Distinction between service contracts and contracts to produce a work as well as risk sharing

This dis­tinc­tion is impor­tant because dif­fer­ent rights and con­se­quences can be derived from them in law and in fact. Con­tract and invoic­ing prac­tice should there­fore be as accu­rate as pos­si­ble.

Service contract

Under a ser­vice con­tract, one par­ty pro­vides a ser­vice for the oth­er par­ty.

The ser­vice provider pro­vides his ser­vices inde­pen­dent­ly and is usu­al­ly not bound by the customer’s instruc­tions, but in con­trast to a con­tract to pro­duce a work, the ser­vice provider does not owe a con­crete work result. The ser­vice provider is only oblig­ed to work for the cus­tomer who bears the entre­pre­neur­ial risk. Even if the desired suc­cess is ulti­mate­ly not achieved, the cus­tomer is oblig­ed to pay for the pro­vi­sion of the ser­vices. The clas­sic ser­vice con­tract, for exam­ple, is a con­tract for med­ical treat­ment. The physi­cian does not owe the patient’s recov­ery, but is only oblig­ed to pro­vide cor­rect treat­ment. In the busi­ness world, ser­vice con­tracts come in many dif­fer­ent forms, for exam­ple, as main­te­nance con­tracts for IT sys­tems, as con­sul­tan­cy or as agency con­tracts.

Contract to produce a work

The pro­duc­er of a work owes his cus­tomer a ‘suc­cess’ or a ‘work’. The pro­duc­er of the work is there­fore liable to the cus­tomer. The pro­duc­er of the work is also liable for his work and he is oblig­ed to rem­e­dy defects. The cus­tomer is oblig­ed to accept the ‘work’. The pro­duc­er of the work is not enti­tled to claim remu­ner­a­tion until the work has been accept­ed. This means that the pro­duc­er of the work bears the entre­pre­neur­ial risk.

The cus­tomer is not enti­tled to issue instruc­tions regard­ing indi­vid­ual work steps. He can only issue gen­er­al, work-relat­ed instruc­tions to the pro­duc­er of the work (orders, spec­i­fi­ca­tions, etc.).

The clas­sic con­tract to pro­duce a work, for exam­ple, is a con­tract for repair work with a mechan­ic. Con­tracts to pro­duce a work exist in many dif­fer­ent forms in the busi­ness world, for exam­ple, as instal­la­tion ser­vices in the IT sec­tor, in project work or in the man­u­fac­ture of prod­ucts. 

Practical tip

The risk when choos­ing the form of con­tract is that the Fed­er­al Employ­ment Agency (Bun­de­sagen­tur für Arbeit) checks pre­cise­ly which form of work is stip­u­lat­ed in the writ­ten con­tract and which one is then actu­al­ly car­ried out. It is, for instance, not per­mis­si­ble to des­ig­nate a con­tract as a ‘con­tract to pro­duce a work or ser­vice con­tract’ (read more…), although employ­ees are in fact hired out with­in the frame­work of tem­po­rary employ­ment (ANÜ). Oth­er­wise a fine of up to EUR 30,000 may be imposed (read more…).

In order to avoid any risk, it is bet­ter to con­clude a tem­po­rary employ­ment con­tract rather than a con­tract to pro­duce a work or a ser­vice con­tract. Espe­cial­ly the lat­ter form is often very sim­i­lar to the tem­po­rary employ­ment con­tract. The tem­po­rary employ­ment con­tract should express­ly state that it is a tem­po­rary employ­ment con­tract.