November 2014 - The new Czech Civil Code provisions governing contracts for work, in effect since 1 January 2014, have introduced several important changes that contractors should be aware of.
Payment liability regardless of defects
Under the old rules, in the event of any defects or delay in the completion part of the works a contractor could not claim payment of the contract price, as the work was not deemed to have been completed. This presumption applied irrespective of the nature of the defects in question, and even if the client accepted or took delivery of the works. This interpretation was used (and abused) by employers to evade payment even in cases of minor or trivial defects. As a result, standard contracts for work usually contained a provision stating that the contractor was entitled to be paid if any defects or delay in completion did not prevent the use of the work.
Under the transitional rules that regulate the coming into force of the new Civil Code, these conclusions still apply to contracts for works that were entered into prior to 1 January 2014, irrespective of the actual completion date of the works.
However, under the new Civil Code a work is deemed to be finished if it can be used for its intended purpose (this must be demonstrated to the client) and if it is handed over to the client. At this point, the contractor has the right to claim payment for the work. Accordingly, clients may no longer decline payment for works due solely to minor defects. It is also recommended that contractors note the fact that the work has been demonstrated to be fully-functioning in their handover protocol. An alternative arrangements may also be agreed in the contract for work.
Special provision regarding construction works
A specific provision of the new Civil Code applies to contracts for construction works. Under the new Civil Code, a client may not refuse the handover of such works due to minor defects that do not prevent or substantially restrict the functioning of the constructed object, even from an aesthetic point of view. As the legal definition of a “minor defect” is very general, a contract for works should specify which types of defect are to be considered as preventing or not preventing the functioning of the construction (or at least contain examples of such defects).
The new Civil Code makes the subcontractor, project architect or supervisor responsible jointly with the contractor for any defects in works on which they have cooperated. Therefore, the client may, at his discretion, demand that the subcontractor, project architect or supervisor, as the case may be, remedy such defects either on its own or together with the contractor. Such responsibility may not be excluded contractually in the contract with the general contractor. This may be done only by means of a three-party agreement between the employer, contractor and subcontractor.
The subcontractor, project architect or supervisor may be released if proof is made that a defect was caused through no fault of his/its own.
Uncommon unforeseeable circumstances and increase in contract price
In the case of uncommon and unforeseeable circumstances, a court may either increase the contract price at its discretion (even if the contract price was agreed as a fixed price or according to a budget) or rescind the entire contract and to rule on the subsequent settlement. The parties may stipulate in the contract of works that no adjustment of uncommon and unforeseeable circumstances is permitted, so it is advisable for contractors to keep such a provision in mind during the drafting of a contract for work.