diff --git a/app/contracts/custom_fields/hierarchy/generate_root_contract.rb b/app/contracts/custom_fields/hierarchy/generate_root_contract.rb
new file mode 100644
index 000000000000..4e993e5f5b40
--- /dev/null
+++ b/app/contracts/custom_fields/hierarchy/generate_root_contract.rb
@@ -0,0 +1,43 @@
+# frozen_string_literal: true
+
+#-- copyright
+# OpenProject is an open source project management software.
+# Copyright (C) the OpenProject GmbH
+#
+# This program is free software; you can redistribute it and/or
+# modify it under the terms of the GNU General Public License version 3.
+#
+# OpenProject is a fork of ChiliProject, which is a fork of Redmine. The copyright follows:
+# Copyright (C) 2006-2013 Jean-Philippe Lang
+# Copyright (C) 2010-2013 the ChiliProject Team
+#
+# This program is free software; you can redistribute it and/or
+# modify it under the terms of the GNU General Public License
+# as published by the Free Software Foundation; either version 2
+# of the License, or (at your option) any later version.
+#
+# This program is distributed in the hope that it will be useful,
+# but WITHOUT ANY WARRANTY; without even the implied warranty of
+# MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE.  See the
+# GNU General Public License for more details.
+#
+# You should have received a copy of the GNU General Public License
+# along with this program; if not, write to the Free Software
+# Foundation, Inc., 51 Franklin Street, Fifth Floor, Boston, MA  02110-1301, USA.
+#
+# See COPYRIGHT and LICENSE files for more details.
+#++
+
+module CustomFields
+  module Hierarchy
+    class GenerateRootContract < Dry::Validation::Contract
+      params do
+        required(:hierarchy_root)
+      end
+
+      rule(:hierarchy_root) do
+        key.failure("Hierarchical root already set") unless value.nil?
+      end
+    end
+  end
+end
diff --git a/app/contracts/custom_fields/hierarchy/insert_item_contract.rb b/app/contracts/custom_fields/hierarchy/insert_item_contract.rb
new file mode 100644
index 000000000000..57d5e7714809
--- /dev/null
+++ b/app/contracts/custom_fields/hierarchy/insert_item_contract.rb
@@ -0,0 +1,57 @@
+# frozen_string_literal: true
+
+#-- copyright
+# OpenProject is an open source project management software.
+# Copyright (C) the OpenProject GmbH
+#
+# This program is free software; you can redistribute it and/or
+# modify it under the terms of the GNU General Public License version 3.
+#
+# OpenProject is a fork of ChiliProject, which is a fork of Redmine. The copyright follows:
+# Copyright (C) 2006-2013 Jean-Philippe Lang
+# Copyright (C) 2010-2013 the ChiliProject Team
+#
+# This program is free software; you can redistribute it and/or
+# modify it under the terms of the GNU General Public License
+# as published by the Free Software Foundation; either version 2
+# of the License, or (at your option) any later version.
+#
+# This program is distributed in the hope that it will be useful,
+# but WITHOUT ANY WARRANTY; without even the implied warranty of
+# MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE.  See the
+# GNU General Public License for more details.
+#
+# You should have received a copy of the GNU General Public License
+# along with this program; if not, write to the Free Software
+# Foundation, Inc., 51 Franklin Street, Fifth Floor, Boston, MA  02110-1301, USA.
+#
+# See COPYRIGHT and LICENSE files for more details.
+#++
+
+module CustomFields
+  module Hierarchy
+    class InsertItemContract < Dry::Validation::Contract
+      params do
+        required(:parent).filled
+        required(:label).filled(:string)
+        optional(:short).filled(:string)
+      end
+
+      rule(:parent) do
+        if value.is_a?(CustomField::Hierarchy::Item)
+          unless value.persisted?
+            key.failure("Parent must exist")
+          end
+        else
+          key.failure("Parent must be of type 'Item'")
+        end
+      end
+
+      rule(:label) do
+        if CustomField::Hierarchy::Item.exists?(parent_id: values[:parent], label: value)
+          key.failure("Label must be unique within the same hierarchy level")
+        end
+      end
+    end
+  end
+end
diff --git a/app/contracts/custom_fields/hierarchy/service_initialization_contract.rb b/app/contracts/custom_fields/hierarchy/service_initialization_contract.rb
new file mode 100644
index 000000000000..8b72a534ba20
--- /dev/null
+++ b/app/contracts/custom_fields/hierarchy/service_initialization_contract.rb
@@ -0,0 +1,43 @@
+# frozen_string_literal: true
+
+#-- copyright
+# OpenProject is an open source project management software.
+# Copyright (C) the OpenProject GmbH
+#
+# This program is free software; you can redistribute it and/or
+# modify it under the terms of the GNU General Public License version 3.
+#
+# OpenProject is a fork of ChiliProject, which is a fork of Redmine. The copyright follows:
+# Copyright (C) 2006-2013 Jean-Philippe Lang
+# Copyright (C) 2010-2013 the ChiliProject Team
+#
+# This program is free software; you can redistribute it and/or
+# modify it under the terms of the GNU General Public License
+# as published by the Free Software Foundation; either version 2
+# of the License, or (at your option) any later version.
+#
+# This program is distributed in the hope that it will be useful,
+# but WITHOUT ANY WARRANTY; without even the implied warranty of
+# MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE.  See the
+# GNU General Public License for more details.
+#
+# You should have received a copy of the GNU General Public License
+# along with this program; if not, write to the Free Software
+# Foundation, Inc., 51 Franklin Street, Fifth Floor, Boston, MA  02110-1301, USA.
+#
+# See COPYRIGHT and LICENSE files for more details.
+#++
+
+module CustomFields
+  module Hierarchy
+    class ServiceInitializationContract < Dry::Validation::Contract
+      params do
+        required(:field_format).filled(:string)
+      end
+
+      rule(:field_format) do
+        key.failure("Custom field must have field format 'hierarchy'") if value != "hierarchy"
+      end
+    end
+  end
+end
diff --git a/app/services/custom_fields/hierarchy/hierarchical_item_service.rb b/app/services/custom_fields/hierarchy/hierarchical_item_service.rb
new file mode 100644
index 000000000000..d64ae9e79279
--- /dev/null
+++ b/app/services/custom_fields/hierarchy/hierarchical_item_service.rb
@@ -0,0 +1,79 @@
+# frozen_string_literal: true
+
+#-- copyright
+# OpenProject is an open source project management software.
+# Copyright (C) the OpenProject GmbH
+#
+# This program is free software; you can redistribute it and/or
+# modify it under the terms of the GNU General Public License version 3.
+#
+# OpenProject is a fork of ChiliProject, which is a fork of Redmine. The copyright follows:
+# Copyright (C) 2006-2013 Jean-Philippe Lang
+# Copyright (C) 2010-2013 the ChiliProject Team
+#
+# This program is free software; you can redistribute it and/or
+# modify it under the terms of the GNU General Public License
+# as published by the Free Software Foundation; either version 2
+# of the License, or (at your option) any later version.
+#
+# This program is distributed in the hope that it will be useful,
+# but WITHOUT ANY WARRANTY; without even the implied warranty of
+# MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE.  See the
+# GNU General Public License for more details.
+#
+# You should have received a copy of the GNU General Public License
+# along with this program; if not, write to the Free Software
+# Foundation, Inc., 51 Franklin Street, Fifth Floor, Boston, MA  02110-1301, USA.
+#
+# See COPYRIGHT and LICENSE files for more details.
+#++
+
+module CustomFields
+  module Hierarchy
+    class HierarchicalItemService
+      include Dry::Monads[:result]
+
+      def initialize(custom_field)
+        validation = ServiceInitializationContract.new.call(field_format: custom_field.field_format)
+        # rubocop:disable Rails/DeprecatedActiveModelErrorsMethods
+        raise ArgumentError, "Invalid custom field: #{validation.errors.to_h}" if validation.failure?
+        # rubocop:enable Rails/DeprecatedActiveModelErrorsMethods
+
+        @custom_field = custom_field
+      end
+
+      def generate_root
+        CustomFields::Hierarchy::GenerateRootContract
+          .new
+          .call(hierarchy_root: @custom_field.hierarchy_root)
+          .to_monad
+          .bind { create_root_item }
+      end
+
+      def insert_item(parent:, label:, short: nil)
+        CustomFields::Hierarchy::InsertItemContract
+          .new
+          .call({ parent:, label:, short: }.compact)
+          .to_monad
+          .bind { |validation| create_child_item(validation) }
+      end
+
+      private
+
+      def create_root_item
+        item = CustomField::Hierarchy::Item.create(custom_field: @custom_field)
+        return Failure(item.errors) unless item.persisted?
+
+        Success(item)
+      end
+
+      def create_child_item(validation)
+        item = CustomField::Hierarchy::Item
+                 .create(parent: validation[:parent], label: validation[:label], short: validation[:short])
+        return Failure(item.errors) unless item.persisted?
+
+        Success(item)
+      end
+    end
+  end
+end
diff --git a/spec/contracts/custom_fields/hierarchy/generate_root_contract_spec.rb b/spec/contracts/custom_fields/hierarchy/generate_root_contract_spec.rb
new file mode 100644
index 000000000000..78429458a2d9
--- /dev/null
+++ b/spec/contracts/custom_fields/hierarchy/generate_root_contract_spec.rb
@@ -0,0 +1,78 @@
+# frozen_string_literal: true
+
+#-- copyright
+# OpenProject is an open source project management software.
+# Copyright (C) the OpenProject GmbH
+#
+# This program is free software; you can redistribute it and/or
+# modify it under the terms of the GNU General Public License version 3.
+#
+# OpenProject is a fork of ChiliProject, which is a fork of Redmine. The copyright follows:
+# Copyright (C) 2006-2013 Jean-Philippe Lang
+# Copyright (C) 2010-2013 the ChiliProject Team
+#
+# This program is free software; you can redistribute it and/or
+# modify it under the terms of the GNU General Public License
+# as published by the Free Software Foundation; either version 2
+# of the License, or (at your option) any later version.
+#
+# This program is distributed in the hope that it will be useful,
+# but WITHOUT ANY WARRANTY; without even the implied warranty of
+# MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE.  See the
+# GNU General Public License for more details.
+#
+# You should have received a copy of the GNU General Public License
+# along with this program; if not, write to the Free Software
+# Foundation, Inc., 51 Franklin Street, Fifth Floor, Boston, MA  02110-1301, USA.
+#
+# See COPYRIGHT and LICENSE files for more details.
+#++
+
+require "rails_helper"
+
+RSpec.describe CustomFields::Hierarchy::GenerateRootContract do
+  subject { described_class.new }
+
+  describe "#call" do
+    context "when hierarchy_root is nil" do
+      let(:custom_field) { create(:custom_field, field_format: "hierarchy", hierarchy_root: nil) }
+
+      it "is valid" do
+        result = subject.call(hierarchy_root: custom_field.hierarchy_root)
+        expect(result).to be_success
+      end
+    end
+
+    context "when hierarchy_root is not nil" do
+      let(:hierarchy_root) { create(:hierarchy_item) }
+      let(:custom_field) { create(:custom_field, field_format: "hierarchy", hierarchy_root:) }
+
+      it "is invalid" do
+        result = subject.call(hierarchy_root: custom_field.hierarchy_root)
+        expect(result).to be_failure
+        # rubocop:disable Rails/DeprecatedActiveModelErrorsMethods
+        expect(result.errors.to_h).to include(hierarchy_root: ["Hierarchical root already set"])
+        # rubocop:enable Rails/DeprecatedActiveModelErrorsMethods
+      end
+    end
+
+    context "when inputs are valid" do
+      it "creates a success result" do
+        [
+          { hierarchy_root: nil }
+        ].each { |params| expect(subject.call(params)).to be_success }
+      end
+    end
+
+    context "when inputs are invalid" do
+      it "creates a failure result" do
+        [
+          {},
+          { hierarchy_root: create(:hierarchy_item) },
+          { hierarchy_root: "" },
+          { hierarchy_root: 42 }
+        ].each { |params| expect(subject.call(params)).to be_failure }
+      end
+    end
+  end
+end
diff --git a/spec/contracts/custom_fields/hierarchy/insert_item_contract_spec.rb b/spec/contracts/custom_fields/hierarchy/insert_item_contract_spec.rb
new file mode 100644
index 000000000000..70af1da8caae
--- /dev/null
+++ b/spec/contracts/custom_fields/hierarchy/insert_item_contract_spec.rb
@@ -0,0 +1,119 @@
+# frozen_string_literal: true
+
+#-- copyright
+# OpenProject is an open source project management software.
+# Copyright (C) the OpenProject GmbH
+#
+# This program is free software; you can redistribute it and/or
+# modify it under the terms of the GNU General Public License version 3.
+#
+# OpenProject is a fork of ChiliProject, which is a fork of Redmine. The copyright follows:
+# Copyright (C) 2006-2013 Jean-Philippe Lang
+# Copyright (C) 2010-2013 the ChiliProject Team
+#
+# This program is free software; you can redistribute it and/or
+# modify it under the terms of the GNU General Public License
+# as published by the Free Software Foundation; either version 2
+# of the License, or (at your option) any later version.
+#
+# This program is distributed in the hope that it will be useful,
+# but WITHOUT ANY WARRANTY; without even the implied warranty of
+# MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE.  See the
+# GNU General Public License for more details.
+#
+# You should have received a copy of the GNU General Public License
+# along with this program; if not, write to the Free Software
+# Foundation, Inc., 51 Franklin Street, Fifth Floor, Boston, MA  02110-1301, USA.
+#
+# See COPYRIGHT and LICENSE files for more details.
+#++
+
+require "rails_helper"
+
+RSpec.describe CustomFields::Hierarchy::InsertItemContract do
+  subject { described_class.new }
+
+  # rubocop:disable Rails/DeprecatedActiveModelErrorsMethods
+  describe "#call" do
+    let(:parent) { create(:hierarchy_item) }
+
+    context "when all required fields are valid" do
+      let(:params) { { parent:, label: "Valid Label" } }
+
+      it "is valid" do
+        result = subject.call(params)
+        expect(result).to be_success
+      end
+    end
+
+    context "when parent is not of type 'Item'" do
+      let(:invalid_parent) { create(:custom_field) }
+      let(:params) { { parent: invalid_parent, label: "Valid Label" } }
+
+      it "is invalid" do
+        result = subject.call(params)
+        expect(result).to be_failure
+        expect(result.errors.to_h).to include(parent: ["Parent must be of type 'Item'"])
+      end
+    end
+
+    context "when label is not unique within the same hierarchy level" do
+      before do
+        create(:hierarchy_item, parent:, label: "Duplicate Label")
+      end
+
+      let(:params) { { parent:, label: "Duplicate Label" } }
+
+      it "is invalid" do
+        result = subject.call(params)
+        expect(result).to be_failure
+        expect(result.errors.to_h).to include(label: ["Label must be unique within the same hierarchy level"])
+      end
+    end
+
+    context "when short is set and is a string" do
+      let(:params) { { parent:, label: "Valid Label", short: "Valid Short" } }
+
+      it "is valid" do
+        result = subject.call(params)
+        expect(result).to be_success
+      end
+    end
+
+    context "when short is set and is not a string" do
+      let(:params) { { parent:, label: "Valid Label", short: 123 } }
+
+      it "is invalid" do
+        result = subject.call(params)
+        expect(result).to be_failure
+        expect(result.errors.to_h).to include(short: ["must be a string"])
+      end
+    end
+
+    context "when inputs are valid" do
+      it "creates a success result" do
+        [
+          { parent:, label: "A label", short: "A shorthand" },
+          { parent:, label: "A label" }
+        ].each { |params| expect(subject.call(params)).to be_success }
+      end
+    end
+
+    context "when inputs are invalid" do
+      it "creates a failure result" do
+        [
+          { parent:, label: "A label", short: "" },
+          { parent:, label: "A label", short: nil },
+          { parent:, label: "" },
+          { parent:, label: nil },
+          { parent: },
+          { parent: nil },
+          { parent: nil, label: "A label" },
+          { parent: "parent", label: "A label" },
+          { parent: 42, label: "A label" }
+        ].each { |params| expect(subject.call(params)).to be_failure }
+      end
+    end
+  end
+  # rubocop:enable Rails/DeprecatedActiveModelErrorsMethods
+end
diff --git a/spec/contracts/custom_fields/hierarchy/service_initialization_contract_spec.rb b/spec/contracts/custom_fields/hierarchy/service_initialization_contract_spec.rb
new file mode 100644
index 000000000000..2cf1979cc78d
--- /dev/null
+++ b/spec/contracts/custom_fields/hierarchy/service_initialization_contract_spec.rb
@@ -0,0 +1,97 @@
+# frozen_string_literal: true
+
+#-- copyright
+# OpenProject is an open source project management software.
+# Copyright (C) the OpenProject GmbH
+#
+# This program is free software; you can redistribute it and/or
+# modify it under the terms of the GNU General Public License version 3.
+#
+# OpenProject is a fork of ChiliProject, which is a fork of Redmine. The copyright follows:
+# Copyright (C) 2006-2013 Jean-Philippe Lang
+# Copyright (C) 2010-2013 the ChiliProject Team
+#
+# This program is free software; you can redistribute it and/or
+# modify it under the terms of the GNU General Public License
+# as published by the Free Software Foundation; either version 2
+# of the License, or (at your option) any later version.
+#
+# This program is distributed in the hope that it will be useful,
+# but WITHOUT ANY WARRANTY; without even the implied warranty of
+# MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE.  See the
+# GNU General Public License for more details.
+#
+# You should have received a copy of the GNU General Public License
+# along with this program; if not, write to the Free Software
+# Foundation, Inc., 51 Franklin Street, Fifth Floor, Boston, MA  02110-1301, USA.
+#
+# See COPYRIGHT and LICENSE files for more details.
+#++
+
+require "rails_helper"
+
+RSpec.describe CustomFields::Hierarchy::ServiceInitializationContract do
+  subject { described_class.new }
+
+  # rubocop:disable Rails/DeprecatedActiveModelErrorsMethods
+  describe "#call" do
+    context "when field_format is 'hierarchy'" do
+      let(:params) { { field_format: "hierarchy" } }
+
+      it "is valid" do
+        result = subject.call(params)
+        expect(result).to be_success
+      end
+    end
+
+    context "when field_format is not 'hierarchy'" do
+      let(:params) { { field_format: "text" } }
+
+      it "is invalid" do
+        result = subject.call(params)
+        expect(result).to be_failure
+        expect(result.errors.to_h).to include(field_format: ["Custom field must have field format 'hierarchy'"])
+      end
+    end
+
+    context "when field_format is missing" do
+      let(:params) { {} }
+
+      it "is invalid" do
+        result = subject.call(params)
+        expect(result).to be_failure
+        expect(result.errors.to_h).to include(field_format: ["is missing"])
+      end
+    end
+
+    context "when field_format is nil" do
+      let(:params) { { field_format: nil } }
+
+      it "is invalid" do
+        result = subject.call(params)
+        expect(result).to be_failure
+        expect(result.errors.to_h).to include(field_format: ["must be filled"])
+      end
+    end
+
+    context "when inputs are valid" do
+      it "creates a success result" do
+        [
+          { field_format: "hierarchy" }
+        ].each { |params| expect(subject.call(params)).to be_success }
+      end
+    end
+
+    context "when inputs are invalid" do
+      it "creates a failure result" do
+        [
+          {},
+          { field_format: "text" },
+          { field_format: nil },
+          { field_format: 42 }
+        ].each { |params| expect(subject.call(params)).to be_failure }
+      end
+    end
+  end
+  # rubocop:enable Rails/DeprecatedActiveModelErrorsMethods
+end
diff --git a/spec/factories/hierarchy_item_factory.rb b/spec/factories/hierarchy_item_factory.rb
new file mode 100644
index 000000000000..5f8b1026d3c1
--- /dev/null
+++ b/spec/factories/hierarchy_item_factory.rb
@@ -0,0 +1,7 @@
+# frozen_string_literal: true
+
+FactoryBot.define do
+  factory :hierarchy_item, class: "CustomField::Hierarchy::Item" do
+    sequence(:label) { |n| "Item #{n}" }
+  end
+end
diff --git a/spec/services/custom_fields/hierarchy/hierarchical_item_service_spec.rb b/spec/services/custom_fields/hierarchy/hierarchical_item_service_spec.rb
new file mode 100644
index 000000000000..b5199522c2c5
--- /dev/null
+++ b/spec/services/custom_fields/hierarchy/hierarchical_item_service_spec.rb
@@ -0,0 +1,103 @@
+# frozen_string_literal: true
+
+#-- copyright
+# OpenProject is an open source project management software.
+# Copyright (C) the OpenProject GmbH
+#
+# This program is free software; you can redistribute it and/or
+# modify it under the terms of the GNU General Public License version 3.
+#
+# OpenProject is a fork of ChiliProject, which is a fork of Redmine. The copyright follows:
+# Copyright (C) 2006-2013 Jean-Philippe Lang
+# Copyright (C) 2010-2013 the ChiliProject Team
+#
+# This program is free software; you can redistribute it and/or
+# modify it under the terms of the GNU General Public License
+# as published by the Free Software Foundation; either version 2
+# of the License, or (at your option) any later version.
+#
+# This program is distributed in the hope that it will be useful,
+# but WITHOUT ANY WARRANTY; without even the implied warranty of
+# MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE.  See the
+# GNU General Public License for more details.
+#
+# You should have received a copy of the GNU General Public License
+# along with this program; if not, write to the Free Software
+# Foundation, Inc., 51 Franklin Street, Fifth Floor, Boston, MA  02110-1301, USA.
+#
+# See COPYRIGHT and LICENSE files for more details.
+#++
+
+require "rails_helper"
+
+RSpec.describe CustomFields::Hierarchy::HierarchicalItemService do
+  let(:custom_field) { create(:custom_field, field_format: "hierarchy", hierarchy_root: nil) }
+  let(:invalid_custom_field) { create(:custom_field, field_format: "text", hierarchy_root: nil) }
+
+  describe "#initialize" do
+    context "with valid custom field" do
+      it "initializes successfully" do
+        expect { described_class.new(custom_field) }.not_to raise_error
+      end
+    end
+
+    context "with invalid custom field" do
+      it "raises an ArgumentError" do
+        expect { described_class.new(invalid_custom_field) }.to raise_error(ArgumentError, /Invalid custom field/)
+      end
+    end
+  end
+
+  describe "#generate_root" do
+    let(:service) { described_class.new(custom_field) }
+
+    context "with valid hierarchy root" do
+      it "creates a root item successfully" do
+        expect(service.generate_root).to be_success
+      end
+    end
+
+    context "with persistence of hierarchy root fails" do
+      it "fails to create a root item" do
+        allow(CustomField::Hierarchy::Item)
+          .to receive(:create)
+                .and_return(instance_double(CustomField::Hierarchy::Item, persisted?: false, errors: "some errors"))
+
+        result = service.generate_root
+        expect(result).to be_failure
+      end
+    end
+  end
+
+  describe "#insert_item" do
+    let(:custom_field) { create(:custom_field, field_format: "hierarchy", hierarchy_root: parent) }
+    let(:service) { described_class.new(custom_field) }
+
+    let(:parent) { create(:hierarchy_item) }
+    let(:label) { "Child Item" }
+    let(:short) { "Short Description" }
+
+    context "with valid parameters" do
+      it "inserts an item successfully without short" do
+        result = service.insert_item(parent:, label:)
+        expect(result).to be_success
+      end
+
+      it "inserts an item successfully with short" do
+        result = service.insert_item(parent:, label:, short:)
+        expect(result).to be_success
+      end
+    end
+
+    context "with invalid item" do
+      it "fails to insert an item" do
+        allow(CustomField::Hierarchy::Item)
+          .to receive(:create).and_return(instance_double(CustomField::Hierarchy::Item,
+                                                          persisted?: false, errors: "some errors"))
+
+        result = service.insert_item(parent:, label:, short:)
+        expect(result).to be_failure
+      end
+    end
+  end
+end