diff --git a/packages/cli/src/models/dependency/Dependency.ts b/packages/cli/src/models/dependency/Dependency.ts
index 48b4e41c6..4b6c17157 100644
--- a/packages/cli/src/models/dependency/Dependency.ts
+++ b/packages/cli/src/models/dependency/Dependency.ts
@@ -129,11 +129,7 @@ export default class Dependency {
 
   public get projectFile(): ProjectFile | never {
     if (!this._projectFile) {
-      const filePath = ProjectFile.getExistingFilePath(this.getDependencyFolder());
-      if (!filePath) {
-        throw new Error(`Could not find an .openzeppelin/project.json or zos.json file for '${this.name}'`);
-      }
-      this._projectFile = new ProjectFile(filePath);
+      this._projectFile = ProjectFile.getExistingProject(this.getDependencyFolder());
     }
     return this._projectFile;
   }
diff --git a/packages/cli/src/models/files/ProjectFile.ts b/packages/cli/src/models/files/ProjectFile.ts
index 2f675f3f6..43799bb69 100644
--- a/packages/cli/src/models/files/ProjectFile.ts
+++ b/packages/cli/src/models/files/ProjectFile.ts
@@ -8,7 +8,6 @@ import { Loggy } from '@openzeppelin/upgrades';
 import Dependency from '../dependency/Dependency';
 import { MANIFEST_VERSION, checkVersion } from './ManifestVersion';
 import { OPEN_ZEPPELIN_FOLDER } from './constants';
-import NetworkFile from './NetworkFile';
 import { ProjectCompilerOptions } from '../compiler/ProjectCompilerOptions';
 
 interface ConfigFileCompilerOptions {
@@ -42,12 +41,29 @@ interface ProjectFileData {
   telemetryOptIn?: boolean;
 }
 
+function getProjectPath(file: string, dir: string): [string, string] {
+  if (!dir) dir = file ? getRootFromFilePath(file) : process.cwd();
+  if (!file) file = getFileFromRoot(dir);
+  return [file, dir];
+}
+
+function getRootFromFilePath(file: string): string {
+  const dir = path.dirname(file);
+  return path.basename(dir) === OPEN_ZEPPELIN_FOLDER ? path.dirname(dir) : dir;
+}
+
+function getFileFromRoot(dir: string): string {
+  // TODO-v3: remove legacy project file support, preferring the new format over the old one
+  return [PROJECT_FILE_PATH, LEGACY_PROJECT_FILE_NAME].map(p => path.join(dir, p)).find(fs.existsSync);
+}
+
 export const PROJECT_FILE_NAME = 'project.json';
 export const PROJECT_FILE_PATH = path.join(OPEN_ZEPPELIN_FOLDER, PROJECT_FILE_NAME);
 export const LEGACY_PROJECT_FILE_NAME = 'zos.json';
 
 export default class ProjectFile {
   public filePath: string;
+  public root: string;
   public data: ProjectFileData;
 
   public static getLinkedDependencies(filePath: string = null): string[] {
@@ -56,11 +72,21 @@ export default class ProjectFile {
     return project.linkedDependencies;
   }
 
-  public constructor(filePath: string = null) {
+  public static getExistingProject(folder: string): ProjectFile {
+    const projectFile = new ProjectFile(null, folder);
+    if (!projectFile.exists()) {
+      throw new Error(`Could not find an .openzeppelin/project.json or zos.json file in ${folder}`);
+    }
+    return projectFile;
+  }
+
+  public constructor(filePath: string = null, root: string = null) {
     const defaultData = {
       manifestVersion: MANIFEST_VERSION,
     } as any;
-    this.filePath = filePath ?? ProjectFile.getExistingFilePath(process.cwd());
+
+    [this.filePath, this.root] = getProjectPath(filePath, root);
+
     if (this.filePath) {
       try {
         this.data = fs.existsSync(this.filePath) ? fs.readJsonSync(this.filePath) : null;
@@ -83,10 +109,6 @@ export default class ProjectFile {
     return fs.existsSync(this.filePath);
   }
 
-  public get root(): string {
-    return path.dirname(this.filePath);
-  }
-
   public set manifestVersion(version: string) {
     if (this.data.manifestVersion) {
       this.data.manifestVersion = version;
@@ -199,8 +221,8 @@ export default class ProjectFile {
     const configOptions: ConfigFileCompilerOptions = {
       manager,
       solcVersion: version,
-      artifactsDir: outputDir,
-      contractsDir: inputDir,
+      artifactsDir: outputDir ? path.relative(this.root, outputDir) : undefined,
+      contractsDir: inputDir ? path.relative(this.root, inputDir) : undefined,
       compilerSettings: {
         evmVersion,
         optimizer: {
@@ -270,12 +292,6 @@ export default class ProjectFile {
     }
   }
 
-  public static getExistingFilePath(dir: string = process.cwd(), ...paths: string[]): string {
-    // TODO-v3: remove legacy project file support
-    // Prefer the new format over the old one
-    return [...paths, `${dir}/${PROJECT_FILE_PATH}`, `${dir}/${LEGACY_PROJECT_FILE_NAME}`].find(fs.existsSync);
-  }
-
   private hasChanged(): boolean {
     const currentPackgeFile = fs.existsSync(this.filePath) ? fs.readJsonSync(this.filePath) : null;
     return !isEqual(this.data, currentPackgeFile);
diff --git a/packages/cli/test/models/ProjectFile.test.js b/packages/cli/test/models/ProjectFile.test.js
index 0c5abfdbd..5d1bde1ff 100644
--- a/packages/cli/test/models/ProjectFile.test.js
+++ b/packages/cli/test/models/ProjectFile.test.js
@@ -2,7 +2,7 @@
 require('../setup');
 
 import { expect } from 'chai';
-
+import path from 'path';
 import ProjectFile from '../../src/models/files/ProjectFile';
 import { MANIFEST_VERSION } from '../../src/models/files/ManifestVersion';
 
@@ -38,6 +38,21 @@ describe('ProjectFile', function() {
     });
   });
 
+  describe('instance methods', function() {
+    describe('#setCompilerOptions', function() {
+      it('ensures relative paths to project file', function() {
+        const file = new ProjectFile('test/mocks/packages/new.zos.json');
+        file.setCompilerOptions({
+          inputDir: path.resolve('test/mocks/myContracts'), // path.resolve ensures absolute paths
+          outputDir: path.resolve('test/mocks/myBuild/contracts'),
+        });
+
+        file.compilerOptions.inputDir.should.eq('../myContracts');
+        file.compilerOptions.outputDir.should.eq('../myBuild/contracts');
+      });
+    });
+  });
+
   it('supports deprecated manifest version', function() {
     const file = new ProjectFile('test/mocks/packages/package-deprecated-manifest-version.zos.json');
     file.data.zosversion.should.eq('2.2');