Frequently Asked Questions
What distinguishes the service agreement from the contractor agreement?
By concluding a contractor agreement, the contractor undertakes to manufacture or modify a thing or to achieve any other agreed result by providing a service. The main way to distinguish the contractor agreement from the service agreement is the fact that the contractor agreement is targeted towards achieving a specific result which has to be achieved by the contractor. This means that the contractor is liable for not achieving the specific result.
A service agreement is targeted towards providing a service when the result is not directly linked with the provider of services (for example a contract with an attorney for court representation or accounting services). Although the service agreement is not directly result-oriented, the provider of services is obligated to make reasonable efforts, i.e. the provider of services has to make efforts like a similar person in the same economic or professional activity would under the same circumstances. This means that the provider of services is not liable when the specific result is not achieved, but he performed by the reasonable expectations.
In the case of a contractor agreement the provider of services is obliged to achieve a specific result and if he does not achieve that result it’s deemed to be lack of conformity with the contract and the provider of services must remove the defects or pay damages.
Does the provider of services have to provide the service personally?
Law of Obligations Act § 622 states that it is presumed that a provider of services shall perform the services in person. A provider of services also has the right to use the assistance of third parties in performing the services. This is due to the reason that the contractor of services usually has an interest that the service would be provided by the provider of services. However parties may agree in the contract that a third party may provide the service instead of the provider of services. In that case the provider of services is still obliged to ensure that the service provided is in compliance with the contract.
When is the contractor of services obliged to pay remuneration for the service provided?
The parties must agree on the time when is remuneration going to be paid. The remuneration may be paid in a lump sum (for example after providing the service), tranches or on a monthly basis. In case the remuneration is paid in a lump sum, the provider of services has the right to demand an advanced payment.
Does the contractor of services have to reimburse additional expenses to the provider of services?
A contractor of services shall reimburse the provider of services for any reasonable expenses which the provider of services has incurred in performing the mandate and which the provider of services could have deemed to be necessary in the circumstances, except in the case where the expenses are to be covered from the remuneration. It is presumed that the expenses arising from the performance of a mandate which are usually incurred by the provider of services and the expenses which the provider of services would have incurred even without entering into an authorisation agreement shall be covered from the remuneration.
Parties may agree if the expenses are reimbursed additionally or the expenses are reimbursed from the remuneration paid to the provider of services. In case the contractor of services undertakes to reimburse the expenses additionally, the provider of services has to prepare reports which include the documents proving the expenses for an agreed date.
Does the contractor of services have to authorise the provider of services to represent him?
In order to provide some services there may be a necessity for the provider of services to have authorisation to represent the contractor of services. In that case it is recommended to agree upon that in the contract. Giving the authorisation to the provider of services does not mean that he / she can represent the contractor of services in any situation. When determining the scope of the authorisation rights, the parties have to consider when may the provider of services need to represent the contractor of services. The parties can also agree upon the authorisation and the scope of authorisation later by issuing a power of attorney.
May the parties cancel the service agreement?
The provider of services has the right to cancel a service agreement entered into for an unspecified term only on condition that the contractor of services can receive the service or enter into the transaction which is the object of the mandate in another manner. If the provider of services cancels the service agreement without considering the above, he / she shall compensate the mandator for any damage caused thereby.
If a service agreement is entered into for the life of one party or for a period longer than five years, the provider of services has the right to cancel the contract once five years have passed from the date of entry into the contract by giving at least six months' advance notice.
Both parties have the right to cancel both a service agreement entered into for a specified or an unspecified term if it becomes evident that, bearing in mind all the circumstances and the interests of both parties, the party wishing to cancel the agreement cannot be expected to continue performance of the service agreement until expiry of the term for cancellation or the term of the agreement or until the mandate is performed.