Handover and acceptance of the work – is it really true that the more detail we describe in the contract the better?
The works contract is one of the most frequently concluded contracts. The contractor undertakes to carry out the work at his own expense and risk for the client, and the client undertakes to accept the work and pay the price for it. In practical life, the subject of a works contract may be, for example, the construction of a house, the renovation of a flat, the creation of a computer program, the assembly of furniture, but also, for example, the creation of a hairstyle by a hairdresser, the execution of a work of art or the making of a dress. The price for the work is also related to this, which can be in the value of units of crowns or, on the contrary, in many hundreds of millions.
Methods of concluding a contract for a work
The aim of the contractor is generally to carry out the work in such a way that he will be paid in full by the client; the client, on the other hand, is interested in being paid only for work that is carried out without defects. It is natural that if the value of the work is low, a written contract for the work will not be concluded – for example, when we normally use the services of a hairdresser, we do not expect the hairdresser to provide us with a written contract specifying exactly how, when and at what price the hairdresser will do the haircut. We only verbally agree with the hairdresser how we would like the haircut and then hope that the result will match our wishes. If this does not happen, we have limited defences as it is likely to be disputed exactly what the hairdresser should have done – this may be difficult for us as the customer to prove. We accept this low level of formality (an oral contract) because the risk of the work not going well is not great (especially if we visit the hairdresser regularly) and mainly because our initial financial investment is only in the order of hundreds or thousands of crowns.
However, if we are entering into a contract for a work of significantly higher value, it is undoubtedly worthwhile to have the contract in writing. This is not only if we act as the person to whom the work is delivered (we are interested in the completion date, quality of workmanship, price), but also if we are in the position of the contractor (when and how we will be paid, when the client will consider the work completed, etc.).
Execution of the work – a key moment for both parties
The moment of execution of the work is crucial for the execution of the work (according to Section 2604 of the Civil Code, the work is executed if it is completed and handed over). By performing the work, the contractor completes its activity and expects to be paid for the work (the right to payment of the price arises when the work is performed), while the client takes over the work, checks whether it has been performed properly and, as a rule, is subsequently obliged to pay for the work. This is a significant moment for both parties in terms of the performance of the work contract, among other things because it is often linked to a certain penalty for failure to meet the agreed deadline – if the contractor fails to perform the work by a certain date, he may be obliged to pay the client a contractual penalty for the delay, if the client refuses to accept the work, he may be obliged to pay the contractual penalty to the contractor.
Specification of the method of handing over the work
As mentioned above, the moment of handover of the work is important for the performance of the work – it is therefore important to properly specify in the work contract how the handover and acceptance of the work will take place. As a precaution, the parties often specify the manner of handover and acceptance in the works contract in great detail, sometimes perhaps too much. Although it may be somewhat surprising, by regulating in great detail the manner of handover and acceptance of the work, the parties may unwittingly get into considerable trouble later on. Why?
The Civil Code does not stipulate how the work is to be handed over. It can be handed over, for example, simply physically, by email or by means of a handover protocol. The contracting parties are free in this respect and can agree on any method of handover that is objectively possible. They do not even have to agree on any particular method of handover and acceptance, with the understanding that it will take place in a de facto manner. On the contrary, they can agree in the works contract on a very detailed handover method, i.e. according to a model handover protocol, which must be signed by specific persons on behalf of the parties to the contract, must have certain elements, etc. This meticulousness can ultimately be a trap.
The Supreme Court’s strict approach to deviation from the agreed method of handing over the work
When assessing a works contract, it is necessary to take into account not only the text of the law but also settled case law. In its decisions, the Supreme Court has repeatedly held that the handover of the work may be agreed in any conceivable way, but if the parties have already chosen a particular method of handover in the contract, then that method must be complied with. If the agreed method is not followed, the result is that the work cannot be considered to have been handed over and accepted, and therefore not to have been performed (e.g. the Supreme Court’s decisions 32 Cdo 542/2018, 23 Cdo 4979/2014, 32 Odo 296/2005, 32 Odo 2399/2012, 23 Cdo 4092/2007 and many others).
The Supreme Court has even taken such a formalistic approach that if the parties have agreed on the handover of the work by means of a handover protocol, this protocol cannot be substituted for the handover of the work; even if the parties only hand over the work in fact and both act as if the work had been handed over – e.g. the client fully uses the work (Supreme Court decisions 23 Cdo 4979/2014, 32 Cdo 542/2018); even in such a case, the work cannot be regarded as having been completed. Such conclusions may come as an unpleasant surprise to both parties, who have been acting all along as if the work had already been handed over and accepted (and performed).
What happens if the agreed method of handing over the work is not followed?
The fact that the work cannot be deemed to have been handed over has quite practical consequences, which can be fatal for the contracting parties, or especially for one of them in the event of a dispute. The contractor is not legally entitled to payment of the price for the work that he has actually completed and is in default of his obligation to carry out the work, which may result in contractual penalties being applied by the client. At the same time, the guarantee is not triggered, the contractor is not entitled to payment of the retainer, etc. On the other hand, if the failure to comply with the agreed handover procedure is caused by the client, the client may be in default and may again be subject to penalties for failure to provide proper cooperation to the contractor.
How to prevent possible future complications?
It follows that if a contract for work is to be concluded, it is of course advisable to conclude such a contract in writing (unless it is a relatively marginal matter). At the same time, however, careful thought should be given to the manner in which the parties will demonstrably hand over the work to each other and what the requirements of such handover must be. Extreme care must be taken in this respect, not least because the execution of the work may take several years and the method of handing over and taking over the work, which appears to be quite simple when the work contract is signed, may become extremely problematic in a few years‘ time.
In any case, no matter how the handover of the work is agreed in the work contract, the agreed method must be followed; if this is not possible, it is better to agree with the other party to the contract on an amendment to the work contract and to contractually modify the method of handover. If any of the requirements set out are not complied with, the other party may take advantage of this or even abuse it to its advantage and essentially turn the whole contractual obligation around (refund the price already paid for the work, demand payment of a penalty for delay, etc.). It can be very difficult to defend against such an abusive approach in the event of objective non-compliance with the agreed handover requirements and the courts cannot be relied upon to automatically consider such conduct by the other party to be an abuse of law or an act against good morals.
In order to prevent future problems, it is always advisable to consult a specialist in relation to a major work contract and thus tailor it to each contractual relationship according to the subject matter of the work, its value and who is entering into the contract with us as the other party. Prudence at the beginning can pay off in the end.
Bělina & Partners advokátní kancelář s.r.o.
Our services also focus on the preparation of contracts on works, including works in construction, intellectual property and other areas.
Bělina & Partners advokátní kancelář s.r.o.