Template for a work contract
What is a work and services contract?
Under a work and services contract, the contractor is obligated to perform certain work, while the client undertakes to pay for the creation of the promised individual work. The contractor is the person who creates the product or work. The most important feature of a work and services contract is that the contractor owes a specific work result (achievement).
What is the owed performance (the work)?
This can be a physically created work product, such as the creation or modification of an item, or a the result of intellectual work, such as a composition or individual software. However, the contractor is not responsible for ensuring that the economic purpose of the creation of the work actually occurs, for example the rentability of a properly constructed building.
How does such a work and services contract differ from an order?
In the case of an order, only careful work is owed, i.e. there is no performance obligation within the sense of a work result. If someone is hired to water flowers, this is considered to be an oder, since only the careful watering of the plants is required. If, however, the creation of a flower bed is owed, this is deemed to relate to a work and services contract.
How does a work and services contract differ from an employment contract?
In the case of an employment contract too, “only” the activity is owed and not the achievement. Unlike an order, the work relates to an employment contract if a person performs the work in a capacity where they are dependent on and integrated into a company.
How does a work and services contract differ from a purchase agreement?
In the case of a purchase agreement, an already existing item is purchased, while for a work and services contract, such a work or product is created individually according to the needs of the client.
How is payment made in the case of a work and services contract?
The so-called compensation for work performed can be defined in advance, as it is a fixed price. Here, the contractor bears the risk of whether they spend more than planned because no more than the agreed compensation can be charged. If no price is agreed in advance, then the compensation is determined subsequently on the basis of the work performed and material costs. A cost estimate can be drawn up in which the contractor estimates an indicative price. If this indicative price is disproportionately exceeded (by more than 10%) and the client has done nothing to cause this, then they can withdraw from the contract. In the case of real estate, however, only the compensation can be reduced.
What can I do if the work is defective?
In the case of small defects, a decrease in the compensation or a free improvement can be requested. If the contractor is at fault, then damages can also be claimed. If, for example, they negligently and poorly constructed a roof and the rain gutter crashes onto a car, the damage incurred can be claimed.
If it is a case of a significant defect or the work is unusable for the client, then they can dissolve the contract and, if the contractor was at fault, claim damages. However, if the work has been constructed on the property of the client, and it can only be removed with disproportionately excessive effort, then the contract cannot be dissolved. In this case, a reduction of the compensation and a claim for damages are the only options.
What should you do to claim a defect?
After the finished work has been taken over, the client must check it immediately. As a rule, any defects detected must be reported within two to three days after the work has been transferred; hidden defects must be reported as soon as they are found. For movable items, this is possible within the applicable limitation period of two years, while a limitation period of five years applies to real estate. This term can be extended or excluded entirely in the provisions of the contract. If a contractor fails to disclose a defect, then it can still be reported within ten years.
Oftentimes, the application of SIA standard 118 is agreed in a work and services contract. More information on this topic can be found in this article.
How must a work and services contract be drawn up?
A work and services contract can generally also be concluded orally. However, for the purpose of having proof, we recommend concluding the contract in writing. If the work and services contract is part of a contract for the purchase of land, then it may require public notarization under certain circumstances.
You can find additional legal information and a sample agreement for download below.