1. The subcontracting regime
Subcontracting on a public contract is governed by two complementary texts: the 1975 statute on subcontracting, which establishes the subcontractor's right to direct payment, and the procurement code, which sets the declaration and approval obligations. Both apply simultaneously, and between them they are more demanding than private practice.
The principle of direct payment
On a public contract, a first-tier subcontractor that has been declared and accepted by the buyer has a right to direct payment: it can ask to be paid by the buyer without going through the main contractor. That right is a matter of public policy and cannot be excluded by contract.
The mechanism: the subcontractor sends its valuation directly to the buyer, copied to the main contractor. If the contractor raises no objection within 15 days, the buyer pays the subcontractor directly, on the same 30-day period that applies to the contractor.
| When | Obligation | Document | Consequence of omission |
|---|---|---|---|
| At tender | Declaring the intention to subcontract and naming the subcontractors known | The declaration form for each subcontractor, or a statement in the form of tender | An undeclared subcontractor cannot claim direct payment, though it can still work |
| After notification | Presenting any subcontractor not declared at tender, with the buyer's prior agreement | A further declaration form, sent to the buyer before the work starts | A subcontractor working without agreement is a contractual irregularity, and the buyer can refuse direct payment |
| During the works | Every new subcontractor declared and accepted before working, with the rate checked | The declaration form plus the subcontractor's tax and social security certificates | Direct payment can be refused, and the contractor is jointly liable for the subcontractor's social security debts |
| On a direct payment request | The first-tier subcontractor may claim direct payment, provided the subcontracting is regular | The request plus the valuation of the subcontracted work | The buyer must pay unless justified objections are raised within 15 days |
ℹ A second-tier subcontractor has no right to direct payment Only the first-tier subcontractor, contracting directly with the main contractor, has the right to direct payment on a public contract. Second-tier subcontractors, working for a subcontractor, do not: they are paid by the first tier. That distinction matters when the economist reviews the subcontracting documents, and the tier of each declared subcontractor has to be established.
2. What the buyer and the design team have to do
Faced with a new subcontractor being presented, or a request for direct payment, the buyer and the design team have precise obligations, and failing them creates liability.
Approving the subcontractor: the buyer must approve or refuse the subcontractor presented and set the conditions of approval, respecting the minimum share of the work carried out directly and refusing subcontracting of the whole package. Tacit approval is possible where the buyer does not answer within the period set in the conditions of contract.
Checking the level of subcontracting: the contractor cannot subcontract the whole of its contract and must carry out a significant part itself. The conditions of contract can set a minimum share of direct execution, with 30 % a reasonable figure. Subcontracting everything is irregular.
Checking the tax and social security certificates: before approving a subcontractor, the buyer must verify that it is up to date with its obligations. Those checks have to be renewed every six months.
Paying within 30 days: once a valid direct payment request is received, the buyer must pay within 30 days, with interest running automatically beyond.
3. The six statutory warranties
The statutory warranties protect the client after completion, over different periods and for different purposes. The economist has to know how they fit together in order to advise the buyer on what to check at completion and afterwards.
| Warranty | Duration | Runs from | What it covers | Public against private |
|---|---|---|---|---|
| Making-good warranty | 1 year | Completion | Every defect listed at completion or notified during the year, made good by the contractor on instruction | Identical in public and private work |
| Two-year warranty on equipment | 2 years | Completion | Items of equipment removable from the building, services, taps, appliances, failing to function | Identical in public and private work, and rarely invoked |
| Ten-year structural warranty | 10 years | Completion | Damage compromising the stability of the building or making it unfit for its purpose: foundations, structure, weatherproofing | Identical in public and private work, with insurance compulsory |
| Retention | 5 % until completion and clearance of snags | Completion, released when the snags are cleared or a year later | A financial security covering snags not cleared, deducted from the valuations | Public: the standard conditions. Private: statute, at the same rate |
| Advance payment bond | The value of the advance | Payment of the advance | Guarantees repayment of the advance where the contractor does not perform | Public: the standard conditions. Private: free, and often neglected |
| Structural damage insurance | 10 years | Completion, taken out before the works start | Funds rapid repair of structural damage without waiting for liability to be determined | Compulsory for public and private clients alike |
The two to keep uppermost, the ten-year warranty and the structural damage insurance, carry the largest financial stakes. A structural loss not covered by valid insurance can be hundreds of thousands of euros falling directly on the client. The economist should check the validity of every structural warranty certificate before the instruction to commence, not afterwards.
4. How retention works, and its traps
Retention, at 5 % of the valuations, is deducted from each monthly payment and constitutes a financial reserve against defects the contractor does not put right during the making-good year. It is governed by the standard conditions and by statute.
Releasing the retention
Snags cleared within the year: where every snag notified at completion is cleared before the end of the first year, the retention is released in full. The economist should track the snagging dashboard so that release is triggered as soon as the conditions are met.
Snags outstanding after a year: where snags remain beyond a year, the retention is held until they are cleared, with a risk of dispute if the contractor challenges it.
Substitution by a bank bond: the contractor can ask to substitute an on-demand bank bond for the retention, recovering its cash immediately. The conditions of contract have to provide for that possibility.
The VAT trap
Retention is deducted from the net amount of the valuations, not the gross. VAT is paid in full on each valuation. That means the buyer accounts for VAT on work of which it is withholding part of the net value, creating a cash flow mismatch buyers often fail to anticipate.
5. Completion: procedure and checklist
Completion is the legal act by which the client accepts the works, with or without snags. It simultaneously starts every statutory warranty running, begins the release of the retention, and passes responsibility for the building to the client.
On a public contract the procedure is governed by the standard conditions. The buyer summons the contractors with adequate notice, usually 15 days, and the inspection takes place with the design team, the contractors' representatives and the buyer's representative present.
| Document or check | When | Who | Consequence if missing or inadequate |
|---|---|---|---|
| Structural warranty certificate for every contractor | Before the instruction to commence, renewed annually | Design team and economist | Work carried out with no structural cover, leaving the client uninsured for ten years |
| Public liability certificate | Before the instruction to commence | Design team and economist | The client's liability uncovered for third-party damage during the works |
| The completion record | On the day of the inspection, with or without snags | Design team, buyer and contractors | Without a signed record, completion is not official and the warranties do not run |
| The list of snags | In the record, or by letter within eight days | Design team | Snags not notified in time mean completion without snags, and the right to withhold is lost |
| The record drawings and manuals | Within 30 days of completion | Each package contractor | Without them the client cannot operate the building; require them before releasing the retention |
| Product data for the equipment installed | Within 30 days of completion | The services packages | The two-year warranty is hard to invoke without them, and the operator has no documentation |
| Clearance of the snags | Within the year following completion | The contractors | Snags outstanding at a year mean the retention is held, with a potential dispute |
| Structural damage insurance | Before the works start, taken out by the client | The client, advised by the design team | The client is uninsured for ten years and funds any structural repair while litigation runs |
ℹ Completing with or without snags: the consequences Completing with snags protects the buyer: the defects recorded have to be made good by the contractor within the period set by the design team, usually 30 to 60 days, and part of the retention stays held until they are cleared. Completing without snags on defective work is a serious error: the buyer loses its right to withhold and then has to litigate under the making-good warranty, at additional cost and delay. The practical rule: where there is any doubt, record a snag reading "to be checked after cleaning" rather than completing without snags. A snag can always be cleared, but it cannot be created after completion.
6. Handling losses during the warranty periods
After completion the economist may be asked to price losses under the statutory warranties. Three situations are common.
A loss in the making-good year
The client finds a defect covered by the making-good warranty: cracking in a render, a window that will not close, equipment that has failed. The procedure is notification by recorded letter with a period to attend, usually 30 days. If the contractor does not attend, the client can have the work done by another contractor and deduct the cost from the retention.
A structural loss
Water ingress, structural cracking, a floor dropping. Record the state of the defects, evaluate the cost of repair, put the contractors concerned on notice, often several packages, and claim on the structural damage policy to obtain a rapid repair without waiting for the litigation.
A contractor failing during the making-good year
Where the contractor goes into liquidation during the making-good year and cannot attend to the snags, the client can use the retention to fund the repairs. If the retention is insufficient, the client can claim on the structural warranty insurance or pursue the liquidator.
In summary
On a public contract a first-tier subcontractor that has been accepted has a right to direct payment; a second-tier subcontractor does not. There are four moments of declaration: at tender, after notification, during the works, and on the direct payment request. The compulsory checks cover the minimum share executed directly, the tax and social security certificates every six months, and the prohibition on subcontracting a whole package. The six statutory warranties are the one-year making-good warranty, the two-year equipment warranty, the ten-year structural warranty, the 5 % retention, the advance payment bond and the structural damage insurance, which must be in place before the works start. The retention is released when the snags are cleared or a year after completion, and can be replaced by a bank bond where the contract provides. The eight-point completion checklist runs from the structural warranty certificate, checked before the instruction to commence, through to the structural damage insurance. Always complete with snags where there is doubt: a snag can be cleared, but it cannot be created afterwards.
The nature of the figures quoted
The percentages and amounts quoted on this page are orders of magnitude for framing, not measurements. They illustrate mechanisms and proportions, and they substitute neither for a tender exercise nor for an estimate prepared on drawings.
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Sources: the BT construction cost indices published monthly by INSEE on its 2010 base, used to update the figures · construction cost statistics from SDES, the statistical service of the ministry responsible for construction · regulatory texts published in the Journal officiel and consolidated on Légifrance for the requirements cited.