Contract for work: what it governs and how it differs from a service contract

What is a contract for work?

A contract for work is a contract in which one party produces a specific result and the other pays for it. The law calls the parties the contractor and the customer: by a contract to produce a work, the contractor is obliged to produce the promised work and the customer is obliged to pay the agreed remuneration (Sec. 631 (1) BGB).

The "work" can be a thing that is made or altered, such as a built-in wardrobe or a repaired car. But it can also be another result brought about by work, for example an expert report, a logo or a translation (Sec. 631 (2) BGB).

In the law on contracts for work, "contractor" (Unternehmer) simply means the person carrying out the job. This can also be a private individual. Whether someone is a consumer or an entrepreneur in the general sense (Sec. 13, 14 BGB) only matters for individual protective rules, such as deemed acceptance or the right of withdrawal.

Form: A contract for work can be concluded orally, by email or with a handshake. One exception is the consumer construction contract for a new building or a substantial conversion, which requires text form (Sec. 650i BGB). You should still record every larger job in writing: in a dispute, the specification decides what was owed in the first place.

Examples of contracts for work

• Crafts and construction: bathroom renovation, roof repair, painting work, installation of a made-to-measure kitchen
• Vehicles and devices: car repair, servicing, repair of a laptop
• Reports and planning: valuation report, structural calculation, architectural planning
• Creative and media: logo, web design, corporate film, photo shoot with finished images
• IT: programming of custom software or an app
• Language: translation of a contract or a website

A special rule applies to consumers: if a contractor undertakes to create digital content, for example an app for a private customer, the provisions on digital products apply instead of the defect and acceptance rules of the contract for work (Sec. 650 (2) BGB).

Contract for work or service contract?

The most important question with a contract for work is how it differs from a service contract. Under a service contract, someone undertakes to perform the promised services (Sec. 611 (1) BGB). They owe effort, not success. A private tutor owes lessons, not a passed exam. An agency that manages social media posts every month owes ongoing work. If the same agency creates a logo as a one-off, it owes a finished result.

Feature	Contract for work	Service contract	Purchase contract	Employment contract
Provision	Sec. 631 et seq. BGB	Sec. 611 et seq. BGB	Sec. 433 et seq. BGB	Sec. 611a BGB
What is owed	a result (the work)	an activity	delivery of and ownership in a thing	work bound by instructions
Risk of success	with the contractor	with the client	with the seller until delivery	with the employer
Acceptance	yes, central (Sec. 640)	no	acceptance only as taking delivery of the thing (Sec. 433 (2))	no
Remuneration due	on acceptance (Sec. 641)	after performance (Sec. 614)	concurrently against delivery (Sec. 320)	by time periods (Sec. 614)
Rights for defects	cure, self-remedy, withdrawal, price reduction, damages (Sec. 634)	no specific rights for defects, only damages for breach of duty	cure, withdrawal, price reduction, damages (Sec. 437)	no rights for defects
Termination	customer at any time (Sec. 648), both for good cause (Sec. 648a)	under Sec. 620 to 627	no termination, only withdrawal	notice periods under Sec. 622, protection against dismissal
Bound by instructions	no	no	no	yes
Typical examples	repair, expert report, website	consulting, teaching, ongoing support	new car, furniture from stock	permanent employment

Distinction from a purchase contract and a contract for work and materials

Anyone who buys a finished thing concludes a purchase contract (Sec. 433 BGB). It is more difficult when a movable thing first has to be made and then delivered, such as a table from a joiner. In that case, sales law applies in principle (Sec. 650 (1) BGB, contract for work and materials). If the thing is not fungible, i.e. a one-off made to the customer's wishes, some rules on contracts for work also apply, such as the right of termination under Sec. 648 BGB. If, on the other hand, something is installed in a building or an existing thing is repaired, it remains a contract for work.

Distinction from an employment contract and bogus self-employment

An employee performs work bound by instructions and determined by others, in personal dependence (Sec. 611a (1) BGB). If the actual performance shows that it is an employment relationship, the label in the contract does not matter. A freelancer with a "contract for work" who has fixed working hours, receives instructions and is integrated like an employee can therefore legally be an employee. For the client, this can lead to back payments of social security contributions.

Obligations of the parties

Contractor: They must produce the work free of material defects and defects of title (Sec. 633 (1) BGB). It is free of material defects if it has the agreed quality, otherwise if it is suitable for the intended or ordinary use (Sec. 633 (2) BGB).

Customer: They must pay the remuneration and accept the work produced in accordance with the contract (Sec. 640 (1) BGB). If the contractor needs their cooperation, such as access to the flat or content for the website, and the customer defaults in accepting it, the contractor can claim reasonable compensation (Sec. 642 BGB).

Remuneration without an agreed price: If no price has been agreed, remuneration is deemed to have been tacitly agreed if the work can only be expected in return for payment. The usual remuneration is then owed (Sec. 632 (1) and (2) BGB).

Cost estimate: In case of doubt, a cost estimate does not have to be paid for (Sec. 632 (3) BGB). If it becomes apparent that it will be substantially exceeded, the contractor must notify this without delay. The customer can then terminate and only owes for the work done and expenses incurred up to that point (Sec. 649 in conjunction with Sec. 645 (1) BGB).

Withdrawal: If a consumer concludes the contract away from business premises, for example at an appointment at home, or by distance communication, they usually have a 14-day right of withdrawal (Sec. 312g (1), Sec. 355 (2) BGB). Exceptions include urgent repairs for which the consumer has expressly called the tradesperson (Sec. 312g (2) no. 11 BGB).

Acceptance under a contract for work

Acceptance is the linchpin of the contract for work. With it, the customer declares that they recognise the work as essentially in accordance with the contract. It has four consequences:

1. The remuneration becomes due (Sec. 641 (1) BGB) and bears interest from then on (Sec. 641 (4) BGB).
2. The risk passes to the customer. Until acceptance, the contractor bears the risk if the work is accidentally destroyed (Sec. 644 (1) BGB).
3. The limitation period for claims for defects begins for things and buildings (Sec. 634a (2) BGB).
4. The burden of proof is reversed: until acceptance, the contractor must prove that they performed in accordance with the contract (Sec. 632a (1) sentence 3 BGB); after that, the customer must prove the defect.

How is acceptance given? Expressly, for example with an acceptance report, or tacitly, for example by the customer using and paying for the work without complaint. There is also deemed acceptance: if the contractor sets a reasonable deadline for acceptance after completion and the customer does not refuse it by stating at least one defect, the work is deemed accepted (Sec. 640 (2) sentence 1 BGB). For consumers, this only applies if the contractor has pointed out this consequence in text form together with the request (Sec. 640 (2) sentence 2 BGB).

The customer may only refuse acceptance for material defects; minor defects are not enough (Sec. 640 (1) sentence 2 BGB). Important: anyone who accepts a work despite known defects must reserve their rights in respect of these defects on acceptance. Otherwise they lose cure, self-remedy, withdrawal and price reduction; damages remain possible (Sec. 640 (3) BGB).

1. 1

   Contract

2. 2

   production

   instalments possible

3. 3

   completion and acceptance

4. 4

   payment due

5. 5

   limitation period for defects runs

   2, 3 or 5 years

Example from the contractor's perspective: A web agency completes a website for an online retailer and asks them by email to accept it within two weeks. The retailer does not respond. After the deadline expires, the website is deemed accepted because the retailer did not name a defect (Sec. 640 (2) BGB), and the invoice is due. Had the retailer reported a specific error within the deadline, deemed acceptance would not have occurred. Whether the deadline is reasonable depends on the scope of the work.

Payment, instalments and security

The remuneration is due on acceptance (Sec. 641 (1) BGB). For larger jobs, however, the contractor does not have to pre-finance everything until the end: they can demand instalment payments equal to the value of the work performed, evidenced by a comprehensible statement (Sec. 632a (1) BGB).

Further security for the contractor:

• Contractor's lien: The contractor has a lien on the customer's movable things that have come into their possession for repair, such as a car in the workshop (Sec. 647 BGB).
• Builder's security: Under a construction contract, the contractor can demand security for the outstanding remuneration, plus 10% for ancillary claims (Sec. 650f (1) BGB). This does not apply to consumers under a consumer construction contract or property developer contract (Sec. 650f (6) BGB).

Conversely, consumers under a consumer construction contract are protected: instalments may not exceed 90% of the total remuneration in total, and with the first instalment the consumer is entitled to security of 5% (Sec. 650m (1) and (2) BGB).

Defects: what rights does the customer have?

If the work is defective, the customer has the rights under Sec. 634 BGB. They apply in a sequence:

1. Cure (Sec. 635 BGB): First, the customer must give the contractor the opportunity to remedy the defect. The contractor chooses whether to repair or produce the work anew, and bears the costs.
2. Self-remedy (Sec. 637 BGB): If the contractor lets a reasonable deadline pass, the customer may remedy the defect themselves or have it remedied and claim the necessary costs, also as an advance if desired.
3. Withdrawal or price reduction (Sec. 636, 323, 638 BGB): After a deadline has expired without success, the customer can withdraw from the contract or reduce the price. Withdrawal is excluded for minor defects; price reduction is not (Sec. 638 (1) sentence 2 BGB).
4. Damages (Sec. 636, 280, 281 BGB): If the contractor is responsible for the defect, the customer can additionally claim damages.

A deadline is not required if the contractor refuses cure, if cure has failed or if it is unreasonable for the customer (Sec. 636 BGB).

Retention as leverage: As long as a defect has not been remedied, the customer may, after the payment becomes due, withhold a reasonable part of the remuneration, usually twice the cost of remedying the defect (Sec. 641 (3) BGB).

Exclusions of liability: In the case of fraudulently concealed defects or a quality guarantee, the contractor cannot rely on an exclusion (Sec. 639 BGB). In terms and conditions with consumers, exclusions and shortening of the limitation period for work are only permitted to a limited extent (Sec. 309 no. 8 (b) BGB); more on this in the guide What belongs in terms and conditions?.

Example from the consumer's perspective: A tradesperson tiles the bathroom; after three weeks, joints come loose. The customer reports the defect in writing and sets a two-week deadline for repair. The tradesperson does not respond. She has another firm carry out the repair and claims the costs from the first tradesperson (Sec. 637 BGB). She may withhold the outstanding remuneration until the defect is remedied, up to twice the cost of the repair (Sec. 641 (3) BGB).

Terminating a contract for work

Termination at will by the customer (Sec. 648 BGB): The customer can terminate at any time until the work is completed, without giving a reason. The contractor then retains their claim to the agreed remuneration, less whatever they save or earn by using their labour elsewhere, or maliciously fail to earn. The law presumes that they are entitled to 5% of the remuneration for the part not yet performed. Example: with a contract value of €20,000 and €8,000 worth of work performed, the law presumes 5% of €12,000 for the rest, i.e. €600, in addition to the €8,000. Either side can prove a different amount.

Termination for good cause (Sec. 648a BGB): Both sides can terminate without notice if continuing until completion is unreasonable. Partial termination of a separable part is also possible. The contractor then only receives the remuneration for the part performed; damages remain possible. After termination, each side can demand that the state of performance be determined jointly. Anyone who does not cooperate bears the burden of proof for the state of performance (Sec. 648a (4) BGB).

Termination by the contractor (Sec. 642, 643 BGB): If the customer does not cooperate, the contractor can set a deadline for them to do so and declare that they will otherwise terminate. If the deadline passes, the contract is deemed cancelled.

Cost estimate exceeded (Sec. 649 BGB): If the customer terminates because the cost estimate is substantially exceeded, they only owe for the work done and expenses incurred up to that point.

Limitation periods for contracts for work: table of time limits

Case	Period	Start	Provision
Production, maintenance or alteration of a thing, including planning for it (e.g. car repair, built-in wardrobe)	2 years	acceptance	Sec. 634a (1) no. 1, (2) BGB
Building and planning or supervision services for it	5 years	acceptance	Sec. 634a (1) no. 2, (2) BGB
Other works, such as expert reports, software, translation, logo	3 years	end of the year in which the claim arises and the customer knows of it or is unaware of it through gross negligence	Sec. 634a (1) no. 3, Sec. 195, 199 BGB
Fraudulently concealed defect	3 years, for buildings not before the end of 5 years	end of the year of knowledge	Sec. 634a (3), Sec. 195, 199 BGB
Contractor's claim for remuneration	3 years	end of the year in which the claim arises (usually on acceptance)	Sec. 195, 199, 641 BGB

Withdrawal and price reduction are linked to the limitation of the claim for cure (Sec. 634a (4) and (5), Sec. 218 BGB). In terms and conditions with consumers, the period for buildings may not be shortened, and in other cases not to less than one year from the statutory start (Sec. 309 no. 8 (b) (ff) BGB).

Construction contract, consumer construction contract and VOB/B in brief

Separate additional rules apply to construction work. A construction contract concerns the construction, restoration, removal or conversion of a building or outdoor facility (Sec. 650a BGB). The customer can order changes there if the parties do not reach agreement within 30 days (Sec. 650b (2) BGB). The consumer construction contract for a new building or substantial conversion requires text form (Sec. 650i BGB). A property developer contract also involves the transfer of the plot of land, for which sales law partly applies (Sec. 650u BGB). The VOB/B is not a statute, but a set of standard clauses that only applies if the parties agree on it.

What belongs in a contract for work: checklist

If you regularly work with many customers, it can make sense to put the recurring rules into terms and conditions and only agree the specification individually.

Disadvantages of the contract for work for client and contractor

For the contractor:

• They bear the risk of success. If the work fails, there is in principle no money for the effort.
• They pre-finance the work; payment is only made on acceptance unless instalments have been agreed.
• The customer can terminate at any time (Sec. 648 BGB). Without proof, the contractor is left with only the 5% presumption for the outstanding part.
• They remain liable for defects for two to five years after acceptance.

For the client (customer):

• They must accept when the work is essentially finished, even with minor defects.
• In the case of defects, they must first allow the contractor to cure before taking action themselves.
• If they terminate without a reason, they usually still owe most of the remuneration.
• Anyone who ignores a request for acceptance risks deemed acceptance.