Contract for Work in 2026: Key Clauses, Payment Risks and Dispute Prevention

13.5.2026 | ARROWS law firm

A contract for work remains one of the most frequently concluded legal documents; however, ambiguities often lead to misunderstandings and financial losses. This article, based on the day-to-day experience of ARROWS attorneys in Prague, guides readers through the reality of contracting: what the contract should contain, what issues actually arise, and how to avoid costly mistakes in 2026.

The photograph shows a specialist consulting on a contract for work.

Article contents

Financial structure and payment-related risks
Tax and social security aspects
Disputes and their resolution – what to do

Quick summary

The absence of a clear definition of deliverables, deadlines, and acceptance criteria leads to disputes over whether the contractor is entitled to the fee. A properly drafted contract eliminates a significant part of potential conflicts.
Poorly structured payments or the absence of a quality safeguard often means the client ends up without the money or without a functional product. Czech law does not prohibit any particular financing schedule, but poor setup can be critical.
Correct VAT setup, social security and health insurance issues for individuals, or questions of liability for damage are not trivial matters. Incorrect classification of the contract can cost a company tens of thousands to millions of Czech crowns in penalties and contributions.
A detailed contract with measurable criteria, staged checks, and a clear separation of individual phases separates successful projects from those that end in court disputes.

What the term “contract for work” means and why the differences matter

In legal theory, the definition of a contract for work sounds simple: the contractor undertakes, at its own expense and risk, to perform a work for the client, and the client undertakes to accept the work and pay the price. It seems clear, but reality is more complex.

Under the Czech Civil Code (Act No. 89/2012 Coll., the Civil Code, as amended), a contract for work differs from a services agreement in that, in the case of a work, the primary focus is on the result, not on performing a particular activity.

This means that if the contractor promised a functional e-commerce website and delivers something that is not capable of functioning, it is liable for a defect—even if it claims it “did what it could.” With a services agreement (for example, consulting), by contrast, the focus is on whether the activities were performed with the required expertise and care, not on whether a specific result was achieved.

Practical impact: If you have a contract with a “supplier” or agency that more closely resembles a services agreement, and they return an unfinished or poor-quality project, your position when asserting rights arising from defects is more difficult. The supplier may argue that it duly performed the activity, even without the required result. To set clear defect rights, acceptance, and liability in such contracts, it is often advisable to use support in the area of contracts and negotiations. ARROWS attorneys in Prague encounter this issue with clients who had their contracts “prepared cheaply” or relied on templates without adapting them to reality.

Likewise, entrepreneurs often do not realise the risks associated with the so-called “švarcsystém” (bogus self-employment), i.e., a disguised employment relationship where a contract for work or another civil-law contract is formally concluded, but in fact the work is dependent employment. Once you realise the ambiguities halfway through implementation, it is too late; the contract has already been signed. If the problem only becomes apparent during performance, it may be useful to follow the procedures described in the article disputes arising from business cooperation: how to resolve them legally and how to avoid unnecessary losses.

The most common mistakes we see in practice

Unclear deliverables and acceptance criteria

By far the most common issue: the contract says “I will deliver you a new system” or “I will ensure a website redesign” without clearly describing in the contract:

What exactly the delivered system includes (list of functions, number of users, database capacity, etc.)
What measurable criteria will be used to assess whether the work is “completed” (e.g., compliance with the technical specification, passing acceptance tests)
Who will accept the work and how (initial inspection, testing, handover protocol)
What the difference is between “standard” and “extraordinary” change requests

The result? One party says the work is completed and demands payment. The other party claims it is not and refuses to pay. The dispute over who is right is often resolved in court, and the parties then realise that although they carried all the evidence—emails, screenshots, notes—the contract did not contain a clear decision criterion.

How we address this at ARROWS: We set detailed descriptions of deliverables, often including annexes (technical specifications, feature lists, design mockups, or samples), and above all we clearly define the acceptance and inspection process. This reduces uncertainty and eliminates subjective disputes.

Unclear or missing deadlines

A contract for work without a specific delivery deadline is a ticking time bomb. When a dispute over deadlines or penalties starts to escalate, it is usually already a matter for commercial and court disputes. The Civil Code does provide that if no deadline is agreed, the work is deemed to be performed within a period appropriate to its nature, but that leads to ambiguity.

It is often unclear from when the deadline is calculated (from signature? From payment of the advance? From approval of the brief?)
There is no breakdown into phases—if the project is for 6 months, when should the individual milestones have been completed?
There is no defined regime for what happens if the contractor misses the deadline (contractual penalty for delay, right to withdraw from the contract, automatic extension?)

In practice, this means that when the project is delayed, no one knows exactly whether the contractor is entitled to an extension, whether the client is entitled to a penalty, or whether it is even possible to withdraw from the contract. Disputes over deadlines are often conflicts that last for years.

Absence of clear rules for changes and amendments

The reality of projects: almost always something is added. A new requirement, a change during the course of the project, a discovery that the original brief was incomplete. Precisely with change requests, it often pays in practice to have processes and responsibilities agreed in advance, similar to those described in the text how to set the terms of a retainer arrangement with a law firm in Prague so that both parties are satisfied. If the contract does not include a mechanism for handling these changes, it becomes a problem.

The contractor says: “That was not in the original brief; it will cost another 100,000.”
The client says: “You are incompetent; you should have known.”
Reality: The contract does not define a procedure for creating amendments.

Without a clear process, changes are recorded in an unorganised way (on paper, in emails, or not at all), and then, when an issue arises, it is unclear what was agreed. ARROWS attorneys in Prague incorporate a precise process into contracts: how a change is reported, who decides on it, how the price and deadline change, and what the limit is for changes without new approval.

Most common questions on preparing and structuring a contract for work

1. Do I need a contract for work in written form, or is an email agreement enough?
Under Czech law, a contract for work is valid even if concluded orally, but in practice, without a written record there are almost always problems with evidence. No proof means no certainty and nothing to rely on. The attorneys at ARROWS always recommend a written document that is clear and signed by both parties. For electronic contracts in 2026, a qualified electronic signature is also the standard.

2. How extensive should a contract for work be – can it be short, or does it have to be long and complex?
Length is not decisive; what matters is covering the key points. It can be 2 pages if all critical elements are set correctly; it can be 20 pages if the project is very complex. ARROWS, a Prague-based law firm, focuses on functionality and clarity, not on word count.

3. Who should draft the first version of the contract – me as the client, or the contractor?
Often, the party who drafts the first version has an advantage because it already contains their “preferred” terms. It is a good idea for the first draft to be prepared by the party that has a greater interest in being protected. ARROWS attorneys in Prague can review and optimise any draft – even if you think you have a “template”, it usually needs to be tailored to the specific situation.

Financial structure and risks associated with payments

The method of financing significantly changes the nature of risk in a contract for work. There is a huge difference between these three scenarios:

Option A: Everything upfront (100% advance payment)

The contractor has all the money and can disappear. The client waits and receives nothing. This is highly risky and, in consumer contracts, limited by consumer protection legislation; in B2B relationships, it exposes the customer to unnecessary risk.

Option B: Staged payments tied to milestones (e.g. 30% - 35% - 35%)

This is the most common and most reasonable approach. The contractor is motivated to continue (they receive payments for the completed part of the work), and the client can monitor progress and pay gradually. The key is that milestones must be objectively measurable (not “phase 1” but “approved design” or “beta version with functional modules”).

Option C: Everything at the end (100% upon delivery)

The contractor works without financial coverage and bears the greatest risk. If the client says the work is not completed and the contractor is under pressure, legal disputes may arise. Conversely, the client has maximum protection.

What we see in practice: Start-up entrepreneurs and self-employed individuals often prefer option B, and that is reasonable. Large projects (construction, software systems) usually use option B with a more specific structure – e.g. 20% upon signing the contract, 30% after approval of the design, 30% after the alpha version, 20% upon final delivery.

It is always a good idea to leave at least 10–15% for the last transaction to motivate the contractor to make fixes and remedy any defects during the warranty period.

ARROWS attorneys also recommend so-called retention (a portion of the final payment is withheld even after delivery, e.g. for 3–6 months, to ensure that the work functions without defects). This especially protects the client in software projects or construction.

Possible issues	How ARROWS helps (office@arws.cz)
Unclear payment structure and disputes about when payments are due	We propose clear milestones linked to measurable deliverables; we ensure the contract includes precise conditions for releasing each tranche and defines what happens in the event of delay.
The client pays, but the contractor does not complete the work or disappears	We include guarantees, insurance, and, where appropriate, conditions relating to the contractor’s financial stability; for larger projects, a bank guarantee or other credit security can be agreed.
The contractor works without sufficient interim payments and cannot afford to continue	A staged payment structure can prevent a situation where one party is financially disadvantaged. We can also recommend financing options or deferred payments that will be acceptable to both parties.
Mismatch: one party wants everything upfront, the other only at the end	ARROWS attorneys assess both parties’ positions and propose a structure that is fair and minimises risks – e.g. an advance payment + staged tranches + retention.

Quality of the work, warranties, and liability for defects

This is where legal and practical aspects intersect exceptionally strongly. A contract for work includes the contractor’s legal obligation to deliver the work free of defects. However, that does not mean it will be perfect – the Czech Civil Code distinguishes between:

Material defects – the work does not function at all, does not fulfil its basic purpose (e.g. an online store cannot be opened), and the customer would not have accepted it in that condition.
Non-material defects – minor shortcomings that do not prevent the main purpose (e.g. cosmetic design errors, minor performance issues).

If the contractor delivers work with a defect, the customer may:

Request removal of the defect (repair)
Request a discount from the price
In the case of a material defect (or if the contractor fails to remedy the defect within a reasonable time), withdraw from the contract and request a refund (and potentially damages)

The key practical question is: what is the time limit within which a defect may manifest? The Czech Civil Code does not set a general statutory warranty period for a contract for work (except for buildings). The contractor is liable for defects that the work has at the time of handover.

The customer is then obliged to notify defects without undue delay after they could have discovered them through timely inspection and due care, or without undue delay after the defect has manifested. For buildings, defects may be asserted up to 5 years from handover. However, the parties may contractually agree on a quality warranty, i.e. a warranty period.

This means that if a defect appears, for example, after 3 months within the agreed warranty period, the customer is entitled to a remedy. If no warranty is agreed, liability is governed by the general provisions on defects in the work, where the deadline for notifying the defect is crucial.

In practice, this happens: The contractor believes that after an oral “handover” and leaving the site, the job is done. The client believes they have an indefinite period to test the work and then come back with a complaint. Without a clear definition in the contract, this leads to uncertainty.

When preparing contracts for work, ARROWS attorneys in Prague often recommend:

A specific warranty period (most commonly 12 or 24 months; for buildings, 5 years or longer)
A testing period for identifying defects (e.g. the first 30 days with more intensive testing)
A clear definition of what happens if a defect appears (who remedies it, within what time limit, at whose expense)
Separating the warranty from liability for damages (warranties relate to defects in the work; damages may include additional losses caused by the defect).

Most common questions on warranties and liability

1. As the client, can I agree that the contractor will remedy a defect completely free of charge for 2 years?
Yes, you can agree on virtually anything within the freedom of contract. The Czech Civil Code provides minimum protection, but the parties may agree on stricter terms. In practice, this may be less attractive for the contractor (the risk increases), and they will likely reflect it in the price. Our Prague-based attorneys at ARROWS can help you find the right balance between protection and reasonable terms.

2. What happens if the defect causes additional damage? For example, non-functioning software slows our sales by CZK 1 million per month?
This is a very complex question. The law distinguishes between direct damage (e.g., costs of remedy) and consequential damage (loss of profit, reputation, etc.). Especially with consequential damage, there are complex rules and it is often assessed what falls within foreseeable damage. That is why ARROWS attorneys recommend clearly defining what damages the contractor is liable for and, ideally, agreeing on an upper limit of liability (a so-called “liability cap”); otherwise, lengthy disputes may arise.

3. Do I have to sign “dozens of pages” of contracts, or can I set simple terms?
You do not have to, but you should cover the key points: what is being delivered, by when, how payment is made, what happens with defects, and how disputes are resolved. ARROWS attorneys can help you draft even simple terms that will be legally binding and will protect both parties.

Tax and social-security aspects

This opens up another layer of complexity. A contract for work is not just a legal document – it has implications for VAT, income tax, and social security.

Value added tax (VAT): If the contractor is VAT-registered and this is their usual activity, they will issue an invoice including VAT. The client may deduct VAT if the conditions are met. This is almost automatic.

But what if the contractor is not registered but should be? Then a fine may be imposed, and the client may be considered a so-called “tax guarantor” or a “knowing participant in tax evasion” – this is very serious and leads to significant penalties.

Social and health insurance – the risk of the švarcsystém: If the contractor is a self-employed individual (OSVČ) and is not seconded by any employer, they generally have an obligation to pay social and health insurance as a self-employed person. However, if dependent work is in fact performed (work performed personally, under the employer’s instructions, in the employer’s name, during working hours and at the employer’s workplace), even though a contract for work is formally concluded, this constitutes the so-called švarcsystém. This is illegal in the Czech Republic.

For the employer, allowing illegal work may result in fines imposed by the Labour Inspectorate (under Act No. 435/2004 Coll., on Employment) of up to CZK 10,000,000 for legal entities and up to CZK 100,000 for individuals, and additionally an assessment of social and health insurance, including penalties.

ARROWS attorneys identify these risks expertly already at the pre-contract stage and recommend the correct legal structure to avoid problems. This is not only a legal matter, but also a financial matter with high risk.

Most common questions on tax and social-security implications

1. I am a business owner and want to hire a self-employed contractor (OSVČ) to create content. What should I include in the contract so it is clear that this is not employment?
The key is that the contract for work must truly be focused on the result (a certain number of articles, photographs) and that it is a one-off or time-limited project. The contract must clearly reflect the nature of self-employment – the OSVČ should bear entrepreneurial risk, work according to their own time and resources, and not be under the client’s direct management. ARROWS attorneys can help you with the wording so that you have legal protection in the event of inspections by the tax authority and the Labour Inspectorate.

2. As an OSVČ, can I agree with the client that I will handle VAT myself and that my invoices will not include it?
That depends on your VAT registration. If you are a VAT payer, you must charge and remit VAT. If you are not a VAT payer and meet the statutory conditions for non-payers, your invoices will not include VAT. It is not possible to agree that VAT will not be charged if you are required to charge it. The client cannot deduct VAT if it has not been properly charged. ARROWS attorneys recommend being transparent and proceeding in accordance with the VAT Act.

3. I lost the contract documents. How will this affect my tax return?
This is a problem, because without proper documentation it is not always possible to substantiate the legitimacy of expenses or income, which may have a negative impact during a tax audit. We recommend thorough archiving and digital backups. ARROWS attorneys can advise you on how to address the situation retrospectively (e.g., by reconstructing documentation, affidavits), but prevention is best.

Disputes and their resolution – what to do

When a contract for work ends in a dispute, you essentially have several options:

Negotiation between the parties – the fastest, but if you are on opposite sides, usually unsuccessful.
Mediation – a neutral mediator helps you find a common solution. It is usually cheaper and faster than court.
Arbitration – if agreed in the contract, the dispute is decided by an arbitrator (usually a lawyer or expert), not a state court. Arbitration is faster and confidential, but it is final – an arbitral award can practically not be appealed; it can only be challenged by an application to set it aside in court on very limited grounds.
Court proceedings – the last option, which usually no one wants. It takes a long time, costs money for lawyers, and the decision is solely in the hands of the state court. In addition, matters become public (unless the hearing is closed).

In contracts, our Prague-based law firm ARROWS typically recommends an escalation mechanism: first communication, then mediation, then possible arbitration if nothing else works. This often prevents unnecessary disputes.

Most common questions on dispute resolution

1. Should I be afraid of mediation? Isn’t it like giving up my claims?
No. Mediation is a voluntary process that helps both parties find a solution. No one forces you to agree to anything. Often, mediation resolves a dispute in three months, whereas court proceedings would take 2–3 years. ARROWS, a Prague-based law firm, will be happy to assist you in mediation as your legal representative.

2. What happens if the contract says nothing about dispute resolution?
Then it is automatically handled by the state court with local and subject-matter jurisdiction under the general rules (usually the court of the defendant’s residence or registered office). This is the most expensive and slowest route. ARROWS, a Prague-based law firm, always recommends agreeing on some form of prior selection (mediation, arbitration) to ensure clarity.

3. Can I appeal if the arbitrator decides?
In the Czech Republic, you can file an application with the court to set aside an arbitral award, but only on very limited grounds (e.g., fraud, the arbitrator exceeding their authority, invalidity of the arbitration clause). In practice, this is very rare. Arbitration is the final resolution of the dispute, and that is its advantage – the dispute is closed rather than reopened for years through multiple court instances.

Modern trends in 2026: Digitalisation, automation and ESG

In 2026, we see several new trends in practice that are also reflected in contracts for work.

Digital contracts and blockchain
More and more companies are using qualified electronic signatures and are considering recording key aspects of contracts on the blockchain or on specialised digital platforms. This increases transparency and reduces the risk of fraud. ARROWS, a Prague-based law firm, routinely works with qualified electronic signatures and helps clients adapt their contracts to these formats.
AI and automation in projects
When artificial intelligence or automated systems are involved in a project, it is not always clear who is responsible for them. If AI-generated content infringes third-party copyrights, who bears liability—the contractor who used it, or the client who commissioned it? This remains a legal “grey area”, and a well-drafted contract should address it, for example through detailed provisions on liability for the outcomes of using AI.
ESG and sustainability
An increasing number of companies are also embedding environmental, social and governance (ESG) criteria into contracts for work. Example: “The supplier undertakes to comply with ISO 14001 certifications during project implementation” or “work may only be performed by persons who are not listed as sanctioned persons (e.g., OFAC)”. This turns a traditional commercial contract into part of corporate governance.
Smart contractual clauses (Smart Contracts)
Some companies are already experimenting with “smart contracts”, where certain conditions are automatically triggered based on predefined data. For example: if the software is not delivered by a certain date, a contractual penalty is automatically triggered. This is still a new area that requires careful legal assessment in terms of enforceability under the Czech legal system, but ARROWS attorneys monitor developments and help clients implement pilot projects.

Final summary

A contract for work may seem like a simple agreement at first glance, but its legal reality in 2026 is nuanced and full of challenges. Most often, we see problems arise because the parties underestimate the importance of clear communication about the objective, timeline, financing and liability. When a problem then occurs, it is often too late.

A carefully prepared contract with a clear definition of deliverables, staged payments tied to measurable milestones, a defined warranty period and a clear dispute-resolution process can save you months of confusion, thousands to millions of Czech crowns in legal fees, and reputational damage.

If you are not sure whether your current contract for work covers all risks, or if you are about to enter into a new one, we recommend having it reviewed by the attorneys at ARROWS, a Prague-based law firm. We have experience with contracts across industries—from construction and IT to marketing and content—and we know where the “pitfalls” tend to be.

FAQ: Most common questions about a contract for work

1. What is the legal difference between a contract for work and a services agreement? A contract for work focuses on a specific result (a finished product, a functioning system, a completed project). The contractor is responsible for ensuring that the work is performed without defects and meets the agreed characteristics. A services agreement focuses on the activity itself (e.g., consulting, training, verification), with the service provider responsible for performing the activity with due care and professional expertise. In practice, this means: if a supplier sold you “consulting services” and does not want to return to resolve complications, it is difficult to force them to remedy the outcome. If you ordered an “online store” as a work, it must function. ARROWS attorneys can help you determine which form is appropriate in a given situation and structure it correctly.

2. Do I need to have a contract for work approved by a lawyer, or can I write it myself? You can write it yourself, but it commonly ends in problems. At one point it may seem like saving costs; later it becomes an expensive lesson. ARROWS attorneys typically work with existing contracts and optimise them—this is not necessarily expensive and it gives you peace of mind. At least for larger projects (over CZK 100,000), it pays off.

3. When is it appropriate to choose mediation instead of court litigation over a contract for work? Almost always. Mediation pays off if the parties can still “see each other” and want to find a solution. If you have already sent lawyers to each other with lawsuits, mediation is more difficult. We recommend it before you escalate the situation. ARROWS attorneys are happy to represent you in mediation and seek solutions acceptable to both parties.

4. What warranty period should I agree in a contract for work for software? For software or digital projects, we usually recommend 12 to 24 months from acceptance. This allows the client to test the work in normal operation and identify any defects. Contractually, it is necessary to clearly set the boundary between a “defect” (must be fixed free of charge) and a “new requirement” (a new contract or amendment is needed). ARROWS attorneys can help you set fair terms.

5. What can I do if the contractor disappears and did not complete the project? This is a very unpleasant situation. You should immediately: check whether you have the right to withdraw under the contract and recover any advance payment (if already paid); consider enforcing a contractual penalty (if agreed) and claiming damages; look for another contractor to complete the project; instruct a lawyer to represent you in communications and potential court proceedings, or to initiate debt recovery. ARROWS, a Prague-based law firm, also handles litigation defence and debt recovery. Contact us at office@arws.cz.

6. What are the most common mistakes you see in contracts for work prepared by entrepreneurs themselves? Most often, measurable acceptance criteria are missing—there is only “it will be done”, which is vague. Financing is structured in a single tranche—everything upfront or everything at the end—which favours one party and exposes the other to risk. Deadlines are also not defined, or they are chaotic—“about a month, at most five weeks, when it’s done”. There is also no solution for changes—when the project changes, it is unclear what happens. Warranties are either too strict or completely missing. Dispute resolution is left solely to the courts—which takes years. ARROWS attorneys commonly see these mistakes and know how to fix them.

Notice: The information contained in this article is of a general informational nature only and is intended for basic orientation in the matter based on the legal status as of 2026. Although we take maximum care to ensure accuracy, legal regulations and their interpretation evolve over time. We are ARROWS, a Prague-based law firm, an entity registered with the Czech Bar Association (our supervisory authority), and for maximum client security we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of regulations and their application to your specific situation, it is necessary to contact ARROWS directly (office@arws.cz). We accept no liability for any damages arising from the independent use of information from this article without prior individual legal consultation.

Read also: