French subcontractor law sparks disputes and discussion 50 years on

French Law no. 75-1334 on subcontracting, dated 31 December 1975, is an essential pillar of French law, providing financial and contractual transparency in the relations between those involved in subcontracting: the owner (maître d’ouvrage), who orders and finances the work; the main contractor (l’entrepreneur principal), who enters into the contract with the owner and subcontracts all or part of the work; and the subcontractor, who performs the subcontracted part of the works and is not bound to the owner by any direct contractual link.

To mark 50 years of the law, Pinsent Masons in Paris recently hosted a breakfast event with leading academic at Université Panthéon-Assas, professor Hugues Périnet-Marquet, alongside arbitration specialists Gaëlle Fillhol, William Brillat-Capello, Anne de Mazières and Laura Canet of Pinsent Masons. Below, we reflect on some of the topics of discussion from the event, and how it impacts on construction contracting.

Material scope of the 1975 law

One of the main challenges of the 1975 law lies in determining its material scope of application, which is limited to private work contracts (contrats d’entreprise) and public construction contracts. As a result, subcontractors can only benefit from the protections offered by this law within the framework of a contract that truly qualifies as a private work contract.

The distinction between a private work contract and a sale contract was once based on the relative value of materials and labour, but that distinction is now considered obsolete. Today, the distinction between the two forms of contract is based on the nature of the order: a service involving the creation of a non-standardised work or product, designed specifically for the ultimate client, falls within the scope of a work contract. On the other hand, the supply of standardised products or rental operations, even with an installation service, qualify as sales.

This approach was confirmed by a recent ruling by the French Supreme Court (Cour de Cassation). It qualified the installation of a wood-burning stove and pipe as a work contract, despite the value of the labour being lower than that of the materials.

Industrial subcontracting contracts (sous-traitants industriels), according to case law, are also covered by the 1975 law, provided the owner is informed and that they meet the same specificity requirements – i.e. the product is designed for a specific construction project and the item cannot be substituted by a standardised good.

However, the constant evolution of construction project design as well as industrial production methods complicates how contracts should be classified. The Cour de cassation has opted for a strict approach, which has become a double‑edged sword for industrial subcontractors. Under its case law, the same criteria to determine whether the 1975 law applies to an industrial subcontractor is used to determine the joint liability of a manufacturer under Article 1792-4 of the French Civil Code in the event of defects affecting a work. This rigorous approach has caused criticism, with some calling for a simplification of the regime applicable to industrial subcontractors.

Attempts to extend the scope of the law are numerous, motivated by contractors’ search for additional guarantees. The courts have adopted a restrictive interpretation of the text to avoid abuse and misuse of the legal qualification of subcontracting. For example, real estate companies sometimes seek to claim subcontractor status to benefit from the protections afforded by the 1975 law. However, case law points out that a contractor acting on behalf of the seller of a building to be constructed cannot qualify as a subcontractor to the building’s ultimate purchaser, which does qualify as an owner.

The distinction between subcontracts and employment contract is also crucial. The Cour de cassation emphasises constantly that what matters for determining an employment contract is that there is a relationship of legal subordination, characterised by the absence of autonomy and where the employee is subject to an employer’s directives. Incorrectly classifying a contract can have significant consequences, particularly in terms of social and tax law.

Finally, the question of the material scope of application of the 1975 law also arises with regards to the continuity of works in the event of bankruptcy of the main contractor. At the recent Pinsent Masons event in our Paris office, professor Périnet-Marquet noted that a subcontractor cannot benefit from the protection of the 1975 law if, at the owner’s request, it must take over work that was not initially subcontracted. In that scenario, the subcontractor is directly bound by a private work contract with the employer. In such cases, the subcontractor no longer acts in the capacity of a “subcontractor” within the meaning of the 1975 aw, but rather as a direct contractor of the owner, thereby excluding the benefit of the protective regime.

Direct action and direct payment of the subcontractor

The 1975 law introduced two major safeguards to guarantee payment to subcontractors: direct action by the subcontractor against the owner, and direct payment, which is specific to public procurement contracts.

The direct action provisions allow a subcontractor in a private work contract to act directly against the owner and is available, in turn, to all the subcontractors involved in the construction site. The direct payment provisions allow a subcontractor of a public construction contract to be paid directly by the public contracting authority, but is not available to subcontractors further down the contracting chain.

Both mechanisms make it possible for subcontractors to bypass the main contractor, particularly in the event of bankruptcy, and to create a direct link between the owner and the subcontractor, in order to be paid. However, these mechanisms are considered as second-tier mechanisms when compared to the protection offered by surety bonds or delegated payment. This is because they are deemed less effective, even though they constitute standards of public order and any contractual clause contrary to their implementation is deemed unwritten.

Direct action and direct payment rights are difficult to set up – two cumulative conditions must be met: the owner must accept the subcontractor and also approve the payment terms of the subcontractor. Initially, after the 1975 law first took effect, the owner’s role in combating concealed subcontracting on construction sites was passive, but in 1986 the legislator amended the 1975 Law to confer obligations on the owner. Now, if it becomes aware of the existence of an unknown subcontractor on the construction site, it is required to give the main contractor formal notice to present the subcontractor and request approval of its payment terms.

In addition, direct action is sometimes complex to implement, even when the owner has accepted the subcontractor and approved its terms of payment. This is because it can only act after a formal notice to comply has been sent to the main contractor, with the owner in copy, and has remained without effect for one month. On the day it is sent, the notice to comply freezes the contractual amounts due to the subcontractor, which excludes sums already paid to the main contractor, and any additional work carried out by the subcontractor not formalised by a contract or quote.

In a decision dated 7 March 2024, the Cour de cassation ruled that if the owner fails to put the main contractor on notice to declare its subcontractors, the latter loses the benefit of the direct action, and the subcontractor's loss is assessed on the basis of what the owner still owed the main contractor at the date when it became aware of the subcontractor's presence on the construction site, or of the sums that had been paid to the main contractor after that date. On the other hand, according to the court, when the subcontractor is approved and its terms of payment have been accepted, but the existence of a delegation of payment or a surety bond has not been verified, the compensable loss is then equal to the difference between the sums that the subcontractor should have received if a delegation of payment had been granted or if a financial institution had guaranteed its contract and the sums actually received.

This decision is less favourable to the owner, because it paradoxically results in a situation where a passive owner, who fails to approve the subcontractor altogether, incurs less liability than one who complies with the approval obligations but does not ensure the effectiveness of the guarantees. Some owners may therefore be tempted to adopt a passive stance to limit their risk.

Ultimately, while direct action is an important tool for securing payment for subcontractors, it remains an imperfect form of protection, requiring adjustments to ensure a better balance between the interests of subcontractors and the contractual constraints of other players. Recent developments in case law and contractual practices show that the current legislative framework, while protective, has certain limitations. As a result, the question of reforming the direct action remains open.

Professor Périnet-Marquet suggests several avenues for improvement, including tacit acceptance of the subcontractor, which is currently very limited in case law, and a review of the conditions for approval, to guarantee greater protection for subcontractors without increasing the burden of the owner’s obligations.

Mandatory warranties and payment delegation

Bonding and payment delegation mechanisms are also crucial to the protection of subcontractors under the 1975 law.

A surety bond is a personal guarantee whereby a third party, often a bank, undertakes to pay the principal contractor's debt to the subcontractor in the event of default. Article 14 of the 1975 law requires this guarantee to be provided by an approved institution before the subcontract is signed or the works begins, failing which the contract is deemed null and void. Professor Périnet-Marquet emphasises that this guarantee must cover the entire debt, including interest and other incidentals, to reduce the subcontractor's risk.

It is essential to comply with legal requirements, as the bond must be personal and joint, even if fleet bonds are now permitted in case law.

Delegation of payment, on the other hand, under article 1336 of the French Civil Code, implies a change of debtor, with the employer taking on this role in place of the main contractor.

This mechanism offers a few advantages, including reduced risk of non-payment, thanks to direct payment of the subcontractor by the owner. It also introduces transparency into the contractual chain. Less restrictive and simpler to implement than surety bonds, it is sometimes favoured in contractual relations. However, delegation of payment requires the agreement of the employer, which can slow down its effective setting up.

In case of a failure to provide a surety bond or delegation of payment, the subcontract will be deemed to be null, meaning it has legally never existed. This severe sanction is tempered a little by the fact that this nullity is relative, meaning that it can only be invoked by the subcontractor.

Case law has introduced a degree of flexibility in the application of this sanction. In several rulings, the Cour de cassation accepted that the subcontractor could not claim nullity if it performed the contract despite the absence of a warranty, with full knowledge of the defect.

Professor Périnet-Marquet stresses the importance of the owner’s role, who must ensure that the guarantees are in place in accordance with the law. Failing this, article 14-1 of the law stipulates that the owner may be required to pay sums due to subcontractors if the main contractor defaults, thus ensuring that subcontractors are not penalised for breaches upstream in the contractual chain.

Assessing the validity of warranties and the conditions under which nullity may be waived is a matter for the discretion of the judges of the court of first instance, which can lead to differences in application from one court to another. As a result, it is important for contractual actors to adopt a cautious and rigorous approach. It is therefore imperative that both subcontractors and employers:

• anticipate the introduction of mandatory guarantees as soon as the contract is signed;
• ensure the validity of bonds and payment authorisations;
• avoid performing the contract without a warranty, unless they accept the risks associated with an implicit waiver.

Ultimately, although the 1975 law has established a protective framework for subcontractors, its effectiveness depends on the proper implementation of financial guarantees and the vigilance of stakeholders.

Application of the 1975 law abroad

French case law has recognised the 1975 law as a “loi de police” in several rulings. In other words, according to the definition given in Article 9 of the Rome Convention and restated in Article 7 of the EU’s Rome I Regulation 593/2008, this law constitutes a mandatory provision which applies irrespective of the law chosen by the parties, provided that the contract has a sufficient connection with France.

In a 2007 ruling, the Cour de cassation recognised that this connecting link was established when the construction work took place in France, which it confirmed again in 2008. The same ruling also indicated that a sufficient connecting link can be established when the ultimate destination of the subcontracted products is in France. Professor Périnet-Marquet explains that, on the contrary, French courts have ruled out the application of the 1975 law when the place of performance of the work, the final destination of the products, and the place of establishment of the parties, are located abroad.

As this relatively long-standing case law indicates, there is still some uncertainty as to the application of the 1975 law to situations with a more tenuous link to France, such as when the subcontractor is established in France and carries out work for a project located abroad, or when a client registered in France orders the construction of a project located outside of the country. This question is not without consequences, as foreign regimes often offer less effective protection to subcontractors than that prescribed by the 1975 law, particularly in the event of bankruptcy of the main contractor.

Professor Périnet-Marquet questions whether the 1975 law should be mandatory in cross-border situations today, especially given the nullity that now sanctions subcontracts if the subcontractor has not been declared, or its payment conditions were never proposed for approval.

Professor Périnet-Marquet therefore encourages a pragmatic shift in practice. He recommends international subcontracting agreements include express provisions that would mirror the mechanisms set forth under the 1975 law, to avoid the discussion on whether this law applies directly regardless of the content of the subcontract. For example, these contractual provisions could include:

• payment delegation or bonding clauses, enabling the subcontractor to obtain secure payment regardless of the applicable set of rules, for example a first demand guarantee or a bond;
• a contractual structure enabling the use of dispute resolution procedures adapted to the international context, in particular mediation and arbitration.

This functional incorporation of French protective standards, via standard clauses and financial guarantees, offers a coherent path forward in a context where the extraterritorial reach of the 1975 law remains legally uncertain.

Co-written by William Brillat-Capello, Anne de Mazières and Laura Canet of Pinsent Masons.