BTP subcontracting contract: the legal guide (with template)

A plasterboard subcontractor carries out a job for a general building contractor, delivers his work, and then waits months to be paid. The main contractor cites cash flow difficulties, then stops answering, and ends up being placed in compulsory liquidation (liquidation judiciaire). The subcontractor is left with several tens of thousands of euros of unpaid invoices and an insolvent debtor. This situation, commonplace in the building and civil engineering sector (BTP), illustrates why a subcontracting contract is not just a purchase order signed in haste. This guide sets out the protective regime arising from the Law of 31 December 1975, the mechanism of the unpaid subcontractor's direct action, and the checklist of clauses to secure before signing.

What the 1975 law says about BTP subcontracting

Subcontracting in the building sector is governed by Law No. 75-1334 of 31 December 1975 on subcontracting, a public policy text that the parties cannot set aside by a contrary clause. This law was designed precisely to protect the subcontractor, regarded as the weak party in the contractual chain, against the risk of default by the main contractor.

Its first article defines subcontracting as the operation by which a contractor entrusts, by a subcontract and under its own responsibility, to another person called the subcontractor the performance of all or part of the works contract or of part of the public contract concluded with the project owner. Three players are therefore involved in the arrangement: the project owner (maître d'ouvrage), who orders and pays for the work, the main contractor, who holds the contract, and the subcontractor, who carries out part of the works without any direct contractual link with the project owner. The nature, formation and obligations of the parties to a works contract (contrat d'entreprise) are set out in our overview article on that agreement.

This absence of a direct contractual link between the subcontractor and the project owner is the heart of the problem. In principle, only the main contractor must pay the subcontractor. The 1975 law therefore created derogating mechanisms to allow the subcontractor to obtain payment even where the main contractor defaults.

The essential distinction between public and private contracts

The protection regime differs according to the nature of the contract. On a public contract, a subcontractor who has been duly accepted and whose payment terms have been approved benefits from direct payment by the public project owner, for the part of the contract that it performs (Article 6 of the law). This direct payment is automatic where the amount of the subcontract exceeds a regulatory threshold: the project owner pays the subcontractor directly, without going through the main contractor.

On a private contract, the mechanism is different and rests on two pillars: direct action against the project owner (Article 12) and the obligation to guarantee payment borne by the main contractor (Article 14). It is this second regime, the most common for craftsmen and small and medium-sized businesses in the BTP sector, that generates the most litigation.

Acceptance and approval: the formality on which everything depends

Even before turning to payment, the law imposes a preliminary formality on which the whole of the protection depends. Article 3 of the 1975 law requires the main contractor to have each subcontractor accepted and to have its payment terms approved by the project owner.

A contractor who intends to perform a contract by using one or more subcontractors must, at the time of conclusion and throughout the duration of the contract, have each subcontractor accepted and the payment terms of each subcontract approved by the project owner (Article 3, Law No. 75-1334 of 31 December 1975).

In concrete terms, the main contractor must declare the subcontractor to the project owner, indicating its nature, its amount and its payment terms. The project owner then accepts the subcontractor (it validates its involvement) and approves its payment terms.

This formality is not a mere administrative detail. Acceptance and approval are conditions for exercising direct action: case law consistently holds that a subcontractor that has not been accepted cannot bring a direct action against the project owner. In practice, a subcontractor that discovers after the event that it was never declared loses its main lever for recovery. Checking this declaration before starting work is therefore a survival reflex.

The responsibility of the project owner

Article 14-1 imposes on the project owner an active duty of vigilance. If it is aware of the presence on site of a subcontractor that has not been accepted, it must serve formal notice on the main contractor to regularise the situation. Failing that, the project owner incurs its own liability and may be ordered to compensate the subcontractor. This provision partly reverses the logic: the project owner cannot turn a blind eye to hidden subcontracting in order to avoid its obligations.

The unpaid subcontractor's direct action: the mechanism of Article 12

This is the central device for any subcontractor faced with non-payment on a private contract. The unpaid subcontractor's direct action makes it possible to bypass the defaulting main contractor and to claim payment directly from the project owner.

Article 12 of the 1975 law provides that the subcontractor has a direct action against the project owner if the main contractor does not pay, one month after having been served formal notice, the sums due under the subcontract. The mechanism rests on a simple logic: the project owner becomes the direct debtor of the subcontractor, within the limit of what it itself still owes to the main contractor.

The conditions to be met

Direct action requires several cumulative conditions to be met.

• The subcontractor must have been accepted and its payment terms approved by the project owner, in accordance with Article 3.
• The main contractor must have been served formal notice to pay and have failed to comply within the one-month period.
• A copy of the formal notice must be sent to the project owner, which triggers the direct action.
• The project owner must not already have paid the whole of the contract price to the main contractor.

This last condition is decisive. Direct action is exercised within the limit of what the project owner still owes to the main contractor on the day it receives the copy of the formal notice. If the project owner has already paid everything, direct action is empty of substance. Hence the value of acting quickly, before the sums move up the chain.

The effect of notifying the project owner

On receipt of the copy of the formal notice, the project owner is under an obligation to withhold the sums corresponding to the subcontractor's work and to pay them to it directly. If it nevertheless pays the main contractor after being warned, it risks having to pay the subcontractor a second time. Case law firmly penalises the negligent project owner that discharges its debt to the main contractor after receiving a duly made notification.

Let us illustrate with a concrete case. A tiler, an accepted subcontractor of a general contractor on a building renovation site, is not paid for its work. It serves formal notice on the main contractor by registered letter and sends a copy to the project owner, a co-ownership association (syndicat des copropriétaires). One month later, with no payment made, it exercises its direct action. If the project owner still has sums to pay to the main contractor, it must pay them directly to the tiler up to the amount of its claim. This is the mechanism that turns a virtually unrecoverable claim into actual payment.

The payment guarantee under Article 14: upstream protection

Direct action comes into play once the non-payment has arisen. The law also provides preventive protection, upstream, through the guarantee obligation in Article 14. On a private contract, the main contractor must, on pain of nullity of the subcontract, guarantee payment of the sums due to the subcontractor.

This guarantee may take two forms:

• a personal joint and several guarantee (caution personnelle et solidaire) obtained by the main contractor from a qualified financial institution, which undertakes to pay the subcontractor in the event of default;
• a payment delegation (délégation de paiement) from the project owner to the subcontractor, by which the project owner undertakes to pay the subcontractor directly.

The nullity provided for by Article 14 is a protective nullity, which only the subcontractor may invoke. A subcontractor that has received neither a guarantee nor a payment delegation therefore has a powerful legal argument: it may apply to the court for nullity of the contract and be compensated for the loss suffered. In practice, requiring the guarantee or the delegation before starting work is the best protection, far more effective than a direct action brought after non-payment.

Checklist of clauses to secure in the BTP subcontracting contract

A sound BTP subcontracting contract is not limited to describing the works and the price. It must provide for the legal and financial security of the subcontractor. These are the clauses to which particular attention should be paid.

The payment guarantee clause

This is the most important clause. It must specify the form of guarantee chosen (bank guarantee or payment delegation), the identity of the guarantor, the amount guaranteed and the arrangements for its implementation. It should be remembered that the absence of a guarantee gives the subcontractor an action for nullity of the contract. Inserting this clause and requiring its effective implementation before the site starts is not an excessive precaution; it is the foundation of the protection.

The direct payment and approval clause

The contract must record that the subcontractor has indeed been accepted and that its payment terms have been approved by the project owner, expressly referring to Article 3 of the 1975 law. It is useful to annex to the contract the acceptance document signed by the project owner. This document will be decisive for exercising direct action in the event of non-payment.

The VAT reverse charge clause

Since 1 January 2014, building work carried out by a subcontractor on behalf of a taxable customer falls under the VAT reverse charge (autoliquidation) regime, provided for in Article 283, 2 nonies of the French General Tax Code. In concrete terms, the subcontractor invoices its work exclusive of tax and does not collect VAT; it is the main contractor, as customer for the works, that self-accounts for and declares the VAT.

The subcontractor's invoice must bear the words reverse charge (autoliquidation) and must not show any VAT collected. A frequent error consists in invoicing VAT wrongly: the subcontractor is then exposed to having to pay it over without being able to recover it easily, and the main contractor cannot deduct it. The contract clause must refer to the application of this regime and specify the mandatory particulars on invoices. This mechanism concerns only the subcontracting of construction works; it does not apply to direct relations between the main contractor and the project owner.

The late performance penalties clause

The contract generally sets penalties for delay in performance attributable to the subcontractor. These clauses must be drafted precisely: starting point of the delay, daily or weekly amount, any cap. The subcontractor has an interest in negotiating a cap and in providing for grounds of exemption (bad weather, delay by the project owner in delivering substrates, changes to the works). Symmetrically, the contract may provide for penalties or late payment interest payable by the main contractor in the event of late payment, consistently with the rules applicable to payment periods between businesses.

The clause defining the works and prices

The scope of the services must be described unambiguously, with a technical description, a bill of quantities and a price schedule. Imprecision as to the content of the works feeds most disputes: additional works not ordered, services said to be included, defects attributed to one party or the other. A detailed quotation annexed to the contract considerably limits this risk.

The acceptance and warranties clause

The contract must provide for acceptance of the works between the main contractor and the subcontractor, distinct from acceptance of the structure by the project owner. It specifies the treatment of reservations, the time limits for lifting them and the conditions for release of any retention money. Finally, it recalls the subcontractor's responsibilities, as it remains liable to the main contractor for defects affecting its works. The role of retention money in the lifting of reservations, and its fate where the contractor fails, is analysed in our article devoted to that mechanism.

The insurance clause

The subcontractor must show proof of professional liability insurance and, for works falling within the ten-year liability regime (garantie décennale), ten-year liability insurance covering its activity. The contract requires up-to-date certificates to be produced. An uninsured subcontractor exposes the whole chain to a major financial risk in the event of serious defects.

Beware of "free PDF subcontracting contract templates"

Searching online for a free PDF subcontracting contract template is an understandable reflex for a craftsman or a small business that wants to move quickly. These templates nevertheless have serious limitations that should be known.

A generic template does not always distinguish the regime for public contracts from that for private contracts, even though the protection mechanisms are radically different. Many omit the payment guarantee clause required by Article 14, the absence of which is nonetheless penalised by nullity. Others ignore the VAT reverse charge regime or reproduce obsolete wording. A downloaded template does not take account of the reality of the site: nature of the works, programme, interfaces with the other trades, conditions of acceptance.

A template may serve as a starting point for understanding the structure of a contract, but it does not replace tailored drafting. Where the financial stakes are significant, review of the contract by a lawyer before signing costs infinitely less than several months of litigation over unpaid works. Legal certainty cannot be downloaded.

What to do in the case of undeclared subcontracting?

It sometimes happens that a subcontractor realises, once the dispute has arisen, that it was never accepted by the project owner. This situation is not entirely hopeless, even though it weakens the subcontractor's position.

The subcontractor retains its ordinary contractual action against the main contractor, on the basis of the subcontract, but that action is futile if the latter is insolvent. Direct action against the project owner, for its part, presupposes in principle prior acceptance. Case law nevertheless allows the liability of a project owner to be engaged where, having been informed of the subcontractor's presence on site, it failed to comply with its duty of vigilance under Article 14-1. The subcontractor may then claim damages from the negligent project owner. Reconstructing the chronology of events and gathering evidence that the project owner knew of the subcontractor's presence then becomes the central issue in the case.

Conclusion: anticipate rather than endure

The regime of the 1975 law offers the BTP subcontractor real protection, but that protection is not automatic: it operates provided it has been properly put in place upstream. The unpaid subcontractor's direct action remains the last line of defence, effective for as long as the project owner still owes money to the main contractor. But a well-advised subcontractor does not rely on that last line of defence: it secures its position at signing, by requiring the payment guarantee under Article 14 and by checking that it has indeed been accepted by the project owner.

The real dividing line is not between those who know the law and those who do not, but between those who organise their security before the site and those who discover it after the non-payment. Before signing a subcontracting contract, require the bank guarantee or the payment delegation, obtain a copy of your acceptance by the project owner, and have the guarantee, reverse charge and penalty clauses reviewed by a legal professional. These few checks turn a fragile claim into a solid right.

Frequently asked questions

What is the unpaid subcontractor's direct action?

Direct action allows the subcontractor on a private contract to claim payment directly from the project owner where the main contractor has not paid it one month after formal notice (Article 12 of Law No. 75-1334 of 31 December 1975). It presupposes that the subcontractor has been accepted and its payment terms approved. It is exercised within the limit of the sums that the project owner still owes to the main contractor on the day it receives a copy of the formal notice.

Must the subcontractor charge VAT on a BTP site?

No, in principle. Since 1 January 2014, building work carried out by a subcontractor for a taxable customer falls under the VAT reverse charge, provided for in Article 283, 2 nonies of the French General Tax Code. The subcontractor invoices exclusive of tax with the words reverse charge (autoliquidation), and it is the main contractor that declares the VAT. Charging VAT wrongly exposes the subcontractor to difficulties in recovering it.

Is a subcontracting contract without a payment guarantee valid?

On a private contract, the main contractor must provide a bank guarantee or a payment delegation from the project owner, on pain of nullity of the subcontract (Article 14 of the 1975 law). This nullity is a protective nullity which only the subcontractor may invoke. A subcontractor deprived of a guarantee may therefore apply to the court for annulment of the contract and compensation for its loss.

What happens if the subcontractor has not been accepted by the project owner?

The absence of acceptance in principle deprives the subcontractor of its direct action against the project owner. It retains its contractual remedy against the main contractor, which is often ineffective if the latter is insolvent. It may nevertheless engage the liability of the project owner which, knowing of its presence on site, did not serve formal notice on the main contractor to have it accepted (Article 14-1 of the 1975 law).

Is a free PDF subcontracting contract template enough for a site?

A free template can help in understanding the structure of a contract, but it carries real risks. Many do not distinguish between public and private contracts, omit the guarantee clause required by Article 14 or ignore the VAT reverse charge regime. Where the financial stakes are significant, having the contract adapted by a lawyer before signing costs far less than subsequent litigation over unpaid works.

What is the time limit for bringing direct action against the project owner?

Direct action becomes possible one month after the formal notice sent to the main contractor has remained without effect, with a copy sent to the project owner. Action must be taken without delay, because the action covers only the sums that the project owner still owes to the main contractor. Once the contract price has been paid in full to the main contractor, direct action loses all practical effect.

Does direct payment apply to private contracts?

No. Direct payment by the project owner is the mechanism specific to public contracts (Article 6 of the 1975 law). On a private contract, protection rests on the direct action under Article 12 and on the payment guarantee under Article 14 (bank guarantee or payment delegation). These two regimes, whose conditions of implementation differ markedly, must not be confused.