What are conventional penalties in Mexican public works?

Conventional penalties, penas convencionales, are the economic sanctions agreed in a public works contract that the contracting authority applies to the contractor when execution falls behind the agreed work program. They are not discretionary: their legal basis, calculation method, and maximum cap are all defined by statute.

Article 46, Section X of the LOPSRM requires every public works contract to include a conventional penalty clause. The statute defines them as “penalties for delay in the execution of works due to causes attributable to the contractors, determined solely based on the works not executed in accordance with the agreed program, which in no case may exceed, in aggregate, the amount of the performance bond.”

Two elements of that definition are critical for foreign contractors. First, penalties apply only when the delay is attributable to the contractor. If the delay is caused by the authority, deficient project documentation, late site delivery, change instructions, penalties do not apply. Second, the aggregate cap is the amount of the performance bond, not the total contract value.

Two types of penalties: retentions and definitive sanctions

The RLOPSRM distinguishes between two forms that conventional penalties take during contract execution:

Retentions (retenciones) are provisional. They are applied as a deduction from the progress valuation in process at the time the delay is measured. The contractor can recover them in subsequent valuations by catching up on the program. They function as a financial incentive to regularize execution, not as a permanent sanction.

Definitive sanctions (sanciones definitivas) arise when the contractor reaches the contractual completion date with the delay still unresolved. At that point, all accumulated retentions become permanent sanctions and are no longer recoverable. The economic impact is fixed.

Understanding this distinction matters for cash flow management. A contractor that falls behind schedule will see deductions in its current valuation, but has the opportunity to recover them if it accelerates. A contractor that reaches the completion date behind schedule loses that opportunity entirely.

How conventional penalties are calculated

The penalty amount is calculated by applying the percentage agreed in the contract to the value of works not executed in accordance with the agreed program at the valuation cut-off date. The RLOPSRM establishes that the penalty applies for each calendar day of delay attributable to the contractor.

The key elements of the calculation are:

Calculation base: the value of works not executed in accordance with the agreed program at the cut-off date, not the total contract amount. This distinction is frequently misapplied by contracting authorities. Applying the penalty percentage to the total contract value rather than to the unexecuted works produces a significantly larger deduction than the law permits.

Daily percentage: fixed in the contract, set in proportion to the importance, complexity, and amount of the works.

Cost adjustment: when applicable, cost adjustment must be factored into the penalty calculation.

Maximum cap: the total accumulated penalties cannot exceed the amount of the performance bond (Art. 46, Section X, LOPSRM). When retentions reach that cap, the authority may initiate administrative rescission and call on the bond rather than continue accumulating penalties.

Conventional penalties vs. deductives

These two instruments are frequently confused in practice. They are legally distinct and have different triggers, bases, and effects.

Conventional penalty (pena convencional): sanctions delay in the execution program. Applies only when delay is attributable to the contractor. May be provisional (retention) or permanent (definitive sanction). Legal basis: Article 46, Section X, LOPSRM.

Deductive (deductiva): sanctions deficient quality, incomplete execution, or works performed outside specifications. Has no relation to the schedule, it applies to what was done, not to when it was done. Legal basis: Article 53 Bis, LOPSRM.

Both may be applied simultaneously in the same valuation, a penalty for schedule delay and a deductive for quality deficiency. When this happens, the authority must provide separate legal foundation and motivation for each. A combined or undifferentiated application can be challenged.

When penalties do not apply

The RLOPSRM (Art. 87) is explicit: the period during which a force majeure event or act of God occurs does not give rise to conventional penalties, provided the contractor can demonstrate that the event made it impossible to comply with the contracted obligations.

The contractor must document the event in the BEOP at the time it occurs and notify the authority formally. A retroactive claim of force majeure without contemporaneous documentary evidence will not be recognized.

Beyond force majeure, penalties do not apply when the delay is attributable to the authority: errors in the executive project, late delivery of the construction site, failure to provide materials the authority was obligated to supply, change instructions that altered the work program, or any other cause that can be traced to the authority’s action or omission. The burden of demonstrating that the delay is not attributable to the contractor falls in practice on the contractor, which makes BEOP discipline essential from day one.

Documenting that a delay is not your fault

The primary instrument for establishing that a delay is attributable to the authority, not the contractor, is the electronic construction log (BEOP). The evidentiary chain must be built at the time events occur, not reconstructed after a penalty is applied.

Key documentary elements include:

BEOP entries: contemporaneous, specific entries recording each event that caused or contributed to the delay, project errors, late site access, change instructions, extraordinary weather conditions, authority-ordered suspensions. Entries must reference the specific program activity affected and describe the causal relationship.

Project clarification requests: written communications to the supervision requesting correction of errors or inconsistencies in the executive project, with documented responses or lack thereof.

Updated programs: reprogramming submissions with technical justification identifying the causes of delay and their attribution.

Official correspondence: letters, emails, and meeting minutes where the contractor put the authority on notice of delay-causing events.

Photographic and video records: evidence of actual progress at specific dates.

The documentation must exist before the penalty is applied, not after. A BEOP entry made weeks after the event, or correspondence sent after the authority has already issued the penalty notice, carries minimal evidentiary weight.

How to challenge an unjust penalty

When the contractor considers that a penalty applied in a valuation is unwarranted or miscalculated, the following mechanisms are available:

BEOP response: record the objection in the log book immediately when the retention is applied, stating the reasons why the delay is not attributable to the contractor and requesting recovery of the retained amounts. This entry has evidentiary value in subsequent proceedings.

Formal reconsideration request: written submission to the supervision or contracting area requesting review of the calculation and the attribution of the delay.

Conciliation: if the dispute is not resolved at the site level, Article 98 of the LOPSRM provides a conciliation procedure before the Secretaría Anticorrupción y Buen Gobierno. This is a lower-cost, faster alternative to litigation and should generally be attempted before filing a lawsuit.

Contencioso administrativo: when the penalty becomes definitive and administrative remedies are exhausted, the contractor may challenge it before the Tribunal Federal de Justicia Administrativa. The deadline to file is 30 business days from the date the notification of the challenged act takes legal effect, under the Ley Federal de Procedimiento Contencioso Administrativo (last amended June 9, 2026).

Legal advice from the moment the first retention appears is critical. The deadlines for challenge are short and the failure to document objections contemporaneously closes the evidentiary record against the contractor.

Penalties in private construction

In private works, the LOPSRM does not apply. Conventional penalties are governed exclusively by the contract and, subsidiarily, by the Civil Code of the state where the works are executed.

There is no statutory cap equivalent to the performance bond limit. The parties must negotiate the percentage, the calculation base, the notification procedure, and the applicable exceptions. Common drafting errors in private contracts include:

Failing to define precisely which work program the penalty clause refers to, leaving open the question of which dates generate the delay. Not establishing a prior notification procedure before penalties are applied, which enables unilateral retentions without warning. Not providing exceptions for causes not attributable to the contractor, project changes, payment failures, force majeure. Agreeing on penalty rates without a maximum cap, which can result in accumulated sanctions that are disproportionate to the delay and potentially void under civil law proportionality principles.

Foreign contractors entering private construction contracts in Mexico should negotiate these provisions carefully. The absence of statutory protections means the contract itself is the only safeguard.

What foreign contractors commonly get wrong

Accepting penalty calculations without verifying the base. The penalty must be calculated on the value of unexecuted works, not the total contract amount. Authorities that misapply the base are generating overcharges that the contractor has the right to challenge. Foreign project teams that do not verify the calculation accept deductions they should not.

Not recording objections in the BEOP immediately. Silence in the log book after a retention is applied is interpreted as acceptance. The objection must be recorded at the time of the valuation, not later.

Confusing penalties with deductives. Both appear as deductions in valuations, but they have different legal bases, different remedies, and different effects. A contractor that challenges a deductive using penalty arguments, or vice versa, will lose on procedural grounds.

Missing the conciliation window. Conciliation is faster and less expensive than litigation. Contractors that go directly to court without attempting conciliation lose a strategic option and face a longer, more costly process.

Not seeking legal advice until penalties become definitive. Once retentions convert to definitive sanctions at the completion date, recovery options narrow significantly. The time to act is when the first retention appears, not when the contract ends.

How Construbufete can assist

Construbufete advises foreign contractors on conventional penalties and deductives throughout contract execution and in dispute proceedings:

  • Reviewing penalty calculations applied in valuations to identify errors in base or attribution
  • Structuring BEOP entries and formal correspondence to document delay attribution
  • Advising on reprogramming strategy to recover retentions before the completion date
  • Representing contractors in conciliation before the Secretaría Anticorrupción y Buen Gobierno
  • Filing and litigating contencioso administrativo challenges before the TFJA

If your company is facing retentions or a dispute over conventional penalties in Mexico, contact us for an initial assessment.

Frequently asked questions

What are conventional penalties in a Mexican public works contract? Economic sanctions applied by the contracting authority for delay in execution attributable to the contractor, calculated on the value of works not executed per the agreed program. Their aggregate cannot exceed the performance bond amount.

What is the difference between a retention and a definitive sanction? A retention is provisional, deducted from the current valuation and recoverable if the contractor catches up on the program. A definitive sanction arises when the contractor reaches the completion date still behind schedule; accumulated retentions become permanent and irrecoverable.

How is the penalty amount calculated? By applying the contractual daily percentage to the value of works not executed per the agreed program at the valuation cut-off date. The base is unexecuted works, not the total contract value. Accumulated penalties cannot exceed the performance bond amount.

What is the difference between a conventional penalty and a deductive? A conventional penalty sanctions schedule delay. A deductive sanctions quality deficiency or incomplete execution. Both may appear in the same valuation but must be separately founded and motivated by the authority.

Do penalties apply during force majeure? No. Article 87 of the RLOPSRM excludes the force majeure period from penalty application, provided the contractor documents the event in the BEOP and notifies the authority formally at the time it occurs.

Do conventional penalties work the same way in private construction? No. Private contracts are not governed by the LOPSRM. Penalties are defined by the contract and the applicable Civil Code. There is no statutory cap, no mandatory calculation method, and no conciliation procedure. The parties must negotiate all protective provisions explicitly.