The new Civil Code, effective from 1 January 2014, which removed separate regulation of the commercial and civil relations, has also partially affected individual types of commercial contracts, including the widely used Contract for Work. Suppliers or contractors producing a result (“work”) for a client under such contract are now expressly obliged to demonstrate to their customer that the resulting work serves its purpose / is functional before the work can be deemed to have been duly executed.
Contract for Work, which is today regulated by §§ 2586 to 2635 in the New Civil Code (Act No. 89/2012 Coll., hereinafter the “NCC”), establishes a contractual relationship, which is characterized by the commitment of the supplier / contractor to carry out certain work / produce a result (whether in the form of equipment, building etc.) at his own cost and risk and a corresponding undertaking on the part of the customer to take delivery / accept the work and to pay the agreed upon price. As the very nature of the contract indicates, the “execution of the work” is the principal attribute of this relationship and as such it is specifically governed in more detail by §§ 2604 et seq. of the NCC.
The new regulation now introduces two cumulative conditions that must be met so the work could be considered duly executed and the supplier has the rightful claim to demand the price of the work. The work must be completed and handed over. The work will however now be deemed to have been completed only after the supplier demonstrates its fitness (functionality) to serve the predefined purpose. The newly introduced express obligation that the supplier demonstrates the work prior to execution is therefore the fundamental change in comparison with the previous regulation. The former Civil Code (Act No. 40/1964 Coll.) had not specified the exact moment of the work being duly executed, while the Commercial Code (Act No. 513/1991 Coll.) defined the moment by proper completion and its handover, so that it would be at the customer’s disposal.
The new regulation however does not specify in more detail what should constitute the “demonstration of the work’s fitness to serve its purpose”. Understandably, the demonstration of the work’s functionality will depend on the actual nature of each specific work. In cases of project documentation the supplier should be able to clarify, after submitting the work to the client, any potential ambiguities. In case of a building, this would probably entail an inspection including demonstration of functionality of the building individual parts and equipment. The question remains how functionality will be demonstrated when the work – result is not a tangible thing.
The new regulation favours the customer / client in this specific aspect, forcing the supplier to demonstrate functionality even when the contract between the parties remains silent on the issue. This is a reaction of the legislator to certain not uncommon problems in practice. At the same time, contracting parties have been reserved the option to separately agree upon the execution of functionality tests as a condition for a work to be deemed as completed and functional, which must be attended by a client or a reliable, professionally qualified and impartial person.
The requirement that the work is demonstrated prior to being considered as duly executed thus means that the customer should pay special attention to defining the work’s intended purpose in as much detail as possible to avoid a situation, in case of a potential dispute, that this purpose is derived from the nature of the contract and circumstances of a specific case.