The Risks Arising When Withdrawing from Contracts for Services

There can be various reasons why the services regulated in a contract for work and services do not take place or are not finalised. One of these reasons is the withdrawal from the contract: Here, decisive risks can arise and should have already been discussed and minimised before the contract was concluded. An important tool to prevent that from happening is the so-called “fall-back provision”.

Generally, by withdrawing from a contract, that contract is cancelled as if it had never existed. In purely legal terms, you return to the situation before the contract was concluded. The danger here is that if huge investments have already been made, e.g. in the development of softwares, these investments will be wasted as a result of the termination of the contract. Therefore, a so-called fall-back provision should be included in the contract. In the event of a withdrawal, this leads to the contractor being compensated for the expenses he has already incurred within the framework of the contract.

Example:

Company A and B have signed a contract for work and services. Since A wants to deliver as quickly as possible, the company directly assigns its 15 best employees to the task. They work flat out to complete the project. After two weeks, B unexpectedly and without any particular reason, but nevertheless effectively withdraws from the contract. A is left with the costs for 15 employees for a fortnight.

This example suggests why, from the manufacturer’s point of view, a fall-back clause should always be included in a contract for work and services. A clause could be drafted as follows: “In the event of a withdrawal, all (partial) services rendered up to that point will be appropriately remunerated. Interim services already paid for do not have to be refunded.”

Before entering into contracts for work and services, therefore, pay attention to this risks and, if necessary, always negotiate a fall-back provision to protect yourself against any withdrawal by the contractual partner.

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