According to a Czech Supreme Court judgment (file no. 29 Cdo 561/2017) handed down on 25 March 2019, the parties may agree that in the event of the contractor’s bankruptcy, they will reduce the fee for work by the amount of the undrawn security (i.e. the part of the fee retained by the client until defects are fixed). Neither the content nor the purpose of such a provision contravenes or circumvents the law, and nor does it obstruct the principles of insolvency proceedings (section 5 of the Insolvency Act). To the contrary, such an agreement is a legal tool that could eliminate -- or at least reduce -- the negative effects of a (potential) loss of the security resulting from the contractor’s bankruptcy.
An agreement to reduce the work fee by the retained security in cases of the contractor’s bankruptcy is, thus, valid and reflects the value of the undrawn security.