The contractor of a work contract undertakes to create a work and deliver it to the client. The client is obliged to pay the remuneration. Contracts for work are always remunerated.
Subject of the Work Contract
The subject of the work contract is the creation of a work by the contractor and its delivery to the client (art. 363 CO).
Typical types of work contracts include:
- Construction work
- Repair work
- Cleaning work
- Creation of plans by an architect
- Production of printed materials
- Concerts and theater performances
- Haircuts by a hairdresser
- etc.
Distinguishing from other types of contracts
In a work contract, the contractor is obligated to achieve a specific result, namely the creation of the work. This distinguishes the work contract from other types of contracts.
In a simple mandate, no specific result is owed, but rather an action in the interest of the client (e.g., doctor, lawyer, etc.).
Sale contracts differ from work contracts in that the object of sale already exists or, if it does not exist yet, it is not created according to the buyer’s wishes (especially in serial production).
A special case is the contract for work and materials. The contractor undertakes to create a work and deliver it to the client (e.g., manufacturing a marble slab for the kitchen). This type of contract includes elements of both a purchase contract and a work contract and is specifically regulated by law (art. 365 para. 1 CO).
Form of the Work Contract
The work contract can be concluded informally, including orally. To avoid ambiguity regarding the scope and costs, it is advisable to have a written work contract or at least base an oral order on a written offer.
In the construction industry, the applicability of SIA Standard 118 as general contractual terms is often agreed upon in work contracts. The regulations in SIA Standard 118 deviate from the statutory provisions.
Obligations – Overview
Obligations of the contractor
The contractor has the following obligations in particular:
- Creation of the work
- Duty of care
- Compliance with agreed deadlines
- Delivery of the work
- Warranty for defects in the work
- Warranty for materials, if supplied by the contractor
Obligations of the client
The client has the following obligations and duties in particular:
- Payment of the work remuneration
- Acceptance or approval of the work
- Examination of the work upon delivery
- Notification of defects
Compensation and remuneration
Work contracts are always compensated (art. 363 CO).
Amount of the work remuneration
Lump sum
If the work remuneration has been precisely determined in advance (flat rate, unit price), the contractor must create the work at this price, even if the effort exceeds what was originally intended (art. 373 para. 1 CO). If the contractor’s effort for the creation of the work is lower than originally intended, the full price is still due to be paid (art. 373 para. 3 CO).
In case of extraordinary, unforeseeable circumstances or when the parties did not anticipate such circumstances and cannot reach an agreement, the judge may increase the price or approve the termination of the contract (art. 373 para. 2 CO).
Approximate price
The parties can determine the work price based on the effort (no fixed price) or approximately (or approximate price). In this case, the work remuneration is determined based on the value of the work and the expenses incurred by the contractor.
If an agreed approximate contract remuneration is unreasonably exceeded without the intervention of the client, the client can withdraw from the contract (art. 375 para. 1 CO). When constructing buildings on the client’s land, only a reduction in the contract remuneration can be demanded (art. 375 para. 2 CO). Deviations of approximately 10% are generally not considered as unreasonably exceeding the limit (Federal Court Decision 115 II 460).
Payment Due Date
If nothing else is agreed upon, the compensation is to be paid upon delivery of the work (art. 372 para. 1 CO). If it is agreed that the work is to be delivered in parts and the compensation is determined per part, payment is to be made for each part upon delivery (art. 372 para. 2 CO).
Execution and Delivery
The contractor is not required to personally carry out the work if the nature of the business does not depend on their personal characteristics. In all other cases, the contractor must personally execute the work or have it carried out under their personal supervision (art. 364 para. 1 CO). The use of subcontractors in this case requires the client’s consent. Personal performance obligation is assumed when it depends on the personal abilities of the contractor.
Default
Delay of the Contractor
The client can withdraw from the contract if the contractor is significantly behind in the execution, making timely completion unforeseeable (art. 366 para. 1 CO). A reasonable grace period must be set for the contractor before the withdrawal (art. 107 para. 1 CO). If it is foreseeable that a grace period would be futile (e.g., a wedding cake), the contract can be terminated without setting a grace period (art. 108 CO).
Defective Execution
If it can be anticipated during the execution of the work that there will be defects or other deviations from the contract due to the contractor’s fault, the client can set a reasonable deadline for improvement and threaten to carry out the necessary actions at the contractor’s expense (art. 366 para. 2 CO).
Defects and Warranty
The warranty in contract law for works is, as in sales law, independent of fault. Defects exist when the work is considered faulty according to general commercial practices (e.g., a leaky roof). Other deviations from the contract exist when the work lacks a quality that was contractually agreed upon (e.g. length of a swimming pool).
Inspection and Notice of Defects
The client must inspect the work after delivery, as soon as this is customary in the ordinary course of business, and notify the contractor of any defects (art. 367 para. 1 CO). Hidden defects must be reported immediately upon discovery (art. 370 para. 3 CO).
The objections in the notice of defects must be sufficiently specific, indicating the nature of the defect.
If no notice of defects is raised or if it is not raised in a timely manner, the work is considered approved (art. 370 para. 2 CO).
For construction work according to SIA Standard 118, defects can be reported at any time within a period of two years.
Rights of the Client
Serious Defects (Conversion)
Refusal of acceptance is only an option if the work has such significant defects or deviates from the contract to an extent that it is unusable for the client or the acceptance cannot reasonably be expected. If the contractor is at fault, the client can also claim damages (art. 368 para. 1 CO).
The client must declare the conversion. If the conditions are met, the contract is terminated, and the services provided must be refunded.
Conversion is not possible for buildings or construction work; only a reduction is possible (art. 368 para. 3 CO).
Less Significant Defects and Buildings
Reduction of Price
If the defects or deviations from the contract are less significant or if it concerns work that was carried out on the client’s land, only a reduction in the contract remuneration is possible (art. 368 para. 2 CO). Conversion is excluded. In case of the contractor’s fault, damages can be claimed.
Rectification
Instead of a reduction, the client can demand free rectification of the work if it does not cause excessive costs for the contractor (art. 368 para. 2 CO). The client must set a reasonable deadline for the contractor.
If the contractor fails to rectify the work, a grace period must be set (art. 107 para. 1 CO). If rectification is not carried out within the grace period, the client can either:
- sue for performance and claim damages for delay, or
- waive subsequent performance and either
- demand compensation for damages resulting from non-performance, or
- withdraw from the contract.
Limitation of Warranty and Liability
The client’s warranty claims and claims for damages can be contractually limited within the scope of art. 100 CO. Exemption from liability for unlawful intent or gross negligence of the contractor is not possible. Liability for auxiliary persons can be waived (art. 101 para. 2 CO).
The client’s rights regarding defects are forfeited if they caused the defects themselves or gave instructions for execution despite the contractor’s warning (art. 369 CO).
Statute of Limitations
Warranty claims are subject to the statute of limitations (art. 371 CO). The limitation period starts with the acceptance of the work and is:
- two years for movable property, or
- five years for immovable property.
Termination
The work contract typically ends with the completion and delivery of the work, if necessary, after rectifying defects, and the payment of the contract remuneration.
The client can withdraw from the contract under certain conditions if the contractor is in delay with the execution of the work (art. 366 para. 1 CO).
The work contract terminates through the client’s declaration of conversion in the case of serious defects (art. 368 para. 1 CO), except for buildings (art. 368 para. 3 CO).
If an agreed approximate contract remuneration is unreasonably exceeded without the intervention of the client, the client can withdraw from the contract (art. 375 para. 1 CO).
The client can generally withdraw from the work contract at any time before completion but must compensate the contractor for the work already performed and indemnify them (art. 377 CO).
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