Considerations for Construction Projects in Latin America and the Caribbean
Construction projects in Latin America and the Caribbean are often lucrative investments for all involved – owners, developers, contractors and other stakeholders in the project. However, there are material differences between working in Latin America and the Caribbean, and working in the United States. When considering undertaking a project in Latin America or the Caribbean, particular attention should be focused on at least a few key issues: differing legal systems, language barriers, labor pools and costs.
Differing Legal Systems
Many Latin American and the Caribbean nations have legal systems based on a civil law tradition, as opposed to the common law tradition found in the United States and Canada. At a high level, this means that the legal system relies much more on “codes” and “constitutions,” and less on judicial interpretations of laws. This difference can impact how parties on construction projects may contract and the obligations of the parties.
In most common law traditions, parties are free to contract as they deem most beneficial, with certain narrow rules that may override the parties’ intent. Civil law nations, however, tend to have extensive codes that dictate how the parties may contract and limit the provisions that may be included in contracts. For example, under a civil law regime, the code may “fill in gaps” in ways in which the parties may not intend. The careful drafting of contracts is critical for all projects, but particular care must be taken when contracting for projects in civil law nations.
Another difference between common law and civil law jurisdictions lies in their treatment of force majeure. In common law nations, force majeure is generally a creation of the contract between the parties. The parties are free to define what, if any, events are considered force majeure events that excuse performance under the contract. In civil law nations, force majeure events are typically defined by code.
The treatment of liquidated damages also varies between common law and civil law jurisdictions. In common law jurisdictions, liquidated damages are enforced generally if the amount of liquidated damages is a reasonable pre-estimate of damages and if the liquidated damages are not a penalty. If the liquidated damages are found to be a penalty, common law courts will not enforce the liquidated damages provision. In civil law jurisdictions, however, contractual penalties are usually enforceable.
When considering projects in Latin America and the Caribbean, the risk of a “language barrier” must be considered by American and Canadian owners and contractors. While English is spoken throughout Latin America and the Caribbean, most countries in Latin America are not primarily English-speaking nations. Rather, Spanish and Portuguese are the dominant languages. Caribbean nations vary widely in their official languages, with English and Spanish being widely spoken. However, depending on the specific nation, French, Dutch or Creole languages are also common.
The potential issues associated with language can be extensive. Most contracts in multinational projects may be translated into two or more languages, but determining which version is the “official” version governing the obligations between parties can become thorny. Contracting parties should consider this issue and be clear regarding which language will provide the governing contract.
Language must be considered in design development and code compliance as well. As with contracts, design documents may be produced in more than one language. However, governing bodies often require design documents to be produced in a specified language to be approved for permits and code compliance. Further, local officials and inspectors may require communications, both verbal or written, to be in one official language. The design team, regardless of where located, should be aware of which specific language, if any, is required.
Another language consideration arises with labor forces, contractors, subcontractors and the like. As a practical matter, it is important to have multilingual members of management and supervising teams to facilitate communication with local workers and tradespeople. Whether bringing in workers or using the local workforce, it is important to have clear communication while working on any project.
Many owners and contractors engaged in international construction frequently hire local professionals to help with language issues. Local professionals also often have a better understanding of local customs and requirements that may escape the attention of foreign nationals brought in to manage a project. While perhaps not strictly required, hiring personnel familiar with local languages, customs, codes and the construction market is wise for most projects.
Depending on the location and size of projects, the local labor pool for projects may vary widely. For example, the skilled labor pool for an energy project planned near Bogotá, Colombia, a large city with more than seven million residents, is deep and accessible. However, a large resort on a small Caribbean island may need to import most of its labor force.
In general, Latin American projects are less prone to labor pool shortages than Caribbean projects. However, local labor laws and unions in certain Latin American nations are much stronger than those in most Caribbean nations. As with understanding the number of available workers, understanding local labor laws – and local workers’ unions – is critical to the success of any project in Latin America or the Caribbean.
Materials, supplies and labor are major factors in project costs in the Caribbean. For most projects, almost all materials must be imported. There may be, at best, small factories or businesses that produce limited quantities of construction materials for local use, but these small facilities are unlikely to have the capacity to support large projects. Import costs and tariffs on these materials almost always drive up the costs of construction materials.
Labor considerations are a major cost for remote projects. Without skilled local workers, many developers constructing large, remote projects are forced to import most of their labor force. These workers also need support facilities and essentials, such as lodging and supplies, that further drive up the price of remote projects.
In Latin America, materials and supplies are more readily available and costs may be lower than in the United States. However, differing quality standards may be a factor. Care should be taken to ensure that any materials – whether local or imported – conform to local codes and quality standards required for the project.
Careful planning is critical for any successful project, particularly one constructed in another country or region. For projects in the Caribbean and Latin America, construction professionals with experience in these markets are a key component of that careful planning.
The construction lawyers at Smith, Gambrell & Russell, LLP, work extensively in Latin America and the Caribbean. We have the experience and breadth of knowledge to help successfully navigate construction projects in the region from concept to contracting, and through to project completion.