COLUMN: Director's price agreement and the obligation to work economically

16.11.2017

To compensate for the service within the framework of a work contract, the contracting parties can use different billing options. The three most important options are the unit price, the flat rate and the cost per hour.

The unit price is characterized by the fact that the total service to be provided by the contractor is broken down into individual partial services or "units". A separate price is then shown for each individual unit. In addition, it is stated how often the service units are expected to occur. The quantity is therefore subject to a certain degree of variability.

The idea behind the flat rate is that there is no billing based on quantity or effort, but rather a price is agreed regardless of the actual costs. Both the flat rate and the unit price are therefore characterized by the predictability of the costs for the customer.

The same applies to the cost price. This is primarily agreed when the type, quality and scope of the services cannot be determined precisely in advance. The service provided is billed by determining the required working hours, the amount of materials used and the equipment used. Billing is based on the actual expenditure. The final costs are therefore not apparent to the customer when the contract is concluded.

The question therefore arises as to whether the contractor is bound in particular to the appropriateness of the resources expended or whether the appropriateness does not constitute a corrective measure, since it was agreed that the costs would be billed based on actual expenditure.

The Supreme Court (OGH) has ruled that although a cost-plus agreement basically shifts the risk of particularly high expenditure to the advertiser, the entrepreneur is obliged in return to ensure that the business is run economically. A cost-plus agreement also does not prevent a subsequent appropriateness test with regard to the time spent, because the time spent is not part of the cost-plus agreement and, in the absence of a precise determination of the remuneration for the work, an appropriate fee is owed in accordance with Section 1152 ABGB.

In summary, the Supreme Court has put a stop to the contractor's arbitrariness. Nevertheless, a cost-plus agreement always carries the risk that the client will have to bear a higher cost than with other price agreements.