicable to construction and engineering projects vary between norms applicable to public selection processes (general statute of public procurement, the infrastructure law, amongst others) and norms that are directly related to the construction sector.
Regarding the legislative obligations related to the construction sector, it is important to note that there are numerous laws that regulate the sector without differentiating public projects from private projects. To name some of these standards, engineers have their own codes that govern the practice of engineering in Colombia.
Are there any specific requirements that parties should be aware of in relation to: (a) Health and safety; (b) Environmental; (c) Planning; (d) Employment; and (e) Anti-corruption and bribery.
(a) Health and safety;
According to Decrees 0171 of 2016 and 1072 of 2015, construction companies have the obligation to adopt an occupational health and safety management system to ensure worker and workplace safety. This system must include indicators and statistics, as well as risk identification, valuation and assessment systems. This process must be supervised by Health Risk Administrators.
Environmental requirements may vary depending on the kind of infrastructure that will be built. In general, there are two kinds of specific environmental requirements that constructors must meet: (i) environmental licenses, in those cases where the development of infrastructure projects may affect, according to laws and regulation, the environment, natural resources or negatively modify the natural landscape; and (ii) those infrastructure projects where, although there is no need for an environmental license, an adaptation to the environmental guide plan (PAGA) must be developed to ensure the supervision, quality and control, so that the environmental authorities can verify that the project has no negative environmental results.
However, any construction project that is meant to be done in Colombian territory, require minor environmental permits and in any case the builders must respond for environmental damage caused.
In regards to this topic, there is a distinction between public and private construction projects. In public projects, their structuring must comply with the planning principle. This principle forces the public administration to elaborate and design all the procedures needed before the beginning of the public procurement process which includes the obligation to at least have the projects’ feasibility, while private projects must meet the urban planning standards and regulation. Colombia has an extensive number of legal norms relating to specific kinds of projects.
As for the employment rules that constructors must observe, Colombia has a strong history of employee protection and therefore there are numerous requirements that govern employment relationships.
The protectionism mentioned above has led to even the law courts tend to be biased in favor of employees. This aspect is important regarding construction, where the occurrence of labor related accidents are common. So, this is why it is important for constructors to develop and execute health and safety management systems following up all legal requirements that apply.
It is important to mention that there is also a regulation in that obligates –in public projects- the constructors to have a minimum number of local employees, as well as ex-illegal armed group members and handicapped. These are all requirements that the potential constructors of a project have to take in consideration when presenting an offer in a public bidding process.
(e) Anti-corruption and bribery.
Colombia has legislated several types of regulation and crimes related with corruption and bribery and therefore constructors operating in the country must comply with all of them.
The most important of them are (i) Law 80 of 1993 that regulates the public procurement in Colombia, (ii) the anti-corruption statute (Law 1474 of 2011) that created corrective actions for the prevention, investigation and sanction of acts of corruption and the effectiveness of the control of public management, and (iii) Law 1573 of 2012 which adopted the convention to combat bribery of foreign public servants in international commercial transactions.
It its important as well to mention that in 2015, the law that aims to combat transnational corruption was enforced. This new law establishes a sanctioning regime for people -both natural and legal- who participate in a transnational bribery behavior and complements the criminal type of bribery contained in the Colombian Penal Code mentioned above.
What permits/licences and other documents do parties need before starting work, during work and after completion? Are there any penalties for non-compliance?
In general, depending of the type of construction projects, the requirements may vary. For example, in housing projects, the developers must obtain building permits. In these cases, permits are required for any new construction and are also typically required for alternations to existing buildings. There are as well penalties for non-compliance of these licenses, and penalties could even consist in the demolition of the project.
As for transportation infrastructure, none of those licenses are needed, but constructors must meet all of the environmental regulation mentioned above.
Once projects have ended, any type of penalty is unlikely. And though there are no there are no legal penalties for non-compliance, without prejudice to the contractual terms and, eventually, damages caused by the non-termination of a project such as environmental sanctions that may incurred.
Is tort law or a law of extra contractual obligations recognised in your jurisdiction?
In Colombian jurisdiction we have a complete regime of extracontractual civil liability in which all of the construction activities are categorized as hazardous activities and therefore have a special treatment since the responsibility of someone who causes the damage is presumed.
Who are the typical parties to a construction and engineering project?
It may vary depending on the type of infrastructure, but for the most part, the parties in a construction and engineering project are engineering and construction companies, both local and foreign, as well as subcontractors and suppliers.
What are the most popular methods of procurement?
On the public sector, Colombia’s law has a prescription specifically for public procedures to select contractors, and, in some cases, public contests for PPP contracts. On the private sector, the biggest projects are developed through private processes where preselected companies negotiate the final contractual terms.
What are the most popular standard forms of contract? Do parties commonly amend these standard forms?
Colombia has no tradition for standard forms of contracts related with construction projects. However, there has been recent development in this sense, involving the use of FIDIC models for certain kind of projects (specially on the private sector and in port projects) and PPP contracts based on international standards.
Are there any restrictions or legislative regimes affecting procurement?
Restrictions related to procurement exists only in public procurement, there is a special regulated procedure for the selection of contractors based on the principles of objective selection and transparency. On the private sector there is no regulatory restrictions concerning procurement.
Do parties typically engage consultants? What forms are used?
It is very usual in both, the private and public sectors, that parties engage a wide variety of consultants for the advisory and the legal, financial and technical structuring of construction projects, as well as for the contractual audits. It is commonly used, as well, the professional opinion of independent engineers.
Is subcontracting permitted?
Since subcontracting in Colombia is not legally prohibited, it is usually a contractual matter and, in some cases, contracts obligate the contractor to ask for authorization in the use this figure. Anyways, there is usually a full responsibility for the original contractor regarding all the obligations assumed as it is common that this type of contracts contains back to back obligations since this figure allows the terms of the main contract to go down to subcontract to the subcontractor.
How are projects typically financed?
On the public sector, projects are normally financed with own-resources, by loans and credits from the multilateral development banks or with PPP contractual schemes to develop and construct major projects such as the fourth generation of highways concessions, one of the most ambitious programs that has been developed under the PPP’s law in Colombia.
On the private sector, bigger projects tend to be developed by project finance models when the assets generate cash flows by itself. Nonetheless, the general rule keeps involving private equity as finance. It is important to mention that, for example, on housing development, it is common to find pre-sales as a way to finance the project.
What kind of security is available for employers, e.g. performance bonds, advance payment bonds, parent company guarantees? How long are these typically held for?
All those examples are available. In general, there is a 10-year term after project completion regarding buildings only and a 5-year term regarding public infrastructure.
Is there any specific legislation relating to payment in the industry?
Except for PPP schemes, where legislation introduced an alternative of payment that consists on a condition of payment related to the availability of the infrastructure, where the contractor only acquires the right to the remuneration only until the infrastructure is ready to be operative, there is no legislation that regulates the payments in the industry.
Are pay-when-paid clauses (i.e clauses permitting payment to be made by a contractor only when it has been paid by the employer) permitted? Are they commonly used?
Although pay-when-paid clauses are not prohibited under Colombian law, yet they are not commonly used in building contracts.
Do your contracts contain retention provisions and, if so, how do they operate?
On the public sector, it is commonly used on PPP contractual schemes where the payment to the private party is linked to the availability of the infrastructure.
As for the private sector, these clauses are mutually agreed, and they operate by retaining a certain percentage of the global value, that is paid-up subject to the culmination of the project.
Do contracts commonly contain delay liquidated damages provisions and are these upheld by the courts?
It is important to note that Colombian legislation also foresees the possibility of contracting the use of penalties for delay in the termination and the penalty clause to guarantee compliance with the agreed contractual terms.
Are the parties able to exclude or limit liability?
Parties may exclude or limit liability contractually since the Colombian legislation does not have any restrictions in this sense. However, there are mandatory provisions that inhibit the parties to limit the liability regarding gross negligence or willful misconduct.
Are there any restrictions on termination? Can parties terminate for convenience? Force majeure?
Mutually agreed terminations are permitted. As for force majeure, legislation contemplates this figure as a ground for the contract termination, or to re-establish contractual conditions.
What rights are commonly granted to third parties (e.g. funders, purchasers, renters) and, if so, how is this achieved?
In general, rights granted to third parties depend on the each of the contracts. However, the rights that are commonly granted to third parties are, in general, the possibility of accessing and verifying how the project advances with independent engineers and in some cases, such as PPP projects, it is common to establish lenders’ step-in rights.
Do contracts typically contain strict provisions governing notices of claims for additional time and money which act as conditions precedent to bringing claims? Does your jurisdiction recognise such notices as conditions precedent?
In public and private procurement –theoretically– the only way in which a claim for additional time or money could only be as a result of force majeure. The practice shows, however, that these additions are commonly mutually agreed.
What insurances are the parties required to hold? And how long for?
Regularly, in private contracts the parties mutually agree insurances. The most common of them are performance guarantee, a payment of salaries and social assistances guarantee, quality of the works guarantee, as well as their stability. Normally, the duration of the coverage includes the time of construction plus 3 years after the termination.
In public procurement, contracts for the development of infrastructure must include by regulation those insurance policies described for private contracts.
How are construction and engineering disputes typically resolved in your jurisdiction (e.g. arbitration, litigation, adjudication)? What alternatives are available?
Under Colombian law, there is a variety of possible dispute resolution mechanisms. The practice has shown a tendency towards amicable composition and conciliation before going on court. If the parties agree so, every dispute regarding procurement controversies may be settled by arbitration. If the parties do not mention anything, the disputes are solved in the ordinary jurisdiction courts.
How supportive are the local courts of arbitration (domestic and international)? How long does it typically take to enforce an award?
Colombia has a strong support for courts of arbitration, both domestic and international. Once the arbitral decision is made, the ruling is easily executed. Normally, the decision includes the period of time in which the ruling must be executed, with the corresponding tools towards its enforcement.
Are there any limitation periods for commencing disputes in your jurisdiction?
The most common existing limitation concerning the beginning of disputes is the conciliation as a requirement of procedure. The periods for every step of the dispute are regulated by procedure codes, being the most important of them the General Procedure Code in private disputes, and when the dispute involves the state sector, the Code of Administrative Procedure.
How common are multi-party disputes? How is liability apportioned between multiple defendants? Does your jurisdiction recognise net contribution clauses (which limit the liability of a defaulting party to a “fair and reasonable” proportion of the innocent party’s losses), and are these commonly used?
Multi-party disputes are not very common in Colombia.
Colombian Commercial Code (art. 825) provides that unless expressly agreed otherwise, multiple debtors are jointly and severally liable.
Net contribution clauses do appear in sophisticated contracts in Colombia, but they are not commonly used. Arguments can be made for and against the validity of this type of clauses under Colombian law. To our knowledge, the Colombian Supreme Court of Justice has not yet settled this issue.
What are the biggest challenges and opportunities facing the construction sector in your jurisdiction?
The last decades have seen a large infrastructure development in Colombia. The fourth road infrastructure still is a very important opportunity in the construction sector because projects are still being under structuring. The most important challenge in regards fourth generation is the financing of the projects, some of them have reached a dead end in this aspect and Colombian state must intervene so that this challenge can be surpassed.
The new tendency on the last years on PPP schemes are the social infrastructure PPPs such as the construction of jails, public schools, museums and hospitals. This is a broad new market for public procurement. As these projects are mostly financed with public funds, the most important challenge in this new development is the country’s fiscal framework.
What types of project are currently attracting the most investment in your jurisdiction (e.g. infrastructure, power, commercial property, offshore)?
As mentioned before, Colombia’s fourth generation highway concession program is considered by experts as the single largest public private partnership program in Latin America and the most ambitious infrastructure plan in the history of our country.
In the last 10 years, there have been at least 26 initial closures that involved more than 30 investors and the investment of approximately 21 Billion USD. For this year, national government is looking forward to make around 10 financial closures for different 4G projects.
Besides road infrastructure programs, it is also important to mention that over the last years Colombia has been developing specific schemes that allows the country for the financing of non - productive infrastructure through PPP projects. This type of infrastructure includes, for example, the construction of schools, prisons, housing and even public offices.
On the current year, Bogotá will open a bidding process for the DBOMT contract for the First Metro Line in the city with an initial investment of around USD $6 billion.
How do you envisage technology affecting the construction and engineering industry in your jurisdiction over the next five years?
Since the expedition of Law 1508 in 2012, technology has been involved in construction and engineering industry in Colombia. PPP projects are a prove that the country has been building different types of projects –not just road infrastructure projects- using high technology that makes project the best option for the country and the environment.
Constructors around the country are required to use high technology in the building of the different projects, these requirements are demanded by the country because high technology helps to protect the environment around the construction, for example, water, plants or animal life.