Business Contracts

A undertaking entrusted with the construction of buildings, complexes, industrial equipment, or with the manufacture of products, materials, or the performance of a service, may choose not to carry out the operation alone, having regard to the technicality, scale, or particular know-how required for the performance of certain operations. It has the option of turning to a third party, a subcontractor, who is more qualified. Subcontracting may be defined as any action whereby an undertaking does not personally perform all the operations leading to the making of the product it develops, but entrusts all or part of the performance of its service, whether material or intellectual, to a third-party undertaking which, as subcontractor, performs this service in full independence and without any relationship of subordination. This legal operation involves three contracting parties: a main contractor or contractor for works who, as the debtor of the service, turns to a subcontractor to perform all or part of the service it has promised to its client, the project owner, the initial creditor of the subcontracted service. Law No 75-1334 of 31 December 1975, relating to subcontracting, has framed and defined this triangular operation, the main constitutive elements of this contract resulting from the case-law interpretation of the provisions of that text.

Recourse to a third party

According to the figures published by INSEE, in 2021, 38% of undertakings in the non-agricultural and non-financial market sectors used subcontracting, for an estimated amount of EUR 372 billion, i.e., nearly 13% of undertakings’ turnover excluding tax .

In the 1950s, awareness of the scale of this economic phenomenon, as well as the main contractor’s dominance over the subcontractor, a potential source of abuse, led the public authorities to take up the issue and legislate . An initial Decree 53-405 of 11 May 1953 established direct payment, which was subsequently made mandatory, under certain conditions, for public works contracts by Decree 73-329 of 14 March 1973 . These provisions, applicable only to public contracts, did not sufficiently protect subcontractors on private contracts in the event of the main contractor’s insolvency. Indeed, in the absence of any legal relationship between the project owner and the subcontractor, the latter could seek payment for the works only from its direct co-contractor, namely the main contractor. Due to the numerous bankruptcies caused by this situation, the legislator intervened through the well-known law of 31 December 1975 , which established a series of rules intended to provide the subcontractor with payment guarantees in the event of the main contractor’s default, thereby reorganizing the contractual relations between the project owner, the main contractor and the subcontractor. All the provisions of the 1975 law are deemed mandatory public policy provisions by Article 15 .

Despite the advances it brought to the field, the 1975 law proved incomplete and difficult to implement, which led the legislature to supplement it on several occasions:

- Law of 2 January 1981 facilitating credit to undertakings, “known as the Dailly law” ,

- Law of 24 January 1984, on credit activities and the supervision of credit activities ,

- Act of 6 January 1986, on various administrative simplifications in matters of urban planning and on various provisions concerning buildings ,

- law of 11 December 2001, on urgent measures for economic and financial reforms  ,

- Law of 26 July 2005 on the safeguarding of undertakings ,

- Order of 23 July 2015 on public procurement ,

- Ordinance of 10 February 2016, reforming contract law ,

- order of 26 November 2018, containing the legislative part of the Public Procurement Code .

In the construction and public works sector, professionals have established a standard contract setting out the general terms and conditions of subcontracting . In addition to the obligation to conduct negotiations of the contractual terms in a balanced manner, this contract notably recalls the subcontractor’s obligation of result and duty to advise vis-à-vis the main contractor, as well as the conditions for setting the subcontract price and the statutory payment regime. It also recommends the establishment of a provisional works schedule between the main company and the subcontractor from the preparation phase, intended to result in a detailed execution schedule that ultimately becomes contractual after the parties’ agreement. It further provides for concurrent acceptance of the works carried out by the main contractor and those performed by the subcontractor, with an obligation for the former to communicate the acceptance report to the latter.

https://www.insee.fr/fr/statistiques/7766202.

Subcontracting was then governed only by the decree of 26 Pluviôse Year II.

Law No 2005-845 of 26 July 2005 on the safeguarding of undertakings, OJ of 27 July 2005.

See the latest version published in Le Moniteur des travaux publics et du bâtiment No 5746 of 9 January 2014.

D. 73-329 of 14 March 1973 on the reform of the subcontracting regime in public procurement contracts (amendment of the Public Procurement Code).

L. 75-1334 of 31 December 1975, on subcontracting, OJ of 3 January 1976.

CA Orléans, 14 May 2020, LawLex202200004955JBJ.

L. 81-1 of 2 January 1981, facilitating credit to undertakings, “known as the Dailly law,” OJ of 3 January 1981.

L. 84-46 of 24 January 1984, on credit activity and supervision of credit activities, OJ of 25 January 1984.

Law No 86-13 of 6 January 1986, on various administrative simplifications in matters of town planning and on various provisions concerning buildings, Official Journal of 7 January 1986.

Law No 98-69 of 6 February 1998, aimed at improving the conditions for addressing corporate difficulties, OJ of 7 February 1998.

L. 2001-1168 of 11 December 2001, on urgent economic and financial reform measures, OJ of 12 December 2001.

Business Contracts

393. Recourse to a third party

394. Context