Fixed price or just an estimate?
In a works contract, there is a fundamental difference between a fixed price and an estimate (budget). A fixed price means the contractor will complete the work for the agreed amount regardless of how their actual costs develop during the process: the risk of overspending lies with the contractor. An estimate, by contrast, is indicative. It may change during the course of the project, typically based on the materials actually consumed or the scope of work.
The problem arises when the contract does not clearly specify which of the two regimes applies. We recommend explicitly stating whether the price is fixed or an estimate, and if it is an estimate, how and with what advance notice the contractor must inform about exceeding it, ideally so that the client can approve any increase in advance.
Staged payments instead of paying everything at once
For larger projects, it is advisable to split payments into stages according to the actual progress of work, rather than having the client pay the full amount upfront or the contractor waiting for payment until the work is fully completed. Milestones should be tied to objectively verifiable states: a completed stage, an accepted partial section of the work: not to vague formulations such as "as agreed".
How the handover of individual stages is carried out and what to watch for when accepting the work is described in the article. Handover of the work and rectification of defects.
Deposits: what they are actually for
A deposit is standard practice, especially for orders with a high material component: the contractor uses it to cover initial costs before receiving payment for work completed. A reasonable deposit should roughly match these initial costs, not act as an "advance loan" for the entire order.
The contract also covers what happens if the order does not proceed for any reason, whether the deposit is refunded or offset against work already performed. Without this provision, the matter is only resolved when a dispute arises, at which point both parties' negotiating positions are significantly weaker.
If the contractor requests an advance payment that does not match the nature of the job, for example, a high amount for work involving minimal materials. This is a warning sign. Any reputable contractor should be able to provide a reasonable explanation without hesitation regarding what the advance covers and how it will be reflected in the final invoice.
Penalties for delays
A contractual penalty for late completion of the work or for late payment is a common part of works contracts. Generally, it should be appropriate to the circumstances of the order and agreed in advance in writing, not imposed subsequently. It is also good to keep in mind that a contractual penalty and compensation for actual damage are two different matters that are dealt with separately.
What to include in the contract
- Whether the price is fixed or an estimate, and how any potential overrun is handled.
- Payment split into stages linked to verifiable progress of work.
- Purpose and amount of the deposit, and what happens to it if the job does not proceed as planned.
- Penalty for delay in completion and penalty for late payment.
- Completion date of the work and conditions for any potential rescheduling.
The connection between invoicing without a contract and why it is worthwhile to have these points in writing even for seemingly simple jobs can be found in the article. Invoice without a works contract: why this is insufficient for larger projects.
Summary
Price, deadline and deposit are three points most often addressed only when it is too late. That is, once a dispute has already arisen. A clearly formulated contract can largely prevent this. You can download the completed sample works agreement at smlouva-o-dilo-vzor.cz download free here.