Subcontracting in the construction industry: legal framework, best practices and strategies for success

Subcontracting in the building and civil engineering sector enables companies to entrust work to specialists. This method offers expertise and flexibility to main contractors. Since 2014, VAT reverse charge has applied, simplifying tax procedures for subcontractors.

Contracts between principals and subcontractors must include details of work and quality standards.

There are several forms of subcontracting: specialty, capacity and strategy, each with its own rules. Risk management and knowledge of the legal framework are vital to avoid conflicts.

Well-drafted contracts support effective collaboration between all parties involved in construction.

Understanding the principle of subcontracting in the construction industry

Definition: what is subcontracting in the construction industry?

In the building industry, a main company often hires a specialized subcontractor for specific parts of a project. This method enables the main company to benefit from the subcontractor's technical expertise.

For example, on a major building project, the main company may entrust the electrical installations to a subcontractor who is an expert in this field.

A precise contract between the principal company and the subcontractor defines the work to be carried out, the deadlines and the responsibilities of each party. This approach makes it possible to optimize resources and helps companies to focus on their speciality while respecting the needs of the project.

On a similar subject, we invite you to read our guide to finding work in the waterproofing sector.

The difference between subcontracting, co-contracting and service contracts

Subcontracting, co-contracting and performance contracting occupy distinct places in the construction industry. Each has a different influence on responsibilities, invoicing and project management.

• A principal company entrusts part of its work to a subcontractor.
• The principal remains responsible to the end customer for all work carried out.
• Invoicing takes place between the main company and the subcontractor.
• Reverse charge of VAT has been compulsory since 2014 for work carried out within this framework.
• Requires prior declaration to the relevant authorities to avoid penalties.

• Two or more companies share a main contract and work together on a common project.
• Each co-contractor has a direct contractual relationship with the customer, and is responsible for its own part of the work.
• Co-contractors invoice their share of the work directly to the customer.
• Allows a better distribution of risks and responsibilities between the parties involved.

• Agreement between a service provider (a freelancer or specialized company) and its customer to perform specific services.
• Liability is generally limited to performance in accordance with the terms agreed in the contract, often with an obligation of means rather than results.
• Invoicing is direct between the service provider and the customer, according to agreed terms (progress payment, fixed price, etc.).
• This type of contract generally offers greater flexibility in terms of intervention and execution.

Each formula has its own advantages, enabling companies in the building and civil engineering sector to optimize their operations while complying with their legal and contractual obligations.

Advantages and limitations for the main contractor and the subcontractor

Here's an overview of the advantages and limitations of subcontracting in the construction sector for main contractors and subcontractors, presented in table format for easier reading.

This overview underlines the importance for both parties of properly negotiating the terms of the outsourcing contract, maintaining clear communication and following best practices for successful collaboration.

Legal and regulatory framework

Subcontracting in the construction industry is governed by the French law of December 31, 1975. This legislation defines the rights and obligations of the parties involved. The principal must guarantee payment to the subcontractor.

Companies must comply with the French Labor Code. Each subcontract must include the purpose, the obligations of the parties, the terms and conditions of performance, and the necessary insurance.

Documents such as insurance, Kbis and a certificate of due diligence are crucial. The subcontractor must also be in good standing with URSSAF. Clear communication between client and subcontractor helps avoid delays and errors.

By complying with these rules, companies can ensure smooth execution of the work.

Law of December 31, 1975 on subcontracting

The law of December 31, 1975 governs subcontracting in the building industry. Its main aim is to protect the interests of all parties involved. Obligations are divided between the principal and the subcontractor.

This law imposes clear rules. The subcontracting contract must be in writing, and must include all mandatory legal information. Documents such as insurance, the Kbis and the certificate of vigilance must be verified.

These conditions ensure conformity and security in professional relations.

Obligations of principal and subcontractor

Both the client and the subcontractor have clear obligations when it comes to subcontracting. Each must respect these responsibilities to ensure that the work runs smoothly.

• The client must declare all subcontractors to the project owner. This declaration ensures transparency in the selection process.
• He is responsible for the quality of the work provided by his subcontractors. If they fail to do so, they are liable to the customer.
• The client must ensure that subcontractors have the necessary insurance coverage. Check documents such as the "attestation de vigilance" and the "Kbis".
• The client must accept subcontractors before any work is carried out on site. This enables a prior assessment of their competence.
• In some cases, a formal contract must be drawn up with each subcontractor. This contract includes clauses specific to the construction industry, such as those relating to liability.
• The subcontractor must carry out the work according to the terms of the signed contract. They must keep to the agreed schedule and maintain the agreed quality.
• The subcontractor must have the necessary qualifications to carry out the work. These qualifications ensure that standards are met on site.
• The subcontractor must provide all legal documents relating to his activities. This includes a valid copy of insurance and registration with the relevant authorities.
• In the event of accident or failure, the subcontractor remains liable to the client. Failure to do so could result in sanctions for all parties concerned.

These obligations guarantee a clear framework to avoid disputes and ensure successful cooperation between the main contractor and his building partners.

Documents to check: insurance, Kbis, URSSAF, vigilance certificate

Before signing a subcontract, it's crucial to gather essential documents. These documents guarantee the legality and safety of operations.

1. Ten-year insurance certificate: This document proves that the subcontractor is covered for ten years after completion of the work. It protects the main contractor against construction-related defects.
2. Proof of professional liability: This document certifies that the subcontractor has taken out insurance to cover damage caused to others during the course of his work. It reinforces protection for all parties involved.
3. Kbis: This official document shows that the subcontracting company is registered with the Registre du Commerce et des Sociétés. It provides information on the company's legal status and solvency.
4. URSSAF certificate: This document proves that the subcontractor has paid all social security contributions. It guarantees compliance with tax obligations and avoids any risk of concealed work.
5. Attestation de vigilance: This document confirms that the subcontractor complies with social and tax obligations, such as tax declarations and payments to employees. It protects the main company from possible sanctions in the event of non-compliance.

These documents are invaluable allies in the efficient management of a subcontracting relationship, enabling serene collaboration between all players in the construction industry.

Subcontracting contracts: key points to master

The subcontracting contract must include essential elements. It must include the purpose of the work, the obligations of each party and the terms and conditions of performance. Payment terms are also crucial.

Each contract must clearly define the timetable, budget and penalties for delays or failure to meet commitments.

Special cases deserve special attention. Contract termination and dispute management must be clearly specified. Rigorous administrative follow-up is essential to ensure that work proceeds smoothly.

Reverse charge of VAT has applied to subcontractors since 2014, and must be included in the compulsory information on invoices. Good practices guarantee a successful partnership between principal and subcontractor.

Mandatory legal information and clauses specific to the construction industry

A subcontracting contract must include a number of mandatory legal clauses. First, clearly identify the parties: the principal and the subcontractor. Next, specify the terms of performance, such as the duration and delivery deadlines of the work.

You should also include a precise schedule of services and a detailed budget.

Other important clauses include the responsibilities of each party. Include penalties for delays. Also cover special cases such as contract termination and potential litigation.

These elements guarantee smooth contract execution in the construction industry.

Schedule, budget, penalties, responsibilities

A clear schedule avoids misunderstandings. It defines the key stages in the execution of the work. For example, a clause may stipulate that the subcontractor must complete the first phase of a project within one month.

Delays can result in penalties. A contract may stipulate a reduction of 5% of the total amount for each week of delay.

The budget must be respected. Costs must be clearly defined in the subcontract. The responsibilities of each party must also be specified.

For example, if the budget is not respected, the subcontractor must cover additional expenses up to a certain threshold. This protects the main company and promotes good collaboration between teams.

Special cases: termination, disputes, late payment

Managing subcontractors can lead to complex situations. It's essential to know how to provide legal protection in these frequent cases.

1. Contracts are often terminated due to the subcontractor's failure to meet his commitments. The prime contractor must comply with legal procedures to avoid any disputes or further complications.
2. In the event of a dispute, it is a good idea to include a mediation clause in the contract. This enables the parties to find an amicable solution before taking legal action.
3. Late payment can destabilize a subcontractor's finances. It is important to mention any penalties in the contract, to protect the subcontractor against the principal's default.
4. Good monitoring and strict adherence to deadlines help reduce the risk of disputes arising from late payment. Anticipating these problems helps to maintain a healthy relationship between principal and subcontractor.
5. Professional liability insurance (RC Pro) is an essential safety net to cover any damage caused during the performance of the contract.
6. Referring to dispute resolution procedures improves the management of contractual relations. Having a well-drafted contract template also helps avoid misunderstandings about respective obligations.

These actions guarantee greater security for all parties involved in a construction project.

VAT reverse charge for subcontractors

The reverse charge of VAT in subcontracting has been mandatory since 2014 in the building and civil engineering sector. This method enables the principal to manage VAT without the subcontractor applying it.

The subcontractor must issue an invoice exclusive of tax (HT), mentioning "Reverse charge".

The principal calculates and declares the VAT on his tax return after receiving the invoice exclusive of tax. Subcontracted services must be invoiced without VAT, unless the subcontractor is exempt from VAT.

It is therefore essential to consult a chartered accountant to master the tax rules relating to reverse charge.

What is the reverse charge?

The reverse charge of VAT in subcontracting refers to a mechanism where the supplier does not charge VAT to its customer. Since 2014, this practice has been mandatory in the construction sector.

For example, if a subcontractor carries out work worth 10,000 euros, he must not add VAT. Instead, the principal must self-charge this VAT on his own return.

This makes it easy to deduct VAT on subcontracted work.

This system has a number of advantages for companies. It simplifies administrative procedures and improves cash flow. Companies can therefore better manage their finances while complying with subcontracting rules.

Work concerned and terms of application

The reverse charge applies mainly to construction and civil engineering work. The activities concerned include the execution of works, but exclude services such as cleaning, equipment rental and the manufacture of works without installation.

To benefit from this system, subcontractors must issue tax-free invoices stating "reverse charge". This makes it easier for the main company to meet its tax obligations.

For each project, it's essential to adapt invoicing to the work involved. Make sure that all mandatory information appears on invoices.

This ensures the smooth management of financial flows in the construction industry.

Mandatory information on invoices

Subcontracting invoices must include certain mandatory information. This ensures compliance with French legislation. Each invoice must show the invoice number, the date of issue, and the identity of the subcontractor and principal.

It is also essential to indicate the total amount and details of the work carried out.

And don't forget to include the words "Reverse Charge" on the invoice. This indication is crucial to provide information on the applicable VAT mechanism. An appropriate VAT declaration must accompany this statement.

Without these elements, the risk of misunderstandings or disputes increases.

### Exact wording to be indicated on a subcontracted invoice:

**Payment under the reverse charge VAT system "**.

How can I find subcontracted sites?

Finding subcontracting opportunities requires a proactive approach. There are several strategies for identifying interesting opportunities in the construction sector.

• Use matchmaking platforms to discover subcontractors and construction sites. Sites like Artibox, VertuoWork and AddWorking make it easy.
• Participate in public tenders to gain access to new construction opportunities. Public tenders often offer a wide variety of projects.
• Join an applicator network such as Covalba. These networks provide direct connections with other professionals and pave the way for fruitful collaborations.
• Develop your presence on social networks. Regularly post your achievements and services to draw attention to your company.
• Communicate actively with clients. Good communication guarantees effective collaboration and strengthens mutual trust.
• Keep abreast of construction industry news. Keeping up to date enables you to grasp emerging trends and opportunities in the field.
• Highlight your specific skills when submitting quotations. Show how you can meet specific project needs.
• Build strong relationships with other craftsmen and construction companies. Sharing information can lead to valuable recommendations.
• Invest in ongoing training to stay competitive. Become an expert in a specific trade to attract more potential customers.
• Create a professional website that showcases your past projects and services. This increases visibility with potential customers and makes it easier to make contact.

These actions can make it much easier for anyone in the construction industry to find subcontracting work.

Joining a network of applicators like Covalba: a direct and qualified opportunity

Joining a network of applicators like Covalba offers significant advantages. This network gives you access to qualified job sites, without having to go through conventional calls for tender.

Craftsmen specializing in reflective or cool roof paints find this an ideal platform for promoting their expertise. They connect directly with clients, simplifying the ordering process.

Covalba also guarantees rigorous project selection. By joining this network, craftsmen can secure business while remaining focused on their core business.

This enables them to respond rapidly to market demands. As a result, they benefit from increased visibility and interesting business opportunities in the construction sector.

Specialized platforms (Artibox, VertuoWork, AddWorking...)

Specialized platforms facilitate contact between contractors and subcontractors. They offer opportunities for subcontracting in the construction industry.

1. Artibox: This platform enables construction companies to quickly find qualified subcontractors. It offers a simple interface for posting projects and consulting applicator profiles.
2. VertuoWork: VertuoWork focuses on optimizing worksite management. Users will find tools for tracking work progress and coordinating teams in the field.
3. AddWorking: AddWorking offers a solution focused on flexibility and responsiveness. Companies can quickly integrate new subcontractors while efficiently managing their contractual obligations.
4. Benefits: These platforms simplify the search and engagement process, reducing the time spent negotiating with different partners. They also provide access to a wider network of players in the construction industry.
5. Disadvantages: Some platforms may charge registration fees or commissions on transactions, which can put a strain on project budgets. In addition, quality levels may vary depending on the subcontractors available.
6. Registration requirements: Most require companies to provide documents such as URSSAF certification, liability insurance and a valid Kbis extract to confirm their legitimacy in the construction sector.
7. Regular updating: It's essential to keep your information up to date on these platforms to maximize your visibility with potential principals. A good presentation attracts more customers interested in your subcontracting services.
8. Online reputation: Building a good reputation through customer reviews helps you stand out in a competitive market like construction.

These elements show how to use these platforms effectively to optimize your chances of success in subcontracting in the construction industry and create a solid professional network.

Targeted public and private tenders

Targeted public or private tenders offer interesting opportunities for construction companies. These opportunities enable subcontractors to gain exposure and win projects.

1. Visit the official public procurement website. The www.marches-publics.gouv.fr website lists all calls for tender in France.
2. Use specialized platforms such as Artibox or VertuoWork. These sites make it easy to find tenders relevant to your specific field in the construction industry.
3. Subscribe to newsletters from trade unions and chambers of commerce. These organizations regularly publish announcements concerning public and private contracts.
4. Follow professional social networks to get alerts on new tenders. Networks such as LinkedIn can keep you informed in real time.
5. Write a clear, concise response to the tenders that interest you. Highlight your skills, experience and guarantees.
6. Submit a complete file, including all the documents requested, such as the certificate of due diligence and the Kbis, in order to comply with the client's obligations.
7. Take into account the deadlines mentioned in the call for tenders to submit your application on time, as every minute counts in the final selection.
8. Contact the prime contractor directly if you have any questions about the invitation to tender, or if you would like more details about the proposed project.
9. Don't neglect the quality of the content you submit, as a well-written dossier increases your chances in the competition.
10. Anticipate possible disputes by making sure you comply with all the conditions stipulated in the invitation to tender, as this will show your professionalism to the principals.

Efficiently managing a subcontracting relationship

Good management of a subcontracting relationship relies on communication. To be successful, the principal must establish a solid relationship with the subcontractor. This communication helps to clarify expectations and ensure that contractual obligations are met.

The details of the subcontract should include the precise work, schedule and budget.

Coordinating efforts on site is essential. It helps avoid delays and disputes. Anticipating possible problems also helps to secure payments.

The project owner must accept every subcontractor to comply with current legislation. Taking these factors into account ensures the success of a building project.

Communication, coordination and site management

Good communication is essential in the subcontracting relationship. Coordination between all parties ensures that the project runs smoothly.

1. Designating a contact person provides a key point of contact for managing interactions. This facilitates smooth communication and avoids misunderstandings.
2. Regular meetings help to synchronize teams and check on project progress. These meetings reinforce the cohesion between client and subcontractor.
3. Using monitoring tools such as specialized software enables you to view the progress of work in real time. These tools provide better traceability of tasks carried out and to be carried out.
4. Coordinating the schedule is crucial to meeting the deadlines set out in the subcontracting contract. Keeping to schedule reduces the risk of disputes or late payment.
5. Constant quality control ensures that materials meet the desired building standards. It also protects the image of the main company in the event of customer dissatisfaction.
6. Anticipating potential problems enhances the ability to effectively manage a crisis on site. Identifying a dispute early on can avoid severe penalties, such as those associated with concealed work.
7. Maintaining complete documentation supports all exchanges during the worksite. Well-kept documents also protect against future challenges to the fulfillment of contractual obligations.

These elements are an integral part of effective management, contributing to the overall success of the project within a legal framework adapted to subcontracting in the construction industry.

Monitoring contractual obligations and planning

Monitoring contractual obligations is crucial to the success of a subcontracting project. Good schedule management ensures that every stage of the project runs according to plan.

1. Draw up a precise schedule for each task. This document serves as a guide throughout the project.
2. Use a dashboard or job tracking software. This tool makes it easy to visualize progress and deadlines.
3. Regularly check contractual obligations. Each party must respect its commitments to avoid future disputes.
4. Document all exchanges with the subcontractor. Keeping a written record ensures total transparency.
5. Schedule regular meetings to discuss site progress. These meetings enable you to adjust objectives if necessary.
6. Track costs related to services provided by the subcontractor. Make sure that all expenses remain within the initial budget.
7. Anticipate potential safety complications, as stipulated in the Prevention Plan. Site security is essential to protect everyone involved.
8. Relax the flow of information between all project stakeholders, including the client and the French Building Federation.
9. Remain flexible in the face of unforeseen circumstances, but don't forget your legal and administrative obligations.
10. Evaluate the subcontractor's performance regularly to ensure that he is meeting his financial and operational commitments, particularly those relating to URSSAF and other social bodies.

This proactive approach not only ensures legal compliance, but also a productive partnership with your subcontractor in the building and public works (BTP) sector.

Anticipate disputes and secure payments

Anticipating disputes and securing payments is crucial in subcontracting. Good management protects both the main company and the subcontractor.

1. Establish clear payment schedules from the outset of the contract. This ensures that each party knows when it is due to receive or make payments.
2. Include a mediation clause in the subcontract. This clause avoids lengthy and costly disputes by establishing a method for rapid resolution.
3. Use holdback clauses to protect your interests. Limit payments to 95% of the final amount until all work has been completed.
4. Make sure the subcontractor provides a payment guarantee. This ensures that workers are paid, even if the principal encounters financial problems.
5. Keep rigorous documentation of all communications and transactions. Solid evidence makes it easier to manage any disputes.
6. Schedule regular follow-ups with your subcontractor to discuss progress or potential problems on site.
7. Systematically check documents such as insurance, Kbis, URSSAF and attestation vigilance before any commitment.
8. Set up a prevention plan to guarantee safety on site. This helps you meet legal obligations while protecting your employees.
9. Anticipate delays by including penalties in the contract if deadlines are not met.

These steps contribute to a smoother relationship between the different parties involved in building and civil engineering contracting, minimizing the risk of conflict and ensuring smooth payments.

Risks and responsibilities when subcontracting

Subcontracting presents significant risks. Loss of control over quality can occur. Coordination problems between parties often affect projects.

Joint and several liability exists in the event of subcontractor failure. This means that the main company can be held responsible for the subcontractor's errors. Penalties for non-declaration or concealed work can be severe.

Safety obligations, such as the Prevention Plan, are crucial. They are designed to guarantee safety on the worksite. Companies must pay close attention to these requirements.

A subcontracting agreement must stipulate clear terms of performance and responsibilities in the event of a dispute. This approach prevents potential conflicts and secures payments.

Joint and several liability in the event of subcontractor default

Joint and several liability commits the client in the event of subcontractor default. This means that if the subcontractor fails to meet its obligations, the principal company can be held liable.

This can lead to financial problems. Bad workmanship can also damage a company's reputation. In the event of concealed work, financial penalties apply.

The French Public Procurement Code imposes strict obligations to avoid these risks.

To protect his project, the client must check the subcontractor's guarantees. Insurance and a certificate of due diligence are essential. Rigorous monitoring of subcontracting relationships helps to anticipate disputes.

To reduce dependence on subcontractors, clients must choose their partners carefully.

Penalties for non-declaration or concealed work

Failure to comply with legal obligations exposes companies to severe penalties. Consequences vary according to the nature of the violation.

• Fines can reach 45,000 euros for a company. An individual may have to pay up to 15,000 euros.
• Fraud carries a prison sentence. The person responsible risks up to three years' imprisonment.
• Companies must declare their subcontractors to avoid penalties. Failure to declare may result in a ban on bidding for public contracts.
• In the event of concealed employment, the courts consider the principal jointly and severally liable with the subcontractor. This means that if the subcontractor fails to pay, the client must pay.
• The use of undeclared workers exposes the company to a tax reassessment. The tax authorities can reclaim unpaid contributions, plus interest and penalties.
• In terms of safety, the absence of a Prevention Plan or SPS (Safety and Health Protection) can lead to administrative sanctions. The Labour Inspectorate can impose fines for each breach.

Companies must therefore comply with the rules to avoid these serious consequences in the management of their building subcontractors.

Safety obligations (Prevention Plan, SPS, etc.)

Safety on construction sites is of paramount importance. Each company must comply with specific obligations.

1. The Prevention Plan sets out the measures needed to avoid risks. This plan must be drawn up before work begins. It promotes coordination between the various companies involved.
2. The presence of several companies entails SPS (Safety and Health Protection) obligations. An SPS coordinator must supervise the worksite. This role facilitates communication between all parties involved.
3. Each company must provide its own means of prevention. This includes appropriate personal protective equipment (PPE). Each company must ensure that its personnel are trained in good practice.
4. Regular checks ensure compliance with safety standards. Audits help to identify any shortcomings at an early stage. Authorities can impose sanctions in the event of non-compliance.
5. Insurance requirements are also crucial to cover any workplace accidents. Each subcontractor must therefore provide a valid insurance certificate before working on site.

These elements not only guarantee safety, but also the quality of the project as a whole, while avoiding future disputes related to liability and safety in the construction industry.

Conclusion

Subcontracting is a real flexibility tool for construction companies. However, this practice needs to be legally secure to avoid complications.

Follow the three golden rules: draw up a clear contract, ensure rigorous follow-up and maintain fluid communication with your subcontractors. In this way, you'll maximize the chances of success for your projects, while preserving the quality of the work.

FAQ

1. What is subcontracting in the construction industry?

Subcontracting in the construction industry is the practice whereby a main contractor delegates part of its main contract to one or more subcontractors. This may include the supply of technical services or materials for a similar project.

2. What is the legal framework for subcontracting in the construction industry?

The legal framework for subcontracting in the building industry is defined by the subcontracting agreement signed with the client. It defines the obligations of each party, including the subcontractor's obligation of result.

3. How do you plan and manage subcontractors in a construction project?

To plan and manage subcontractors effectively, it's a good idea to carefully select companies according to their capabilities and specialties. It's also important to draw up a clear contract specifying their responsibilities and obligations.

4. What is cascade and capacity subcontracting?

Cascade subcontracting is a practice whereby the main subcontractor delegates part of his contract to other subcontractors. Capacity subcontracting, on the other hand, enables the main company to increase its production or service capacity by calling on subcontractors.

5. What are the best practices for successful subcontracting in the construction industry?

Best practices for successful subcontracting in the construction industry include careful selection of subcontractors, clear and precise contracts, and proper management and supervision of subcontracted work.

6. What are the risks associated with subcontracting in the construction industry?

The risks associated with subcontracting in the construction industry can include the reclassification of an employment contract as a service contract, failure by the subcontractor to comply with legal obligations, or problems linked to the quality of the work carried out.

Read our articles on subcontracting and professional networks.

To find out more :

• How to get more work?
  
  
• Ways to expand your construction business