When and how to conclude a work contract

Chapters of the article

• What is a works contract and when to conclude it
• When to conclude a contract in writing
• What every works contract should contain
• Definition of the work
• The date of completion of the work
• The payment terms of the works contract
• Addendum to the works contract or works contract and construction
• Warranty

What is a works contract and when to conclude it

When we say “works contract”, many of us probably first think of a painting or a sculpture. However, we can think of a work as anything from a magazine article to computer software, a program, a website or a bespoke application to a piece of craft work. Thus, at least a simple contract for work is quite common among freelancers in various industries, developers or even translators. On what occasions is it appropriate to conclude a work contract?

When to conclude a contract in writing

We often come across a contract for work in everyday life and it may not be obvious to us that we are entering into a contract for work. For example, when repairing shoes or cleaning a suit at the dry cleaners, none of us probably signs a written contract, or only a sample work order is signed.

However, a model work order will often not allow for the negotiation of more detailed and detailed terms that the customer might insist on. On the other hand, for example, in the case of a house renovation or a major car repair, a good written work contract should already be a matter of course. This will prevent many problems and disputes that we unfortunately encounter in practice with our clients.

If you are entering into a contract for a future contract where, for example, the construction of a house is dependent on the purchase of a specific plot of land, then we always recommend that you enter into a written contract. However, this applies to all constructions and renovations.

We recently dealt with a case for a client where he decided to take up a cheap offer to renovate his cottage and then the contractor failed to deliver, constantly asking for more money for materials and the client even had to drive his own car to the site. Unfortunately he paid most of the money up front without a written contract and so would be in a tight spot.

What every works contract should contain

Do you know what the 12 elements of a works contract should contain to really protect both parties well? How do you view a work contract under the Commercial Code? A framework works contract is a bilateral contractual relationship between the client and the contractor. A work is precisely the making of a thing, the maintenance, repair or modification of a thing, or an activity with a different result. It is, in short, an activity that does not fall under a classic contract of sale, as the Civil Code says about a contract for work.

The contract should include

• A) Identification of the contracting parties – i.e. details of each contracting party. Do not forget the names or company names, registered offices, identification numbers, details of registration in the commercial register and ideally the bank details and the name of the company’s representative, including contact details if the contract is entered into on behalf of the company. Now you may be wondering why we mention such basics. But you would probably be surprised how many people get it wrong on the very first point.
• B) Defining the terms used – for more complex matters, it pays to define the termsyou use in the contract in addition to the parties. The purpose is to make things clear for everyone involved and to avoid double interpretation of terms. Therefore, be sure to mention exactly what is meant by defects, in which cases they are minor defects and indicate exactly which law governs the issue.
• C) Subject matter of the contract – the next step is to describe the subject matter of the contract, i.e. the work itself, in as much detail as possible. This is absolutely crucial. For example, it is worth investing in a visualisation of the work or at least a list of required functionalities. At the same time, it is necessary to state the formalities, i.e. that the work will be completed within the time specified in the contract and at the price specified in the contract.
• D) Deadline for performance – the previous point is connected with the need to directly specify the date by which the work will be handed over to the client. Completion may take place in stages, and this must also be taken into account. Subsequent acceptance of the work should be confirmed by the signatures of both parties; a special handover protocol is usually recommended, a model of which may already be included in the contract.
• E) Price – in addition to the deadline, we must not forget to mention the price for the work. This can be set in different ways – as a final amount or as a slightly less strict budget. However, pay attention to this and also pay attention to the adjustment of the so-called extra work.
• F) Place of performance – if a works contract is signed for construction work or other activity to be carried out at a specific location, for example at the client’s office, it is necessary to specify the place where the work will be carried out in addition to the time and price. This is usually logical, but it protects the parties in case of a dispute.
• G) Contractor’s Obligations – Further, the contract should not be missing the obligations of both parties. As far as the contractor is concerned, there we mainly state the obligation to carry out the work in accordance with the contract, on his own responsibility, on his own behalf and with due care. The contractor also declares that he has acquainted himself with all the details and has been supplied with everything he needs to carry out the work. This is also key, avoiding disputes later on. If the contractor also uses his colleagues or employees to carry out the work, he undertakes that these are only competent persons who meet all the legal requirements for carrying out the work.
• H) Obligations of the client – the client has considerably fewer obligations necessary for the execution of the work. In addition to the payment of the agreed amount for the work, these include the provision of all information and documents that the contractor needs to create the work. If the subject of the contract is building alterations to the house, access to the property is of course required. It is in the cooperation that the “dog” may be buried. It is therefore advisable to consider the necessity and scope of the cooperation well, also because of the deadlines and the scope of the work. In our experience, this is particularly evident in IT projects, where cooperation and testing by the client is absolutely necessary.
• I) Copyright and Intellectual Property – rights and obligations come with the treatment of copyright and intellectual property. Copyright deals with works that are the result of the creative activity of the author, i.e., for example, paintings, graphic, verbal or architectural works, as well as computer programs. Sometimes a licence agreement is sufficient. If the client provides the contractor with confidential and professional information, such as drawings and designs, these documents are the intellectual property of the client, which should also be addressed in the contract. Incidentally, confidentiality is usually expressly included in the contract. Beware of the so-called “vendor lock-in”, i.e. a situation where part of the licence is not transferred to the client, who then has to remain loyal to the same vendor even in new projects if he wants to have mutually compatible applications, for example.
• J) Liability for damages and defects in the work – the contract should also specify liability for damages and defects. Usually, the contractor is liable for any damages until the work is handed over to the client. This includes not only damage to the work itself, but also to materials or equipment. The contractor should therefore take out the necessary insurance and ensure that all equipment is stored safely. The contractor is also liable for defects in the work which have arisen during the execution of the work or have been caused by improper execution and have become apparent only after the work has been handed over. The contractor should repair such defects at his own expense. This is perhaps one of the most important parts of the contract – it is the liability that is examined if there is a problem. Often the works are part of a complex solution, so the damage is not just caused by a malfunctioning delivery, but also by the stoppage of the entire operation or perhaps lost profits from a malfunctioning e-shop. It is therefore advisable to include the servicing of the work in the contract.
• K) Penalties – any penalties for failure to meet a deadline or other obligation should be part of any contract. The contractual penalty is usually set as a fixed amount or as a percentage of the price of the work for each day of delay. The contract should also specify how and when any penalties will be paid.
• L) Withdrawal from the work contract – in the context of penalties, withdrawal from the contract should also be mentioned. This can also be used to deal with long delays in the delivery of the work. It can be defined in the contract that if the delay lasts for a certain number of days, the client has the right to withdraw from the contract. Another reason for withdrawal may be the contractor’s unwillingness to remedy defects arising during the performance of the work, even after written notice from the client. We have discussed the termination of the work contract in a previous article. You can download a model works contract from many websites. Keep in mind, however, that such templates may be outdated, overly general, and will not contain specific details for your work. Therefore, it is always advisable to have your contract reviewed by an attorney who can advise on the correct wording to protect your rights.

Definition of the work

As we stated above, the key point in the contract should be the definition of the work itself, i.e. the specification of the work to be performed for the customer.

The more general the description, the more freedom the contractor will have in creating the work and the customer will not know, apart from the general level, in what form he will receive the work. If the work is described in general terms, the customer would also not be able to claim that the work does not correspond to his specific ideas.

In this respect, caution should be exercised when using the free downloadable model works contracts. If you type, for example, a works and construction contract into a search engine, the template will never contain a consistent definition of the work as it should fit your particular situation and need.

If the work is not defined at all or is described vaguely, the contract could be invalid. Worse, however, is when the work does not meet the need because of a mis-specification. An example might be a tailored shirt in a defective colour.

Time limit for completion of the work

It is important for both parties to set a deadline by which the work is to be completed. The customer will know when they will be able to move into their new house, while the contractor will be able to plan future jobs. In case of failure to meet the completion date, it is advisable to negotiate a contractual penalty. With a contractual penalty, the customer will have more options to make the contractor meet the deadline. In the event of a longer delay, the customer could also withdraw from the contract and demand a refund.

Payment terms

The payment terms should also be defined as precisely as possible in the contract. The tradesman carrying out the work will need advances during the course of the work in order to carry out the work. The client, on the other hand, will expect to pay part of the price for the work after it has been completed, in case it is poorly done. It is therefore important to set not only the price for the whole job itself, but also the amount and due dates of the individual deposits.

Clearly set payment dates in advance will allow both parties to plan their finances and meet their obligations in a timely manner. Often the contractor will insist on negotiating a penalty or liquidated damages in the event that he records unpaid invoices with the customer.

Addendum to the works contract or works contract and construction

As we have already said, works contracts are common, especially in the construction industry. These works contracts are usually detailed and include solutions to possible situations that may arise during construction. Often, however, it is in the case of construction that changes to the work are made during the construction process. As a rule, few buildings are constructed completely without any changes in accordance with the project documentation.

Changes to the construction are in the nature of multiple works or represent a real change to the work consisting in a different structural and technical solution. Such a situation is usually dealt with in the form of amendments to the works contract.

Guarantee

Although the contractor is generally liable for the fact that the work will be free from defects at the time of completion, he is no longer liable for defects that arise in the future. However, it is possible to negotiate a so-called guarantee under which the contractor undertakes to remedy defects that occur over a certain period of time.

The guarantee is particularly important for the customer when concluding a contract for construction work, where the lifetime of the construction is expected to be decades. Even if the contractor hires third parties, so-called subcontractors, to complete the work, the customer does not enter into a contract with them. He is still in a contractual relationship with the contractor himself, with whom he signed the contract, and he is also liable for defects, even if they are caused by the subcontractor.