Contracting, hiring work as a way of economic cooperation has long been known to law. Contractual relations in economic activity are a means of attracting third-party resources for the performance of work. When there are no own material resources, experienced and qualified specialists in the state or the necessary permission to carry out activities, enter into an agreement on the production of such work for a fee by an entity that has the necessary funds and forces.
Price-related general provisions of Russian law are provided for in Art. 709 of the Civil Code of the Russian Federation. There are several issues to consider when drafting a contract.
Indication in the contract
When drafting the contract, one of the first conditions that is discussed by the parties is payment. Usually this is not only an important commercial issue, but also a condition relating to those essential to the understanding of the law. However, as follows from paragraph 1 of Art. 709 of the Civil Code, the price of work in the contract may not be indicated at all. Therefore, a quite reasonable question arises - is price an insignificant condition? It is difficult to judge the possibility of practical application in drafting an agreement under ordinary conditions, it is unlikely that the parties will begin to fulfill obligations without having an agreement on the price or on the ways of its formation. Determining it on the basis of prices for similar works is debatable both in connection with probable doubts about the “similarity” of the work, and because of the significant difference in prices for the same work due to “market” conditions. Therefore, it is strongly recommended that the price be indicated in the contract, considering the provisions of this paragraph a theoretical possibility and some insurance for special cases when, for some reason, the contract is concluded without determining the price. If it is impossible to determine the exact cost, you should indicate the method of its calculation, for example, fix the prices for individual types or components of work. In general, the courts, commenting on Art. 709 of the Civil Code, the price is still considered an essential condition.
Solid or rough?
By default, the price is solid, this situation follows from paragraph 4 of Art. 709 of the Civil Code of the Russian Federation. However, you can also designate it as approximate. The difference lies in the fact that a fixed price does not imply the possibility of changing it otherwise than by agreement of the parties, expressed in the form of amendments to the text of the contract. Only the amount of the agreed fixed price is payable by the customer, any deviations from it, except those made by his consent, are not payable.
An exception
There is only one possible exception to this rule. By a court decision, on the basis of a statement by the contractor, an excess of the fixed price may be recognized as lawful, in the case of the so-called a significant change in circumstances. Court such circumstances, following the logic of paragraph 6 of Art. 709 of the Civil Code of the Russian Federation, an increase in the cost of raw materials and resources can be recognized. But only when such growth is associated with the onset of extraordinary circumstances of a special kind, for example, having force majeure character. To oblige the customer to pay an excess of the fixed price, as provided for in paragraph 6 of Art. 709 of the Civil Code of the Russian Federation, only a court can, if it considers the contractor's arguments valid.
What is the procedure for changing the approximate price?
The approximate price is, in a sense, estimated, indicative. When setting such a price, the parties proceed from the assumption that, within certain limits, it will change both in one direction and in the other direction. This is mainly due to the presence of uncertainties, unknown but potentially probable circumstances that the parties foresee, but cannot evaluate. That is, it is assumed that the approximate price may change slightly. However, in Art. 709 of the Civil Code of the Russian Federation there is a condition that the contractor must warn about a significant change in the approximate price, and in a timely manner. A logical question arises about the size of the “materiality” of such a change (excess) in the price. The law does not provide for any fixed amount for assessing excess as “material”. This issue remains at the discretion of the parties, and it may be reasonable to indicate in the contract the amount of such “materiality” as a percentage of the total price.
Following the rule of Art. 709 of the Civil Code of the Russian Federation, when a contractor provides a timely warning about the need to significantly exceed the price, the customer has the opportunity to refuse and pay only for the completed part.
If the contractor did not warn in time, and then submitted an act for a large amount, the customer has the right not to pay for the work.
Correct terminology
When specifying the price in the contract, it is not recommended to use other terminology than that used in art. 709 of the Civil Code, for example, indicate the price as “indicative”, “preliminary”, “open”. These terms are evaluated differently by the courts, in particular, their content is not necessarily equal to the meaning of the term “approximate price”, and therefore does not directly entail the corresponding consequences provided for by the code. A different understanding is the basis for a legal dispute, the decision of which is difficult to predict. In some cases, the “orientation” of the price is interpreted by the court as its supposed change in the future, but an agreement must be concluded for this. And if there is no such agreement, the price is fixed.
Reflection in documents
The price may also be indicated in the estimate (paragraph 3 of Article 709 of the Civil Code of the Russian Federation). It provides a detailed set of works, their characteristics, prices, standards, indices, etc. The estimate is needed for complex works, when it is important to know exactly how the price is formed. The estimate is usually made by the contractor at the stage of signing the contract, and from the moment of approval by the customer becomes part of the signed contract. After completion of work or their stage, the customer is provided with an act of work performed, the signing of which means acceptance of the price indicated therein. Even when the price of the act exceeds its size according to the approved estimate! In this case, the signed act legally means drawing up a new agreement between the parties and setting a new price. Before signing any act, you need to compare it with the estimate, to understand the essence of the discrepancies. If a fixed estimate is exceeded, do not sign the act and do not pay. The same applies to the case when the approximate estimate is significantly exceeded, and the contractor did not warn about such excess in a timely manner.
Arbitrage practice
By the way, there is a single judicial practice, when even an act signed by the customer, in which the price is set in excess of the firm contract, does not, in the court's opinion, indicate the consent of the customer and does not entail compulsory payment of such excess, but is only a confirmation of the work and their actual value. Nevertheless, the customer is advised to refuse to sign such an act, since legally signing it will most likely be regarded as consent to an excess price, as evidenced by most disputes before the courts.
Is the price increase always related to the contractor?
Of great importance is the distinction in practice of a situation where the need for additional work arises for reasons related to the customer. Often, project documentation for the work is provided by the customer to the contractor already in the process of their implementation for various reasons, for example, in connection with making changes on the initiative of the customer or in connection with the delay in obtaining the approvals provided by the legislation of the city planning authorities.
Making changes to the project by the customer creates additional workloads. However, this situation does not apply to cases referred to in paragraph 5 of Art. 709 of the Civil Code of the Russian Federation. These volumes were not supposed to be initially agreed upon by the nature of the work, and the contractor could not and should not have known about them. The contractor can fulfill the additional volume, but subject to the signing of an additional agreement to the contract and the coordination of all its items, including the price. The contractor is entitled to refuse execution if, for example, it does not have the necessary qualifications and resources, or if agreement is not reached on the essential conditions.
Design and estimate documentation
In general, in complex relationships, when performing capital construction at a large construction site, when different contractors are involved in related work forms, the relations between the participants are arranged in the sequence: customer - general contractor - subcontractor. The price of work is determined in the general contract. The general contractor fulfills all the stipulated obligations to comply with the work estimate approved by the customer. Price coordination should be sufficiently accurate and flexible, provide for timely informing the customer in necessary cases, which to some extent affects the controllability of construction, helps streamline all processes and adherence to work deadlines. The basis of stability is the quality of elaboration of design and estimate documentation, when there are no unforeseen conditions that necessitate certain changes post factum. In general cases, the general contractor undertakes its development, involving specialized design organizations.
Price structure and payment procedure
The price should cover all costs associated with the performance of work, the remuneration of the contractor (paragraph 2 of article 709 of the Civil Code of the Russian Federation). Guided by practical expediency, the size and procedure for making an advance payment as a percentage of the total price of the work is determined, which provides the opportunity to start purchasing material resources, as well as attracting third-party forces and means by the contractor. The same part of the cost, which corresponds to his remuneration, is usually paid after the acceptance of work or their agreed stage.
Other features related to the application of Art. 709 of the Civil Code
The transfer of work to the customer for full payment is made out by the acceptance certificate of the work performed (standard form KS-2), as well as a certificate of the cost of the work performed and costs (KS-3). The use of standard forms during construction work is mandatory for subjects of all forms of ownership.
In addition, in construction, when determining the price, the methodology approved by the Goskomstroy is used. The current edition of Art. 709 of the Civil Code of the Russian Federation does not provide for the mandatory application of such a technique, it is recommended. In practice, this means that the use of the methodology in the calculations is desirable, but not required. The application of the methodology is usually referred to in the text of the contract. In general, its use is important for streamlining complex estimates, ensures uniformity and adherence to the accepted standard, and therefore introduces a stability factor into the contractual relationship.
Conclusion
The conditions for the price of work are entered into the text of the contract and are one of the main “commercial” conditions of such an agreement. Depending on the situation, the price may be negotiable, may be a stated condition of the tender, or determined in connection with certain circumstances that are unknown at the time of the conclusion of the contract. In general, when performing construction work, the price depends on many components, which determines the practical necessity and importance of compiling comprehensive and professional design estimates. As a final commentary to Art. 709 of the Civil Code of the Russian Federation, it should be noted that the availability and early approval of such documentation is crucial for the prevention of possible disputes between subjects of contractual relations, and also significantly affects the timing and quality of work performed.