Is a Contract for work economically viable or does it only cause further costs? We have already addressed the issue of labour dumping with contracts for work. Looking at it coldly, that is already an answer, but the question goes much further.

Wage dumping is usually carried out with bogus labour contracts, so that this extreme form of cost saving is not part of the consideration in this chapter. Rather, the focus here is on the fact that capacities, skills and knowledge are purchased. These must be remunerated and the question arises here: is it more favourable to remunerate a plant than to maintain the capacities within the company in the form of more personnel and other resources?

The purchase of capacities

The contract for work is a means of utilising skilled workers when required. Other capacities can also be purchased. This includes more personnel, but also material resources. If a shipping company orders a haulier as a contract for work and labour company, the contract regularly includes drivers, i.e. personnel, and transport vehicles, i.e. material resources.

As long as contracts are as simple as in this example, there is a clear trade-off. Does the shipping company have enough transport tasks to fulfil in a sufficiently limited area to justify the use of its own drivers and vehicles? In plain language, this means that drivers and vehicles would be utilised to capacity or would there be an expensive vacancy. If the capacity is fully utilised, providing the transport service using your own resources is at least potentially cheaper or at least financially equivalent to ordering another company. In addition, however, there would be questions of security, such as insurance, or legal issues. None of this would be a problem for the shipping company if it ordered a transport company.

It can already be seen here that certain areas of responsibility with more than just Personnel costs are associated. It is therefore necessary to consider what is economically viable in each individual case. However, if the capacity utilisation of drivers and vehicles is not given or the delivery takes place over such a large area that it is difficult to achieve this economically, the appointment of a service contract company in the form of a freight forwarder is no longer an option. The latter is clearly more experienced and, above all, cheaper. The calculation looks something like this for all areas. As soon as there is a regular vacancy for personnel or material, it pays to order a contractor.

Orders within the scope of peripheral tasks are not a problem according to this principle. For the mail order company, customer acquisition and product selection are the core business. Delivery is a peripheral task that is better handled by specialists in this area.

Contract for work within the core business

Within the core business, however, the parent company is the specialist. Therefore, a contract for work and labour is regularly less of an economic benefit here. By definition, the core business is the company's main area of responsibility and it has positioned itself as a specialist. If it cannot perform the specialised tasks very well, then this is not the core business either.

However, there are also exceptions to this rule. For example, the mail order company can commission a web designer to support customer acquisition with an appropriately sophisticated website. Is this part of the core business or a marginal task? This is debatable. Theoretically, customer acquisition is the core business, but IT is only a peripheral task. In this case, the focus is more on the extent to which IT plays a role in customer acquisition. Since this is about the design of a website and it does not have to be designed again and again, this can be seen as a peripheral task.

Contract for work and labour for customer acquisition

But what about appointing a marketing company? This also helps with customer acquisition. Again, this can be based on how often and for how long the marketing company performs its work in this area. It can also be argued to what extent marketing is actually the main task of the mail order company. Theoretically, it has specialised in sales and every good marketer knows that marketing and shipping are not the same thing.

In cases of doubt, it is therefore a question of interpretation as to whether a core area of the business exists or not. Even in the core area, it is sometimes necessary to utilise skills that are not part of the company because they are only rarely needed and would therefore create a vacancy the rest of the time.

In the end, it therefore depends more or less on whether the work is a peripheral task or a core area. In the peripheral task, this can always be transferred if your own resources would mean too much capacity in this area. This can then also be done on a permanent basis.

In the core area of entrepreneurial activity, this question is basically the same, but the answer must be interpreted much more narrowly. This means that, whenever possible, the company's own staff should perform the task and capacity should only be purchased if it is needed for a limited period of time or if there would be a very large amount of idle time in their work if they were regular employees.

The risk in the contract for work

If employees carry out work as employees of the main company, this entails many risks. When it comes to profitability, one risk is of particular interest and that is the question of how much it will ultimately cost to achieve a certain result.

Employees are paid by the hour. If they need more of it to produce a work, this work also costs correspondingly more. A contractor in a contract for work is paid for the success of the work. If he needs more working time, this is his risk. This does not change the remuneration.

In addition, there are other risks that have already been mentioned here. These are the risk of idle time with expensive labour costs, the risk of damage caused by employees, the risk of the work being destroyed and other examples. All these risks are also transferred to the contractor with the contract for work.

Economic efficiency in the contract for work

One of the most important obligations arising from the contract for work and services is the obligation of the customer to pay the remuneration for the work. The remuneration is due after successful acceptance of the work. This means that the client only incurs costs if the desired result is achieved. No success, no costs.

The remuneration for the work is set out in the contract. The client therefore knows from the outset how much he will have to pay for the creation of the work. However, there may be deviations. This is regularly the case, for example, if the client requests changes. In this case, the contractor has the right to propose an adjustment to the remuneration for the work and its amount.

Other exceptions include instalment payments or payment in milestones after partial completion of the work. However, this is also contractually agreed in advance and can therefore be calculated in terms of time and amount from the outset.

In the contract for work and services, the contractor is obliged to carry out preparatory work. The work must first be produced and then accepted by the client. This means that the client has the opportunity to assess the work and identify defects before making any payment. This significantly increases security for the client at the expense of the contractor.

In principle, even in the case of very large projects worth several million euros, the contractor cannot be required to pay wages before acceptance. However, this is regularly deviated from by contractual agreements, instalment payments and payment according to completed parts of the work. Nevertheless, the legal situation is such that the client is considerably favoured. Even if he makes a payment within the framework of agreements before the entire work has been completed, he can demand a security deposit from the contractor or withhold a pressure surcharge if defects have been recognised.

The limitation period for claims for payment for work or the rectification of defects generally begins with the acceptance of the work. If no acceptance takes place because, for example, the work was not completed as desired, the resulting claims do not become time-barred.

Contract for work - the additional costs

Additional costs may sometimes be incurred during the creation of a work. However, these additional costs must be distinguished from the costs incurred as a result of a change to the ordered work. If the client has changed the description, the desired performance or other features of the work, he must also bear the additional costs for the creation of the work in accordance with the new specifications.

Irrespective of this, however, the question of what happens to the additional costs that arise without a change in the specifications is relevant here. From the point of view of the law and the courts, a specialist is pitted against a layman. The contractor was appointed precisely because of his experience, expertise and skills. Accordingly, he is considered a specialist. The client, on the other hand, assigns a task that he does not carry out himself, for the execution of which he has no experience and for which he cannot estimate what costs will be incurred.

Accordingly, it is the contractor's responsibility to prepare a free cost estimate. The work fee is calculated on the basis of this estimate. This is then contractually fixed and cannot be changed without a special reason

Special reasons that permit a change in the remuneration for the work must have been unforeseeable for both parties. They must also be so severe in their consequences that the contracting parties cannot reasonably be expected to adhere to the original agreement. In this case, both parties can agree on a new remuneration, they can terminate the contract, a judge can adjust the amount of the agreement or allow the contract to be cancelled.

The client is therefore very well protected against a unilateral increase in the remuneration for the work. This gives him clear security in legal terms, but also in terms of financial planning.

The contractor bears the responsibility

In the contract for work and services, the successful creation of the work is owed, not the work on it. It is not about the time, the resources or exactly which services were provided. The only important thing is the work and that it was created in accordance with the description in the contract

The contractor acts independently. This relieves the client of any responsibility. This means that he does not have to find, employ, manage, train or remunerate the contract workers. All of this is the responsibility of the contractor.

Contract for work - the right of cancellation

The client also has an advantage with regard to the cancellation of the contract for work. It can terminate the contract at any time without a specific reason. This leaves it up to the client to decide whether and for how long it wishes to work with the contractor.

Although the contractor also has the right to terminate the contract, he needs a special reason to do so. This means that it is the client who holds the reins, which in turn makes planning much easier, especially in economic terms.

Conclusion

It is worth appointing a contractor if a marginal activity is involved and resources in the company are only insufficiently utilised to complete these tasks. It is also worth appointing a contractor if a core task of the business is involved and certain skills and expertise are purchased in order to fulfil this task. However, the purchased capacities are only of temporary importance or, if they were available as permanent capacities, would experience long vacancies.

In a contract for work, the contractor bears the majority of the risks. He is responsible for the personnel, he is liable for damage, he bears the risk of loss of the work and he is not remunerated if the work is not completed as described.

In addition to the sufficient utilisation of the available resources, economic efficiency results precisely from the transfer of risks and the fact that the remuneration for the work is only due after the successfully completed work has been accepted. If the work is not completed as requested, payment is cancelled. If the effort required to produce the work increases, also in terms of time, the remuneration for the work does not change.

In addition, the contractor works on his own responsibility. This reduces the workload of the ordering company. Last but not least, the client has a much simpler right of cancellation vis-à-vis the contractor, so that it can withdraw from the contract at any time if it deems this necessary.