Purchasing a Turnkey Production Line – Performance Tests, Acceptance, and Liability for a Defective Machine

Decision-making framework: what you are actually buying and how to prove it

With a turnkey line, you are not buying a machine, but the ability to produce a certain output of a certain quality and at a certain rate. The contract must therefore describe three different things, each of which is proven differently.

The first is the subject of the delivery: a list of equipment, software, documentation, and training. The most frequently overlooked items are documentation and access rights to the control system, without which service will forever remain with the supplier.

The second is performance: capacity per hour, scrap rate, energy consumption, changeover time between products. A parameter without a defined measurement method and without the conditions under which it is measured is difficult to prove — the supplier will always find an input material or operating mode in which the line meets the parameter.

The third is site readiness: foundations, utility connections, compressed air, operators, input material. The client is usually responsible for this part, and it is the most common reason for a supplier to refuse to acknowledge a failure to meet performance.

The division of responsibility between these three layers is the very core of the negotiation. Whoever leaves it undefined will later be in a dispute over whether the line is not working or whether the client failed to provide the necessary conditions.

The decision-making also includes the number of suppliers: a single general contractor is more expensive, but responsibility lies with one entity. If the company opts for multiple suppliers, the contracts must include a coordination clause specifying who is responsible for the interface between the units.

A step-by-step procedure

The project phases have a fixed order, and each ends with a document you can rely on if something goes wrong.

The first step is the performance specification with a measurement method. Each parameter should include the input material, the duration of the measurement, who performs the measurement, and how it is recorded. It is good practice to refer to a protocol attached as an appendix to the contract; this is prepared by a technician, not a lawyer.

The second step is a schedule with milestones linked to payments: an advance payment, a payment after on-site delivery, after acceptance of the equipment, and the final part after performance confirmation. This final payment is the only tool that reliably motivates the supplier to fine-tune the line.

The third step is the preparation of the site on your part and its documentation: handover of the construction site, a protocol on the connection of utilities, confirmation of input material parameters. Each of these documents will later serve as proof that the delay did not originate on your side.

The fourth step is cold and hot testing, i.e., verifying functions without and with material, with a protocol of what was demonstrated and what defects were found. We also cover acceptance in the article Defects in development projects.

The fifth step is trial operation and a performance test. The contract should specify how many attempts the supplier has, what happens after the first test fails, and within what timeframe the test is repeated. Without limiting the number of attempts, the trial operation can drag on for months.

The sixth step is acceptance. For complex technologies, acceptance with reservations and a list of outstanding items with deadlines is more effective than rejecting the work as a whole. For cases where the client fails to attend the acceptance, a deemed acceptance can be agreed upon; we discuss this in the article Can the handover of work be arranged in a contract through a legal fiction.

The seventh step is the handover of documentation and training. The contract should include a list of documents, language, format, number of people to be trained, and a clause stating that the work is not complete without the documentation. And finally, warranty operation: service response times, availability of spare parts, and the price of a service hour after the warranty. For a line that is down, the response time is what matters, not the length of the warranty.

What is standard on the market and what is a warning sign

For sound deliveries, it is standard for the price to be divided into milestones, with the final part tied to performance confirmation, and for a retention sum during the warranty period to be covered by a bank guarantee so as not to tie up the supplier's cash; we cover this in the article Retention money in contracts for work.

It is also standard for the contractual penalty for failure to achieve performance to be graduated according to the degree of deviation, not structured as an all-or-nothing proposition. A graduated penalty is paid in practice, whereas with an extremely high one, there is an increased risk that a court will reduce it at the supplier's request.

There are three warning signs. The first is a contract in which performance is described only in the supplier's offer, and the offer is not an appendix to it — in which case the parameters are not formally part of the obligation. The second is tying the final payment to the delivery of the equipment, not to its performance, whereby the company loses the only tool to enforce fine-tuning.

The third sign is a limitation of liability to the value of the defective part. For a line where one unit can shut down the entire operation, such a limit is economically worthless. Therefore, a limit derived from the price of the entire work and the actual damage from the shutdown is negotiated. This limit cannot apply to damage caused intentionally or by gross negligence, even if the contract states so.

Where the legal line is drawn

Under Czech legislation, there are several rules for contracts for work that change the negotiating position of both parties more than companies expect.

The rule on instructions and materials is fundamental. According to Section 2594 of the Czech Civil Code, the contractor shall notify the client without undue delay of the unsuitability of an item handed over by the client or an instruction given by them. If the client insists on the performance of the work, the contractor has the right to demand that they do so in writing. If the contractor acts in this way, the client has no rights arising from those defects of the work that arose precisely as a result of the unsuitable item or instruction. If the client insists on a clearly unsuitable instruction even after being notified, the contractor may withdraw from the contract under Section 2595.

The second rule concerns acceptance. According to Section 2605 of the Czech Civil Code, the work is completed if its fitness to serve its purpose has been demonstrated, and if the client accepts the work without reservations, a court will not grant them the right arising from an apparent defect if the contractor objects to the late claim. This is therefore not an automatic extinction of the right, but a defence that the contractor must raise.

When a notification is still timely was clarified by the Supreme Court in its judgment 25 Cdo 336/2026. According to Section 2615, the provisions on the contract of sale apply mutatis mutandis to the client's rights from defective performance, and the requirement to notify defects without undue delay cannot therefore be equated with the moment of acceptance — the client is entitled to a reasonable period for inspection. The court did not consider defects notified the day after acceptance to be late and described the opposite interpretation as unreasonably harsh.

The third rule determines what the supplier is liable for. According to Section 2617, a defect in the work at the time of handover establishes the contractor's obligations from defective performance; if the risk of damage passes to the client later, the time of this transfer is decisive.

The fourth rule is the time limit. According to Section 2618 of the Czech Civil Code, a court will not grant a right from defective performance if the client did not notify the defects without undue delay after they discovered them or should have discovered them, but no later than two years after the handover of the work, and if the contractor objects to the lateness. This limit applies to statutory rights from defective performance and does not affect an agreed quality guarantee, the period of which, according to Section 2619, begins to run from the handover of the work and may be longer.

The fifth rule is the relationship between a contractual penalty and damages. According to Section 2050 of the Czech Civil Code, if a contractual penalty has been agreed, the creditor is not entitled to compensation for damage arising from the breach of the obligation to which the penalty relates. For a production line, where the penalty for delay is often a fraction of the damage from downtime, it is therefore necessary to explicitly state in the contract that the right to compensation for damages in addition to the penalty is preserved. Moreover, a court may reduce a disproportionately high penalty at the debtor's request under Section 2051.

The limitation of liability is then restricted by Section 2898 of the Czech Civil Code: no regard shall be had to an arrangement that excludes or limits in advance the obligation to compensate for harm caused intentionally or through gross negligence. The exception for gross negligence is therefore not a concession that needs to be negotiated, but a confirmation of the statutory state of affairs.

Also underestimated is the rule in Section 2616: the contractor is liable for ensuring that the use of the work does not infringe the industrial or other intellectual property rights of a third party, provided they knew or must have known about it when concluding the contract. For lines made of components from multiple manufacturers, this is a real risk.

Final summary

With a turnkey line, it pays to write the contract backwards from the performance test. First, describe what the line must be able to do and how it will be measured, then link the final payment to that, and only then deal with the schedule and price. Give instructions to the supplier in writing.

The legal boundaries in this type of delivery are asymmetrical. A supplier who gives written notice of an unsuitable instruction is relieved of liability for defects arising from it, and a client who accepts without reservations significantly worsens their position regarding apparent defects, although according to recent case law, they have a reasonable time for inspection and notification. The Prague-based law firm ARROWS negotiates these contracts as part of its Contracts and Negotiations service and is insured for professional liability up to a limit of CZK 350,000,000. Write to us at consultation@arws.cz.