A contract for work and services is used to commission someone to create a specific work that is clearly defined. This is the starting point and the end goal of such a contract and should never be overlooked when drafting it.
How do you draft the contract correctly?
Very often, when non-lawyers draft a contract, they lose sight of the agreement’s intended purpose. This leads to vague definitions with imprecise rules or to provisions that simply have nothing to do with the contract’s actual purpose.
Therefore, it is important to understand what a contract for work and services is and what its purpose is. Only then can it be drafted in such a way that the terms set forth therein comply with Section 631 of the German Civil Code (BGB).
What happens if it does not comply with legal requirements? There are several possible legal consequences, depending on what was specifically agreed upon:
- If the wording is too vague, it can be subject to interpretation in court, which carries the risk that the contract will be interpreted differently than intended.
- Alternatively, the contract may be invalid in whole or in part, in which case the court must interpret it.
- It is also possible that the contract will play out very differently than intended and, for example, result in a situation of bogus self-employment, which would then have even more serious legal consequences.
In other words: Anyone who wants to draft a contract for work and services must understand what it entails and then draft it accordingly. Anything else can lead to outcomes ranging from risky to completely undesirable.
What is the purpose of a contract for work and services?
A contract for work and services is used to manufacture or modify an item or to achieve a specific result through work or services. It involves not at:
- Work performed over a specific period of time
- The right to issue instructions to the contractor
- The allocation of resources or time that can then be accessed as needed
A contract for work and services is designed solely to achieve a specific objective. The contractor is largely free to choose how to achieve that objective. Of course, the client may have—and may agree to—certain rights and obligations to cooperate—for example, providing specific information needed to complete the work. Aside from that, however, the contractor is independent in its planning and work.
A fee is owed for the performance of the work. This fee must also be specified in the contract for services. The fee becomes due upon successful acceptance of the work. Accordingly, the terms of acceptance must also be specified in the contract for services.
A Contract for Services: The Example of a Website
Let's take as an example a company that has a website. This company wants to revamp the website on its own and make it more appealing to potential customers. To do this, it hires a freelancer to develop a new concept, design the changes, and fill the new sections of the site with content.
The contract for services now specifies the goal of creating a fully functional, responsive version of the existing website that is more appealing to potential customers. Compensation is determined on a performance-based basis.
Description of the work:
- Responsive Website for a Company
- A more appealing design compared to the old version
- Filling the page with content
- Attracting a larger number of visitors—set here at 10 % more per week compared to the old site
Compensation:
- Base wage of … euros
- A bonus equal to 10 % of the base wage if the work is completed within one month
- A bonus equal to 10 % of the base wage if the new average number of visitors within a month exceeds the figures for the old website by at least 50 %
Timeline with milestones:
- Milestone 1 – Presentation of the New Concept
- Milestone 2 – Creating a Working Template for Testing
- Milestone 3 – Filling the template with the appropriate content
- Deadline for completion of the entire project
Acceptance:
- Review of each milestone within 14 days of its submission
- Preliminary review of the entire website within 14 days of completion
- A comprehensive review of the completed website within 2 months of its completion
For each milestone and for the final submission, the criteria for a successful project must be defined as precisely as possible. The more precise they are, the less room there will be for interpretation later on.
Finally, it must also be specified how defects will be handled: deadlines for rectification, how often rectification may be requested, and what steps will be taken if the defect is not successfully rectified. It is also important to draft the contract text clearly and unambiguously so that both parties and an objective third party can understand it without difficulty.
To create your own contracts for services: Sample Contract for Work and Services
What is the distinction between this and an employment contract?
It is particularly important to ensure that there is a clear distinction between this and an employment contract. This is especially important because the two types of contracts are often confused or conflated, even though there is a very clear difference between them.
To put it simply: An employment contract is a contract that allows a person to work for a company for a specific period of time. A contract for services, on the other hand, is a contract under which someone creates a work product and delivers it by a specified deadline.
| Criterion | Contract for Work and Materials | Employment Contract |
|---|---|---|
| Focus | The What – What will be created and delivered? | The How – In what form is the service provided? |
| Debt Details | Success as a result (regardless of type, duration, or form) | Work performed regardless of the success of the service |
| Entitlement to Compensation | Only after the defined goal (acceptance) has been achieved | Upon completion of the service—without a defined goal |
| Real-world example | A ghostwriter writes a book | Tax advisor provides ongoing consulting services |
What are the legal foundations of a contract for services?
The Laws Go into the Contract for Work and Materials clear regulations. Here is an overview of the relevant provisions and their scope of application:
- All Regulations The provisions governing contracts for work and services are found in §§ 631 through 651 of the German Civil Code (BGB).
- The primary duties The obligations under a contract for work and services are set forth in Section 631(1) of the German Civil Code (BGB): The contractor is obligated to perform the work as promised; the client is obligated to pay for it and accept it. Acceptance triggers the due date for payment and the transfer of risk to the client.
- The Warranty in Case of Defects is governed by Sections 633 through 635 of the German Civil Code (BGB): The work must be free of defects. These provisions set forth the conditions for subsequent performance, reduction of the contract price, rescission of the contract, and damages.
- The regulations for Termination and Contract Amendment can be found in Sections 643, 648, and 649 of the German Civil Code (BGB).
The detailed provisions provide certainty for both parties: The client can be confident that he will receive the services for which he is paying. The contractor can be confident that he will be paid for the services he has rendered. The details are intended to prevent conflicts.
Additional information: Learn more about the legal aspects of a contract for services >>>
What are the different types of contracts for work and services?
A standard contract for work and services is not always sufficient. As a result, specific industries have developed their own special forms of contract that offer more detailed provisions or greater industry-specific flexibility.
1. The Contract for Work and Materials
A contract for work and materials combines the creation of a work with its delivery and the necessary materials. For example, a contract for work applies when built-in furniture is to be manufactured. If this furniture is then to be delivered to the customer and even installed, this constitutes a contract for work and materials.
2. The Construction Contract
The purpose of a construction contract is the construction, repair, or alteration of a structure. Since structures are, by their very nature, different from other items, there are specific regulations governing the services to be performed, standards, materials, and deadlines. These are set forth in Sections 650a through 650h of the German Civil Code (BGB).
3. The Architect and Engineer Contract
Architectural and engineering contracts encompass several different services: creativity, compliance with standards, the preparation of plans, and supervision of construction work. Accordingly, individual provisions must cover all of these areas.
4. Software Development Contracts
Contracts for work and services are frequently used, particularly in the IT and software sectors. In this context, software products are developed, delivered, customized, implemented, and maintained, and documentation is created for them. Special provisions allow for the specific needs and risks of the industry to be addressed through tailored requirements.
What are the rights under a contract for services?
The Laws Go into the Contract for Work and Materials It provides for certain rights for the client and the contractor. These rights must be observed when drafting a custom contract for work. The contract may specify, strengthen, restrict, or clarify these rights. The rights and obligations under the law are intended to ensure fair treatment between both contracting parties and to prevent conflicts.
Rights of the Client
- Right to Refuse Acceptance: The client may refuse acceptance if there is a defect—that is, if the work does not conform to the description, does not meet the specified requirements, or does not meet the specified quality standards.
- Claims for Defects: The right to subsequent performance (the contractor must remedy defects), the right to a reduction in the contract price, the right to rescind the contract, and—if the conditions are met—the right to damages.
- Right to Perform the Action On One's Own: In urgent cases, the customer may remedy the defects on its own and deduct the expenses incurred in doing so from the contract price.
- Right to Terminate: The customer may terminate the contract at any time until the work is completed. In that case, the customer owes the full contract price minus any costs that the contractor has saved as a result of the termination.
Rights of the Contractor
- Entitlement to Compensation: The contractor is entitled to payment for the work upon acceptance of the defect-free work.
- Right to Acceptance: The contractor may request acceptance of the completed work. The client may refuse acceptance only if there is a valid reason.
- Right to Early Termination: The contractor may also terminate the contract for work and services early, but certain conditions must be met for this—for example, a material change in circumstances or the continuation of the contract becoming unreasonable.
- Entitlement to Additional Compensation: If the originally agreed-upon service is modified in such a way that the contractor must incur additional expenses, the contractor may demand compensation from the customer for those expenses.
How are the rights formulated?
These rights are prescribed by law and apply even if they are not specifically stipulated in the contract. However, it is advisable to specify the conditions for each individual right as precisely as possible for the specific contract, along with the legal consequences. For example, in the case of more complex projects, it is advisable to include a list of potential defects directly in the contract—along with the associated courses of action and the amount of any possible reduction in payment.
Additional information: Contract for Work and Services – Legal Aspects
Frequently Asked Questions About Contracts for Work and Services – Types and Rights
The sole purpose of a contract for services is to achieve a specific work objective—the production or modification of an item or the attainment of a defined result. A contract for work and services may not govern the performance of work over a specific period of time, grant the right to issue instructions to the contractor, or involve the mere provision of resources. If it does so nonetheless, it may constitute bogus self-employment.
Ambiguous wording may be interpreted differently in court than intended. The contract may be invalid in whole or in part. In the worst-case scenario, the arrangement may be deemed “false self-employment”—with significant legal consequences for both parties. Therefore, clear and unambiguous wording based on Section 631 of the German Civil Code (BGB) is essential.
The most important special types are: contract for work and materials (creation and delivery of the work, e.g., built-in furniture), construction contract (Sections 650a–650h of the German Civil Code (BGB), for the construction, repair, or alteration of structures), architect and engineer contracts (combining creativity, standards, planning, and construction supervision), and software development contracts (for IT products with specific requirements regarding implementation, maintenance, and documentation).
The Client has the following rights: the right to refuse acceptance in the event of material defects, the right to subsequent performance (rectification of the defects by the contractor), the right to a reduction in the contract price, the right to rescind the contract, the right to damages if the conditions are met, and the right to perform the work themselves in urgent cases.
The client may terminate a contract for work and services at any time prior to completion, but in that case owes the full contract price less any expenses that the contractor has saved as a result of the termination. The contractor may terminate the contract only under specific circumstances—for example, in the event of a material change in circumstances or if continued performance would be unreasonable.
A contract for services focuses on the „what"—a specific, definable result is owed, and payment is due only after successful acceptance. The service contract focuses on the „how"—a service is owed without a defined result, and payment is due upon the provision of the service. A ghostwriter who delivers a book works under a contract for work; a tax advisor who provides ongoing advice works under a service contract.