Brazil: Construction Contracts Under The Brazilian Law

According to the Brazilian Law, construction contracts ("contratos de empreitada") are a sort of contract whose purpose is not the rendering of services alone but also the completion of the work by the contractor in compliance with the project developed/designed by the architect.

Despite being considered a type of services agreement, construction contracts are different services agreements. Services agreements involve an obligation to do ("obrigação de fazer"), whereas construction contracts, further to the obligation to do, involve an obligation to give something ("obrigação de dar"), i.e. to give the work to be delivered. Pursuant to this concept, the contractor assumes all risks involved in the services to be rendered in order to deliver the work according to the project submitted.

Regarding construction contracts, they are of two types: (i) contracts under which the contractor only provides labor, and (ii) contract under which the contractor provides both labor and materials.

Accordingly, if the contractor provides both labor and materials, it has to assume the risks until the delivery of the work and the approval thereof by the work owner (the party that ordered the work); nevertheless, if contractor only provides labor, then all risks for which he is not liable are assumed by the owner.

It is important to emphasize that contracts for the development of designs or plans for a project do not entail the obligation to execute the project or inspect the execution of the designs or plans. Therefore, this obligation (to execute the project) is also assumed by the contractor.

Specifically considering the obligation to give and the greater complexity involved in construction contracts of this type, there are other legal obligations involved and that should be mentioned. Under the Brazilian Civil Code, in contracts for construction of buildings and other large-scale constructions, the contractor that provides labor and materials is liable for the soundness and safety of the construction with regard to both the materials and the soil, for a period of five years, which cannot be reduced.

Concerning the price, pursuant to Law no. 4 591/64, construction contracts may involve a global fixed price or a price that is adjusted according to an index previously established by the parties.

Thus, in the case of works performed under a global fixed price, the construction price will not be adjusted until completion of the works, regardless of any variations in the cost of the work and irrespective of the causes of such variations. On the other hand, in the case of works performed under a system of adjustment of a previously-agreed price, the price under the contract will be adjusted in the manner and at the time expressly established in the contract and according to the variation of the index adopted in the contract.

Returning to the liability issue, further to the explanation above, where the relationship between the owner and the contractor involves a consumer relationship, that is to say, where the owner is the last recipient of the work, their relationship will be governed by the Consumer Protection Code, according to article 2 thereof.

Under the Consumer Protection Code, the contractor will be liable, regardless of fault, for compensating for any damages caused to consumers as a result of design, manufacturing, construction, assembly, formula, handling, presentation and product packaging defects, as well as of insufficient or inappropriate information on the product use and risks.

In some cases where a consumer relationship is involved, in civil proceedings, the defense of the consumer's rights is facilitated by, among other measures, the reversal of burden of proof in the consumer's behalf.

As a consequence of the law, the Brazilian Courts have been regularly and frequently considering the contractor liable for most of the damages caused to the owner, including in cases of mistakes in the project developed by the architect without the contractor's participation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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