Contracts for work and services under Swiss contract law

Every day, companies conclude contracts for services and the performance of work. Whether a contract is classified as a service contract (also called Mandate or in German “Auftrag”) or traditional contracting (in German “Werkvertrag”) according to the Swiss Code of Obligations (“CO”) has significant legal and economic implications, for example with regard to liability, remuneration, warranty or defect rights, or termination options. This knowledge is essential for companies in order to minimise risks and draft contracts in a legally compliant manner.

We support entrepreneurs, start-ups and companies in drafting and reviewing contracts and enforcing their rights in contracts for services or for work – both in the field of architecture, planning and TU/GU contracts and in the digital field in ICT and software projects, online campaigns or platform contracts.

Mandate

With a mandate pursuant to Art. 394 et seq. CO, the agent undertakes to provide a service for the principal. Remuneration (fee) is owed if it has been agreed or is customary in the agent’s relevant business area. The mandate is subsidiary to all other types of contract for work performance (such as a contract for work or a contract of employment) and is considered a catch-all provision.

The decisive feature is that the agent does not owe a specific result, but rather to act diligently in the client’s interests. This duty of care is supplemented by a comprehensive duty of loyalty, which includes, for example, maintaining business secrets and avoiding conflicts of interest. The contractual relationship can be terminated at any time by the client and the agent, except at inopportune times.

Typical examples of mandates:

• Mandates from attorneys, fiduciaries, and business and management consultants
• Doctoral treatments
• Administrative and management tasks
• Architectural services in the field of construction management and cost control

Legal Issues

Based on experience, the following typical legal questions arise depending on the contract design:

• When is a mandate terminated at an untimely manner? And what damages (e.g. expenses that have become useless) can be claimed and to what extent?
• Does the agent fulfil the duty of care or loyalty, and when does an agent act negligently? What standard of care should be used to assess this? Which claims for damages can be derived from this?
• Which of the principal’s instructions must be followed and when can the agent deviate from these instructions?
• Who is liable for acts of negligence or breach of trust by a substitute of the agent?

Traditional Contracting

In a contract for work pursuant to Art. 363 et seq. of the CO, the contractor undertakes to produce a specific piece of work in return for remuneration from the customer. The contractor is obliged to deliver a specifically agreed result (= the work). The contract for work ends upon delivery of the finished work and payment of the remuneration. A contract for work does not involve the production and sale of generic goods, as may be the case with a purchase contract, but rather the production of a specific work that is only manufactured upon order. The work is not always newly created (e.g. house, furniture, etc.), but modifications to a work may also be the subject of a contract for work (e.g. renovation, repair, etc.).

Typical examples of contracts for work:

• Construction, renovation and craftsmen’s contracts
• Manufacture of customised furniture or machinery
• Development of a website or customised software
• Preparation of a valuation report with defined content

Legal Issues

Typical legal questions also arise in connection with contracts for work, depending on the terms of the contract:

• What can the customer do if the contractor fails to complete the work or does not complete it on time? What options does the customer have and what steps must the customer take and when? What can be done about delayed completion of the work?
• What options are available to the customer if the work is defective? Which defect rights are appropriate in which cases? If the work is inspected and defects are reported immediately, the customer can choose between rectification (repair), reduction (price reduction) or, in the case of significant defects, rescission (withdrawal from the contract). The strategically correct choice of defect rights is crucial.
• What happens if the costs exceed the agreed estimate?
• Who can withdraw from the contract and when? To what extent should the work already performed be remunerated?

Distinction between a mandate contract and a contract for work

The most important differentiation criterion is that a mandate contract only requires diligent action and does not guarantee success, whereas a contract for work requires a result (= the work). Furthermore, a mandate contract is not always remunerated, whereas a contract for work always is. Finally, a mandate contract can be terminated at any time, whereas a contract for work is subject to certain notice periods.

Practice case: online marketing and agency contracts

What happens if the subject matter of the contract is an online marketing campaign that aims to improve ads on various platforms but also includes general consulting and marketing services? The objectives to be achieved indicate that success is owed and the contract can be classified as a contract for work. On the other hand, consulting and services without any obligation to achieve a specific result are typical of a simple mandate.

Modern service contracts, especially in the IT and marketing sectors, often contain elements of both contract types and are therefore to be classified as mixed contracts. Such a contract may, for example, include elements of a contract for work, such as the creation and live launch of 10 advertisements with defined content or the programming of a specific landing page, as well as elements of a mandate contract, such as the ongoing optimisation of the campaign, monthly reporting and strategic consulting.

Are the legal provisions of the mandate or the contract for work applicable to such a contract? This is particularly relevant with regard to termination, because in the case of a simple mandate, the contractual relationship can be terminated at any time, whereas in the case of a contract for work and services, notice periods apply and may also be agreed upon.

Get in touch with us for an initial consultation on matters of Service Agreements and contracting.