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Extra work in the jurisprudence of the Czech Supreme Court

Czech Republic: Even though extra work is a common occurrence in principal-contractor relationships, and is being performed based on a mutual understanding between the parties, constant jurisprudence not seldom fails to recognize the contractor's claim to payment for such extra work – and even denies them recourse to enforcing payment on grounds of unjust enrichment.

In the course of implementation of construction projects, it is commonplace that work becomes necessary which goes beyond the agreed scope of work, referred to as "extra work". However, such extra work is often being agreed upon informally, on an ad hoc basis, and the issue of whether the contractor is entitled to demand payment of the price for such extra work (and if so, in what amount) is among the most frequent causes for disputes among principals and contractors. For this reason, the Czech Supreme Court had to address the matter on repeated occasions in the past.

Pursuant to the Commercial Code, the principal must pay the price of work to the contractor, as agreed in the contract for work (either in a fixed amount or in the form of a pricing formula – Sec. 546). Discounts or surcharges are only possible if the parties agreed on an expansion (or reduction) of, or other changes to, the scope of work, but failed to reflect the consequences which this has on the price for work (Sec. 549). In such a case, the contractor is entitled by operation of law to payment of the price along with an adequate mark-up (in the event of an expansion of the scope of work), or, as the case may be, a price increased in line with the changed scope of performance, and in line with the expenses purposefully made in connection with the change. However, for Sec. 549 of the Commercial Code to apply in the first place (under the interpretation of the Supreme Court), it is necessary that a previous agreement exist between principal and contractor on the expansion (or qualitative change) of the work – i.e., a prior agreement to amend the contract for work (see for instance case No. 29 Odo 214/2003).

In practice, the application of Sec. 549 of the Commercial Code (and thus the origination of the contractor's claim for payment of the extra work) is often prevented by a clause incorporated in the contract for work according to which amendments to the contract for work always require to take the written form. Even if the contractor performs the extra work based upon a mutual understanding with the principal, the courts often take the formalistic road and regularly deny the contractor's claim for payment of extra work in the absence of a written agreement (based on the argument that merely oral agreements may be ignored as being null and void) – even if the contractor was able to show during the proceedings that the principal indeed asked for the performance of the extra work, and that the extra work was carried out in accordance with the latter's specifications.

To make matters worse, contractors do not even have recourse to demanding that the principal must surrender the unjust enrichment which they derived from the extra work: according to the Supreme Court, the performance of extra work "which was not agreed between the parties" qualifies neither as a performance without underlying legal title nor as a performance based on a void transaction (case No. 23 Cdo 1146/2007).

For the sake of completeness, we need to mention a ruling by the Czech Constitutional Court which concedes that even a written contract that requires the written form for amendments may be changed in a different manner (i.e., also orally), unless the relative nullity of such an amendment is being invoked within the statutory time period for such a challenge (case No. I. ÚS 1264/11). In the spirit of this ruling, it ought to be possible to validly amend a contract for work outside of writing, thus allowing for the application of Sec. 549 of the Commercial Code. However, the established jurisprudence of the Czech Supreme Court has yet to accept this line of argument.

In the face of the Supreme Court's judicial practice, our final recommendation to contracting firms can only be to always carry out change orders of any kind only after an explicit agreement has been reached with the principal / client, which is preferably recorded in the written form.

Tereza Chalupová, Lawyer