Change of remuneration in a contract for specific work - when is it possible?
Pursuant to the provisions of the Civil Code, by the contract for specific work, the recipient of the order (contractor) undertakes to create a marked work, and the ordering party undertakes to pay remuneration. The determination of the remuneration that will be due to the performer of the work should therefore be an integral part of any contract for specific specific work. This does not mean, however, that if the parties do not define the principle of determining the remuneration in the contract, it will be invalid. The remuneration usually takes the form of a lump sum or cost estimate. What are the differences between them and in what situations will it be possible to change the remuneration in the contract for specific work?
No contractual remuneration provisions
The parties may determine the amount of remuneration for the performance of the work by indicating the grounds for its determination (e.g. introducing an hourly rate). If, however, they have not done so, it is understood in case of doubt that the parties meant ordinary remuneration for a work of this kind. If it is not possible to determine the amount of remuneration in this way, the recipient of the order shall be entitled to a fee corresponding to the justified workload and other inputs made.
As a rule, pursuant to Art. 642 of the Civil Code, the remuneration for the contract for a specific task is payable in arrears, upon handing over the work to the contracting authority. If, on the other hand, the work is to be delivered in parts, and the remuneration has been calculated for each part separately, the payment is due upon the fulfillment of each of the partial benefits.
Change of remuneration in the contract for specific work - lump sum remuneration
Lump sum remuneration is determined in advance in the contract. It is a designated amount that is determined without costing. In such a situation, it is necessary for the order taker to define the subject of the contract as precisely as possible. Because it is the contractor who takes the risk of suffering losses due to incurring additional costs or performing additional necessary works that he did not foresee when setting the amount of remuneration. However, nothing prevents the parties from making additional arrangements regulating this issue. Therefore, they may stipulate in the contract that in the event of additional costs not provided for in the flat-rate remuneration, an amount equivalent to them will be paid. The contractor may also take into account the above-mentioned risk at the proposed price, which will be correspondingly higher.
As a rule, however, pursuant to Art. 632 § 1, the order taker may not demand an increase in the lump sum, even at the time of concluding the contract, he could not predict the size or costs of the work to be performed. It should be remembered that this also applies to the contracting authority, who may not demand a reduction in remuneration if the size of the work or the cost of its execution would ultimately turn out to be lower. If, however, as a result of a change in relations, which could not be foreseen, the performance of the work would risk gross loss to the party accepting the contract, the court may increase the lump sum or terminate the contract. However, the contracting authority does not have the same right to demand a price reduction.
Therefore, the parties to a specific work contract should protect themselves against the effects of changes in the economic situation, in particular against the effects of inflation. They may introduce an indexation clause in the contract, i.e. stipulate that the amount of the lump sum remuneration is determined according to a measure of value other than money. Moreover, as already indicated above, the parties may also introduce other provisions regarding remuneration into the contract, e.g. providing for additional remuneration for the contractor in the event of unforeseen costs.
The parties should take care of their own interests. Please note that in the absence of appropriate contractual provisions, the provisions of the Civil Code will apply, which do not provide for a change in the lump sum remuneration!
Change of remuneration in the contract for specific work - estimate remuneration
The cost estimate is a list of planned works and estimated costs needed to implement the work. This is a more complicated method of determining the wage than a flat rate. After completion of the work, an as-built cost estimate is prepared, which includes the actual work performed and the settlement is based on it. So if, during the performance of the contract, it was necessary to carry out additional works, not provided for in the cost estimate, or incur additional costs, the final cost estimate will be different from the initial, contractual one.
However, it should be borne in mind that a change in the remuneration in a specific task contract (increase or reduction) should always result from the initiative of the interested party. Whether the wage is increased or decreased depends on the relevant circumstances:
- If, in the course of the performance of the work, the order of the competent state authority changed the amount of prices or rates applicable so far in the cost calculation, each party may request an appropriate change of the agreed remuneration. However, this does not apply to charges paid for materials or labor prior to the change in prices or rates.
- If, in the course of the performance of the work, it is necessary to carry out works that were not included in the list of planned works constituting the basis for the calculation of the cost estimate, and the list was prepared by the contracting authority, the contract accepting request may change the remuneration in the contract for specific specific work (fee increase accordingly).
- On the other hand, if the list of planned works was prepared by the order taker, he may request an increase in remuneration only if, despite due diligence, he could not foresee the need for additional works.
The contracting authority hired a team to renovate his apartment and presented them with a list of the works necessary to be performed, and the contracting authority valued them. During the works, the contracting authority asked the contractor to perform additional works, not listed in the list. The contractor has the right to demand an appropriate increase in remuneration.
The contracting authority hired a team to renovate the bathroom. The order taker, after prior agreement with the ordering party what should be done, prepared a list of planned works, which was accepted by the ordering party. Ordering parties, among others he wished to remove the bathtub and replace it with a shower cubicle. During the works, after removing the bathtub, it turned out that the drainage channel was damaged and it was necessary to repair it before inserting the shower cubicle. The order taker may therefore demand an increase in remuneration for the additional work performed, because he could not predict the condition of the drainage channel before removing the bathtub.
It should be remembered that a change of remuneration in a contract for a specific specific task may not take place if the contracting authority has performed additional work without obtaining the consent of the contracting authority. Therefore, any additional work necessary must be notified to the contracting authority, which must approve it.
If, in the cases provided for in the above points, it is necessary to change the remuneration in the contract for a specific task by significantly increasing it, the contracting authority may withdraw from the contract, but should do so immediately and pay the contracting party the appropriate part of the agreed remuneration, corresponding to the work already performed.
Of course, in accordance with the principle of freedom of contract, the parties may regulate differently the rules on which the remuneration will be changed in a specific work contract (estimate remuneration).
Payment of remuneration and failure to perform the work
It should be remembered that the Civil Code provides for situations where, despite the non-performance of the work by the contracting party, the contracting authority is required to pay the remuneration:
- The performance of the work did not take place for reasons for which the contracting authority is responsible, even if it is not responsible for them, and the ordering party was ready to perform the work (e.g. deliberate postponement by the contracting authority of the necessary consultations with the contractor, destruction of materials necessary to perform the work that was delivered by the ordering party). However, in such a situation, the ordering party may deduct what the order taker has saved due to the non-performance of the work (e.g. a certain amount of money or materials).
- As long as the work has not been completed, the contracting authority may withdraw from the contract at any time by paying the agreed remuneration. However, in such a case, the ordering party may deduct what the order taker has saved due to the non-performance of the work.
- When the work has been performed, but has been destroyed or damaged as a result of the defectiveness of the material provided by the ordering party or as a result of the performance of the work according to its instructions, the order taker may demand the agreed remuneration or its appropriate part for the work performed, if it has informed the ordering party about the risk of destruction or damage to the work.