Construction and projects in France: overview

A Q&A guide to construction and projects law in France.

The Q&A gives a high level overview of the main trends and significant deals; procurement arrangements; transaction structures and corporate vehicles; financing projects; security and contractual protections that funders require; standard forms of contracts; risk allocation; excluding liability, including caps and force majeure; contractual provisions covering material delays and variations; appointing and paying contractors; subcontractors; licences and consents; projects insurance; employment laws; health and safety; environmental issues; corrupt business practices and bribery; bankruptcy/insolvency; public private partnerships (PPPs); dispute resolution; tax and mitigating tax liability; and proposals for reform.

To compare answers across multiple jurisdictions, visit the construction and projects Country Q&A tool.

This Q&A is part of the global guide to construction and projects law. For a full list of jurisdictional Q&As visit www.practicallaw.com/construction-guide.

Contents

Overview of the construction and projects sector

1. What are the main trends in the local construction and projects market? What are the most significant deals?

Main trends

Following several years of crisis, 2016 has been marked by a recovery in the French construction sector, including a 5.7% increase in the second quarter of 2016 in the construction of new projects in the residential sector compared to the same period last year. This situation is likely to continue into the coming months, following a 10.3% increase in building permits obtained in the second quarter of 2016.

Non-residential sectors saw a promising increase of 11% in the second quarter of 2016. Meanwhile, public procurement has achieved a strong growth of 23.2% between March and May 2016 compared to the same in the previous year.

Since the Grenelle de l'Environnement, which is an environmental reform process launched in 2007, France has been committed to fighting global warming and has passed several laws to regulate a potential project's effects on the environment (see Question 24). Recently, it also initiated its energy transition with the Energy Transition Act (Loi relative à la transition énergétique pour la croissance verte), promulgated on 17 August 2015 (see Question 25). The French Government has undertaken extensive reforms in 2015 and 2016 on contract law and public procurements that will affect certain aspects of the construction sector (see Question 37). These legal reforms should, in a context of historically low interest rates, help sustain construction activity in France in the coming year.

Major projects

Recent significant projects include the following, which were all closed as limited recourse financing public-private partnerships:

  • The Hexagone Balard. This complex now hosts the new offices of the French Ministry of Defence (project cost: EUR4.2 billion euros).

  • The LGV Bretagne-Pays-de-la-Loire. This high-speed rail line will connect the city of Rennes to Paris, bringing the journey time between the two cities to less than an hour and a half (project cost: EUR3.3 billion).

  • The Tribunal de Grande Instance de Paris. The future Paris law courts building will unite five facilities currently spread around Paris in a single location (project cost: EUR2.7 billion).

  • The Nîmes-Montpellier rail bypass. It aims to speed up the connection between Montpellier, Nîmes and Paris, reducing the journey time between Montpellier and Paris to less than three hours (project cost: EUR1.8 billion).

Some other recent private projects include:

  • The Majunga Tower. It became the fourth tallest skyscraper in France in 2014 and is located in Paris (project cost: EUR377 million).

  • The Incity Tower. It is France's third highest skyscraper and is located in the business district of Lyon (project cost: EUR124 million).

  • The Asvel Arena. This future 10,500-seat sports arena in Lyon will open in 2018. It will also consist of 2,000 square metres of shops and a venue for major events and concerts (project cost: EUR60 million).

 

Procurement arrangements

2. Which are the most common procurement arrangements if the main parties are local? Are these arrangements different if some or all of the main parties are international contractors or consultants?

Key parties involved in construction projects are:

  • The employer (also known as the client, the owner or the maître de l' ouvrage), which is the party procuring the work.

  • The contractor (also known as the builder or entrepreneur). The employer usually enters into a contract with the main contractor, who will then be responsible to the employer for building the project in accordance with the plans and specifications, and will subcontract specific works packages.

  • The design and project management team (for example the architect and engineer acting as maître d'oeuvre).

  • The supervision unit or technical control bureau.

  • The health and safety coordinator who supervises the health and safety aspects of a project (coordonnateur de sécurité et de protection de la santé) (see Question 24).

  • Subcontractors (see Question 17).

  • Funders (lenders and investors).

Traditionally, the design phase is separate from the construction phase. The employer selects and appoints the design team and the construction contractors separately.

In the private construction sector, the most commonly used contract is the construction contract (contrat d'entreprise). The voluntary standards organisation Association Française de Normalisation (AFNOR) provides a commonly used contractual standard (see Question 6). The parties can individually negotiate a contract. However, when larger and higher-risk projects are at stake, the employer may require a tender process. The same applies to design and project management contracts; while they are generally entered into on a directly negotiated basis, they may sometimes follow a competitive process (see Question 14).

To procure the construction of buildings, besides the traditional construction contract, the parties can use either:

  • A real estate promotion contract (contrat de promotion immobilière) in which the employer will contract with a developer to ensure the performance of a defined construction program.

  • Off-plan property sales (vente en l'état futur d'achèvement), where part of the project's financing comes from acquisition proceeds generated before completion.

The arrangements will be the same, whether the parties are local or foreign. There is no specific restriction in the private construction sector, except for restrictions relating to non-EU architects (see Question 18).

In the public sector, procurement arrangements include:

  • Public procurement contracts for works (marchés publics de travaux).

  • Concession contracts (contrats de concession).

  • Public private partnerships (partenariats public-privé) (J).

Public procurements exceeding EUR5.25 million must be announced at the European level, so that contractors or consultants registered in other EU countries are informed and can participate in the tender. However, defence and security procurements must be carried out by EU operators, unless authorised by the authority in charge on a case by case basis.

 

Transaction structures

3. What transaction structures and corporate vehicles are most commonly used in both local and international projects?

Local projects

Several structures are available to organise the relationships between contractors according to the complexity of the project, their objectives, level of responsibility and other factors.

Incorporated vehicles

Incorporated structures mainly include:

  • An economic interest group (groupement d'intérêt économique) (GIE)). The GIE is a legal structure regulated in the Commercial Code (Article L. 251-1). Its objective is to allow companies to unite their efforts where they have common interests, while preserving their total independence. Its members are jointly and severally liable for its debts. However, this joint and several liability can be excluded in the agreement entered into with the employer, as it is not a rule of public policy (règle d'ordre public).

  • A general partnership (sociétés en nom collectif) (SNC). The SNC is also regulated in the Commercial Code (Article L. 221-1). It is used by parties wishing to benefit from its simplicity and flexibility. The main feature of the SNC is the joint and several liability of its members for the project they undertake together. The SNC is best adapted to a small number of shareholders who know and trust each other.

  • A simplified joint-stock company (sociétés par actions simplifiée) (SAS). This is a form of limited liability company regulated in the Commercial Code (Article L.227-1). Shareholders enjoy flexibility on how they organise their SAS. A shareholder's liability is limited to its investment in the SAS.

Non-incorporated vehicles

Non-incorporated structures include:

  • Consortiums, which are generically called temporary enterprise groups (groupements momentané d'entreprises) (GME). The GME is a private agreement concluded between companies that wish to collaborate on the performance of a contract, which they could not have pursued alone. It has no legal personality and the contractual relationship between the parties exists only for the duration of the specific project. Depending on the arrangement chosen by the parties, three situations can occur:

    • joint liability of each member (groupement conjoint). Each member is only liable for its own scope of work.

    • joint liability of each member but the leader of the GME is jointly and severally liable for the whole contract (J).

    • each member is jointly and severally liable for the whole contract (groupement solidaire). Therefore, cross-indemnities must be agreed among the members of the GME, for the indemnifying member to be able to claim against the member responsible for the indemnified damages (see Question 5).

  • Undeclared partnerships (sociétés en participation) (SEP). A SEP is a hidden company, whose existence is unknown to third parties (except for the tax authorities). It is used by parties wishing to share the profits and losses of a project among themselves without incurring the joint and several liability of a general partnership. As long as the SEP remains unknown by third parties, each partner is solely liable for its own scope of work.

International projects

Structures for international projects are mostly the same as those available in local projects. However, there is a structure called a European Economic Interest Group (groupement européen d'intérêt économique), which is available for European companies wishing to unite their efforts when performing a contract. It has the same characteristics as the GME.

 

Finance

4. How are projects financed? How do arrangements differ for major international projects?

Projects are mainly financed from equity and debt through a single lender or multiple lenders. A limited number of large public private partnerships projects have also been financed through the issuance of project bonds.

The European Investment Bank can provide or back funding for certain projects. The Investment Plan for Europe, also known as the Juncker plan, which was launched at the end of 2014 with the aim of moblising at least EUR315 billion in private and public investment over three years (2015 to 2017) plays a role in supporting large investments in key areas such as infrastructure and renewable energy.

 

Security and contractual protections

5. What forms of security and contractual protections do funders typically require to protect their investments?

Security

Depending on the nature of the development and the client, typical forms of security required by lenders include:

  • Security rights over assets (sûretés réelles), and in particular pledges on bank accounts and shares, generally used for public projects.

  • Mortgages on buildings, generally used for private projects.

  • Personal security (sûreté personnelle) in the form of guarantees (cautions solidaires) from the project sponsors or their parent companies, and in the form of on-demand bonds from their banks.

Contractual

Funders may require step-in rights clauses that will allow them to replace the contractor to perform the project when the contractor is in breach of its obligations.

 

Standard forms of contracts

6. What standard forms of contracts are used for both local and international projects? Which organisations publish them?

Local projects

In France, civil construction contracts are usually bespoke contracts. However, some of those contracts are derived from standard forms that have been issued for both private and public works, such as:

  • Voluntary Association Française de Normalisation (AFNOR) standards, which are widely used for both public and private procurements and identified by the abbreviation NF (normes françaises). The two main AFNOR norms used for private construction works are:

    • NF P.03-001 for private works; and

    • NF P.03-002 for civil engineering works.

  • The General Administrative Conditions of Contract (cahier des clauses administratives generals) (CCAG) and the Special Administrative Conditions of Contract (cahier des clauses administratives particulières) (CCAP) for public procurements contract, which are used in public contracts and contain contractual provisions to be referred to by the parties.

International projects

Parties to international projects usually refer to standard forms of contracts provided by the International Federation of Consulting Engineers (Fédération Internationale des Ingénieurs-Conseils) (FIDIC). In practice, the most commonly used FIDIC contracts are the Red Book (construction works), the Yellow Book (design-build) and the Silver Book (engineering, procurement and construction /turnkey contracts). A revision of the FIDIC templates has been announced and is due to be released in 2017.

The main difference between the Red Book and the Yellow Book is that the Yellow Book includes design obligations intended to be borne by the contractor, while these obligations are borne by the employer in the Red Book. The Silver Book also provides for design and build obligations for the contractor; however, as it is a turnkey contract, the contractor accepts most of the risks arising from the contract (including unforeseen geological conditions) in exchange for a higher fixed price than in the Yellow Book.

A recent trend has been the developing use of collaborative contracts (for example, joint contracts tribunal and new engineering contracts) for international projects, as opposed to contracts relying on the apportionment of risks between the parties (for example, FIDIC).

 

Contractual issues

Contractors' risks

7. What risks are typically allocated to the contractor? How are these risks offset or managed?

The contractor typically bears the design and construction risks, as it is best placed to take these risks and mitigate them. These include:

  • Design obligations.

  • Ground risk.

  • Choice of materials.

  • Cost escalations.

  • Insolvency of subcontractors.

  • Completion of the works on the date foreseen in the contract.

The liability of contractors is usually limited (see Question 15), except when the liability derives from public order (ordre public) rules (see Question 8).

 

Excluding liability

8. How can liability be excluded or restricted under local law?

Contractual liability

Parties can include a clause in the contract limiting or excluding their liability to another party. This includes the right for the contractor to exclude its liability for indirect or consequential losses, including loss of business or profits.

However, there are exceptions to this general principle of validity and these clauses would not be valid if:

  • A party is guilty of gross negligence (faute lourde) or wilful misconduct (dol).

  • The contractual liability provided is insignificant, as a result of a too broad exclusion clause.

  • A party is liable by reason of a law, which is a matter of public policy (ordre public). The French legal guarantee regime is one example of a matter of public policy, which cannot be contractually excluded. It includes the:

    • one-year completion guarantee (garantie de parfait achèvement), which applies to the repair of all defects indicated by the employer during the first year following handover (Article 1792-6, Civil Code);

    • biennial guarantee (garantie de bon fonctionnement), which applies to the repair of all defects affecting separable equipment (that is, equipment that can be detached from the civil works without damaging the civil works or being damaged) during a two-year period following handover (Article 1792-3, Civil Code); and

    • decennial guarantee (garantie décennale), which applies for ten years following handover of the works to the repairs of any defects that compromise the stability of a building (for example walls, structure and roofing) or that render it unsuitable for its purposes (Article 1792, Civil Code). Nevertheless, parties can limit their decennial liability when performing a public contract (that is, a contract with the state or a local authority). French administrative courts have ruled, for example, that a provision which reduces the warranty period from ten to five years is valid.

Tortious liability

Parties cannot limit or exclude their liability towards third parties arising out of tort. Indeed, limitation and exclusion of liability clauses are only valid in contractual obligations under special conditions (see above, Contractual liability).

 

Caps on liability

9. Do the parties usually agree to a cap on liability? If yes, how is this usually fixed? What liabilities, if any, are typically not capped?

Caps on liability are often agreed between the parties in their contract, especially in large and complex projects. Usually, they are expressed as a percentage of the contract price. In limited recourse project finance structures, figures around 20% to 40% are not uncommon. The figure mostly depends on the potential financial costs of delays or other breach of a contractor's obligations leading to termination and retendering of the contract.

Some liabilities cannot be capped because it is either legally forbidden or a matter of public policy (ordre public) (see Question 8).

 

Force majeure

10. Are force majeure exclusions available and enforceable?

Force majeure is an implied term under which no damages can be claimed against a party, which was prevented from performing its obligations due to a force majeure event.

Following a reform of French contract law (see Question 37), the concept of force majeure is now defined as an event outside of control of the contractor, that could not have been foreseen while concluding the contract and for which the impact cannot be avoided (for example, a hurricane) (Article 1218 (new numbering), Civil Code). The parties can also contractually define other events that will qualify as force majeure.

 

Material delays

11. What contractual provisions are typically negotiated to cover material delays to the project?

Most construction contracts contain an extension of time mechanism entitling the contractor to claim an extension of time where an event for which it does not bear the risk has an impact on the programme of works. Usually, the contract will require that the contractor gives notice within a set period claiming an extension of time, setting out the reasons for the extension of time and the actual impact on the programme of works. The parties can negotiate in the contract which type of events will entitle the contractor to claim an extension of time and time-related costs (for example, changes concerning the volume of the works, changes arising from unforeseen difficulties during the performance of the works, postponement of works decided by the employer, and so on).

Where the contractor bears the risk of delays, it usually incurs contractual penalties. A delay penalty is defined as a lump sum for which the contractor is liable per delay time period, and usually computed per day. A delay penalty does not have to be based on a fair estimate of the expected losses. It can, however, be moderated by a judge if it is excessive or unreasonable (Article 1152, Civil Code).

 

Material variations

12. What contractual provisions are typically negotiated to cover variations to the works?

An employer can demand variations to the works in construction contracts. If it does so, the contractor can usually claim for additional costs and/or an extension of time (see Question 11).

 

Other negotiated provisions

13. What other contractual provisions are usually heavily negotiated by the parties?

Usually, the most negotiated provisions by the parties when concluding a contract are related to the following topics:

  • Scope of work.

  • Price.

  • Performance bond.

  • Liability cap.

  • Design risk.

  • Ground risk.

  • Permitting.

  • Subcontracting.

  • Defects liability period.

  • Extension of time.

  • Rejection.

  • Termination.

  • Compensation on termination.

  • Suspension in case of delay of payment by the employer.

  • Indemnification.

  • Liabilities.

 

Architects, engineers and construction professionals

14. How are construction professionals usually selected? Following selection, how are they then formally appointed?

The selection of construction professionals is usually free and left to the employer's discretion. Exceptions include:

  • The selection and appointment of construction professionals in the public sector. These construction professionals are usually selected following a tender procedure and are then formally appointed when they sign the contract deed of commitment (acte d'engagement) with the employer.

  • The selection and appointment of a design and project management team where the employer is subject to the rules governing public procurement contracts (see Question 37). The design and project management team is also selected by the employer following a tender procedure (marché de maitrise d'oeuvre).

 
15. What provisions of construction professionals' appointments are most heavily negotiated? Are liabilities commonly limited or capped in construction professionals' appointments?

The most heavily negotiated provisions regarding appointment of construction professionals relate to:

  • Fitness for purpose of the works.

  • Assumption of lump sum price.

  • Fixed date of handover.

  • Provisions seeking to limit the liability of construction professionals, such as a financial cap on the contractor's liability.

When negotiating a cap, the parties must consider what type of cap would be preferred (an aggregate or a cap per claim) and what exclusions should apply. Liability caps must always be considered within the context of the contract itself and must be balanced with regard to the contract's terms and conditions. The decision on the limitation will have to be made with regard to the services provided by the contractor, the value of those services, the insurance coverage contractually agreed on and so on. Some liabilities cannot be capped (see Question 8).

 

Payment for construction work

16. What are the usual methods of payment for construction work? Are there ways for the contractor and consultants to secure payment or mitigate risks of non-payment under local law?

Methods of payment

The contract usually provides for monthly payments as the work progresses. Payments must be made no later than at the end of the month during which the period of 45 days from the billing date has expired, or 45 days from the end of the billing month (Article 441-6, Commercial Code). These payments are subject to a 5% withholding as security for any defects arising out of the works within one year following completion (Law 71-584 of 16 July 1971). However, this withholding is not necessary if a bank guarantee is provided by the contractor for the same amount.

After completion of the works, the contractor must prepare a final statement (mémoire définitif) comprising all sums that it considers to be due. The project manager (maître d'oeuvre) then establishes a décompte définitif and sends it to the employer who, in turn, pays the sums to the contractor. If it appears that the contractor has been overpaid, the contractor must repay any surplus to the employer.

Securing payment

The employer must guarantee the sums due to the contractor (Article 1799-1, Civil Code). This is either:

  • A direct payment by a lending institution to the contractor, when the works are entirely financed through a specific credit facility.

  • A joint and several suretyship agreed to by a lending institution, when the works are not (or only partially) financed through a specific credit facility.

The employer's guarantee is a requirement when the amount of the contract exceeds EUR12,000 (excluding VAT). The contract cannot exclude this guarantee as a matter of law (ordre public), but some contracts are exempted from this obligation to include it (for example, public contracts).

 

Subcontractors

17. How do the parties typically manage their relationships with subcontractors?

Subcontracting is regulated by Law 75-1334 of 31 December 1975 on Subcontracting, which is not only a public order (ordre public) but also an overriding mandatory provision (loi de police) within the meaning of private international law. As a consequence, it applies to all works performed in France even if the governing law of the contract is not French law.

Law 75-1334 provides that, to hire subcontractors, a contractor must obtain the employer's consent to both their:

  • Identity (acceptation du sous-traitant).

  • Payment terms (agrément des conditions de paiement).

The obligation to submit the subcontractors for approval lies with the contractor. A submission can be made before or during the performance of the subcontract. The contractor must also provide the employer with a copy of the subcontracting agreement upon request.

If the employer becomes aware of the presence of unapproved subcontractors on the construction site, it must notify or remind the contractor of its obligation to submit all subcontractors for approval.

Law 75-1334 was promulgated to prevent situations in which the insolvency of the prime contractor could lead to insolvency of its subcontractors. Its purpose is to provide subcontractors with a direct right to payment or action against the employer. Therefore the law makes a distinction between:

  • Direct payment (paiement direct), which is applicable to works ordered by the state, local entities or public companies (that is, public works). In this case, subcontractors that have been approved by the employer are paid directly by it. This regime is highly protective of the subcontractor.

  • Direct action (action directe), which applies to all other works (that is, private works). In this case, subcontractors that have been approved by the employer can claim payment from the employer, only if the contractor fails to pay amounts due. This scheme is less protective of subcontractors. This is why Law 75-1334 creates an obligation on the contractor to provide payment guarantees to its subcontractors, in the form of either:

    • a bank guarantee (caution personnelle et solidaire) covering all sums due; or

    • a delegation of payments from the employer for the benefit of the subcontractor. This gives the subcontractor a right to direct payment from the employer, which makes the right of direct action pointless.

 

Licensing

18. What licences and other consents must contractors and construction professionals have to carry out local construction work? Are there any specific licensing requirements for international contractors and construction professionals?

No licences or consents are needed for construction professionals (engineers, contractors, and so on) to operate or to carry out building works. However, specific authorisation is needed for non-EU architects.

 
19. What licences and other consents must a project obtain?

Before construction

The construction of any new project may require authorisation from the relevant authority (either the mayor or the prefect), in the form of a prior declaration (déclaration préalable) or a building permit (permis de construire), depending on the characteristics of the project (Article L. 421-1, Town Planning Code). The owner of the project is responsible for obtaining the above authorisations. However, some facilities are exempted from these formalities because of their limited impact (Article R. 421-2 et seq., Town Planning Code).

The same rules apply for all works done on existing buildings (Article R. 421-14 et seq., Town Planning Code).

During construction

Ongoing construction projects are subject to regular safety monitoring from local authorities (the prefect, the mayor and officials commissioned by the minister of construction and urban development). These authorities canrequest all technical documents relating to the implementation of the project, particularly those concerning accessibility for people with disabilities. This right can be exercised for three years after completion of the works (Article L. 461-1, Town Planning Code).

On completion

On completion of the works, the owner of the project must provide the relevant mayor with a certificate attesting completion and compliance of the works with either the (Article L. 462-1, Town Planning Code):

  • Prior declaration.

  • Building permit.

In general, at its discretion, the relevant authority can require the owner of the project to take measures if the works are not compliant with the prior declaration or the building permit. However, for some categories of works (for example, those situated in a conservation area), the relevant authority must require the owner to perfect non-compliant works (Article R. 462- 7, Town Planning Code).

 

Projects insurance

20. What types of insurance must be maintained by law? Are other non-compulsory types of insurance maintained under contract?

Compulsory insurance

A number of compulsory insurances must be provided by various parties no later than the start date of the works. These are outlined below.

Decennial liability insurance (assurance responsabilité décennale). Each builder participating in a construction project must obtain individual decennial liability insurance (Article L. 241-1, Insurance Code). This obligation only concerns builders that may have a liability arising out of Article 1792 of the Civil Code, for damages covered by the decennial guarantee (the contractor, the architect, and so on) (see Question 8).

The employer can also require a collective agreement for decennial liability (contrat collectif de responsabilité décennale) (CCRD) for all builders in large and complex projects whose total estimated costs exceed EUR15 million (Article R.243-1, Insurance Code). The CCRD is a second level of insurance contract and aims to complement builders' individual decennial liability insurances.

Structural damage insurance (assurance dommage ouvrage). An employer may be required to obtain structural damage insurance (Article L. 242-1, Insurance Code) to guarantee the cost of repairs for any damage for which contractors are responsible under Article 1792 of the Civil Code (see Question 8). However, there are several exceptions to this obligation (for example, public legal entities).

The damages covered by the decennial liability insurance and structural damage insurance are the same: unfitness for purpose and structural damages, for a period of ten years from completion and handover. The purpose of the structural damage insurance is to allow the employer to obtain compensation quickly, before its structural damage insurer claims against the builders' decennial liability insurers. In this way an employer can be compensated before liability among builders is ascertained and apportioned.

Both the decennial liability insurance and the structural damage insurance can be covered by a single works insurance policy (police unique de chantier) taken by the employer, that will cover all builders' decennial liability. This single policy is, however, rarely used nowadays.

Professional liability insurance (assurance responsabilité civile professionnelle). Architects are legally required to take out professional liability insurance to cover their professional liabilities that may arise during a construction project.

Civil liability insurance. Insurance against civil liability arising out of the use of vehicles (assurance responsabilité civile pour les véhicules civile terrestres à moteur). Any person who may have its civil liability engaged for damages suffered by a third party where a vehicle is involved must be covered by this insurance.

Non-compulsory insurance

Non-compulsory insurances commonly include:

  • Civil liability insurance (assurance responsabilité civile). This can be obtained by all professionals that are not legally required to cover their liability.

  • Construction all-risks insurance (assurance tous risques chantier). An employer can take out this insurance to cover all damages that may arise before completion of the works. It may be possible to extended the policy to cover losses due to damage occurring during the works.

  • Decennial liability insurance (assurance responsabilité décennale) obtained by the subcontractor. Subcontractors are not deemed to be builders under Article 1792 of the Civil Code and therefore they are not obliged to have mandatory decennial liability insurance as provided in the Insurance Code.

 

Employment laws

21. What are the main requirements for hiring local and foreign workers?

Local workers

The Labour Code provides several rules regarding employment contracts, conditions of employment, working conditions and termination of employment.

Before hiring any employees, the employer must provide a prior declaration of employment (declaration préalable à l'embauche) to the social security agency (the URSSAF). It must be made at least eight days before the hiring and contain the following (Article R. 1221-1, Labour Code):

  • Information relating to the employer (for example, business licence number).

  • Information relating to the worker (for example, national identification number).

  • Date and time of hiring.

  • Nature and duration of the contract.

Failure to comply with this obligation will result in a penalty amounting to 300 times the minimum guarantee (EUR1,056 per worker).

In addition, the employer must comply with other obligations (for example, requiring the worker to pass a medical examination prior to the employment, and so on.).

Foreign workers

Foreign workers must obtain a work permit (permis de travail) and a residence permit (permis de séjour). However, specific residence permits will allow foreign workers to work on the French territory without holding an independent work permit. These include a:

  • Resident card (carte de résident), which is valid for a duration of ten years.

  • Skill and expertise residence permit (carte de séjour compétences et talents), which is valid for a duration of three years.

  • Temporary residence private and family life card (carte de séjour temporaire vie privée et familiale), which is valid for a duration of one year.

EUcitizens and Monaco, Andorra, San Marino and Swiss nationals are generally exempted from these requirements.

 
22. Which employment laws are relevant to projects?

Labour law is governed by a body of normative texts (for example, the Constitution, the Labour Code, and so on) that mainly regulate:

  • Work relations and professional ethics (discrimination, harassment, and so on).

  • The employment contract (formation, content, termination, and so on).

  • Professional union rights.

  • Working time and minimum wages. Since 1 January 2016, the guaranteed gross monthly minimum wage amounts to EUR1,466.62, or an hourly rate of EUR9.67.

Collective agreements (conventions collectives) complement the above regulations and apply to a particular sector or a specific profession. Their provisions cannot be less favourable to the worker than the law and cannot contradict public policy provisions. In the event of discrepancies between the Labour Code and a collective agreement, the most favourable provisions to the worker will apply. Each employment contract must refer to the applicable collective agreement. In the construction industry, the main applicable collective agreements are the collective agreement for property development, the collective agreement for public works and the regional collective agreements for the building industry.

 
23. Must an employer pay statutory redundancy or other payments at the end of a project? Are all employees eligible?

In construction projects, an employer will typically use a site contract (contrat de chantier), which is linked exclusively to the performance of the works. Therefore, completion of the works is a valid ground for terminating the employment contract.

It is also common practice for employers to use temporary contracts (contrats d'interim) in which a work agency provides temporary employees to work on their construction projects.

If an employer dismisses an employee under an open-ended labour contract, the employer must pay redundancy benefit (indemnités de licenciement), unless the dismissal is for gross misconduct or wilful misconduct.

If an employer does not require the employee to work his or her notice period (préavis), the worker can also receive compensation in lieu of notice (indemnité compensatrice de préavis).

 

Health and safety

24. Which health and safety laws apply to projects?

Health and safety requirements are regulated at the EU level by both:

  • Directive 89/391 on the introduction of measures to encourage improvements in the safety and health of workers at work.

  • Directive 92/57 on the implementation of minimum safety and health requirements at temporary or mobile construction sites.

These two directives were implemented through the Labour Code, which sets out the following obligations:

  • The employer must appoint a health and safety co-ordinator (co- ordonnateur de sécurité et de protection de la santé) (CSPS) in charge of monitoring and managing health and safety risks during the works (Article L. 4532-4, Labour Code). In addition, the employer must:

    • demonstrate that the CSPS has the necessary skills and competencies regarding the complexity of the construction operation (that is, verify its professional experience before proceeding to its appointment);

    • give the CSPS the authority and all resources that are necessary to achieve its duties (for example, provide access to on-site regular meetings); and

    • ensure that the CSPS prepares both a general co-ordination plan for safety and health protection (plan général de co- ordination en matière de sécurité, et de protection de la santé) and a dossier containing all the data which may facilitate the prevention of professional risks of subsequent interventions on the works (dossier d'intervention ultérieure sur l'ouvrage).

  • The employer, the architect and the CSPS must apply the general principles of risk prevention set out in the Labour Code (Article L. 4121-2), which includes obligations to appoint a safety, health and work conditions steering committee (collège interentreprises de sécurité, de santé et des conditions de travail) on construction sites, and co-ordinate the works to ensure maximum safety on site.

Any failure to comply with these directives may result in both tortious liability and criminal penalties.

 

Environmental issues

25. Which local laws regulate projects' effects on the environment?

Air

Air quality legislation mainly consists in the law of 30 December 2006 on air and the conservative use of energy. This law has been codified into the Environmental Code which now provides the main rules applicable to air quality (Article L. 220-1 et seq.). Public access buildings (établissements recevant du public) are subject to strict rules to prevent atmospheric indoor pollution (Article L. 221-7, Environmental Code). In addition, decrees are expected to be issued to impose obligations on contractors to control emissions of polluting substances and ensure the conservative use of energy in construction or demolition work.

Water

Water protection is regulated by the law of 30 December 2006 on water and aquatic environments. It requires certain facilities, which may have an impact on water resources to obtain a permit from the competent authority (Article L. 214-1 et seq., Environmental Code).

Waste

Waste is regulated by Directive 2008/98/CE on waste, which was implemented by:

  • Order 2010-1579 of 17 December 2010.

  • Decree 2011-828 of 11 July 2011.

These regulations apply to construction projects, providing that:

  • Companies must file a declaration to the departmental authorities (Préfecture) when transporting more than 100 kilos of hazardous waste or 500 kilos of non-hazardous waste (Article R. 541-50, Environmental Code).

  • The employer must provide a waste management assessment (diagnostic portant sur la gestion des déchets) when demolishing certain types of buildings, before the demolition permit is issued (Article R. 111-43 et seq., Code of Construction and Housing).

Waste elimination rules are different, depending on the type of contract:

  • In a private contract each contractor must dispose of construction waste.

  • In a public contract the project owner is responsible for disposing of construction waste.

Environmental impact assessments (EIAs)

The French equivalent of an EIA is the environmental study (évaluation environnementale) (EE). An operator intending to carry out works that may cause an environmental hazard must prepare an EE before undertaking these works (Article L. 122-1, Environmental Code).

Typically, an EE includes (Article R. 122-5, Environmental Code):

  • A description of the project, and in particular:

    • a description of the physical characteristics of the whole project and land use requirements during the construction and operational phases; and

    • an estimate by type and quantity of expected residues and emissions resulting from the operation of the proposed project.

  • An outline of the main alternatives studied by the developer and an indication of the main reasons for choosing the proposed project, taking into account the environmental impacts.

  • A description of the aspects of the environment likely to be significantly affected by the proposed project and its alternatives, including in particular population, fauna, flora, soil, water, air, climatic factors, material assets, architectural and archaeological heritage, landscape, and the relationship between these factors.

  • A description of the possible significant impacts of the proposed project on the environment resulting from:

    • the existence of the project;

    • the use of natural resources; and

    • the emission of pollutants, creation of nuisances and disposal of waste.

  • A description of the forecasting methods used to assess the impacts on the environment.

  • A description of the measures proposed to prevent, reduce and -where possible- offset, or compensate for, any significant adverse impacts on the environment.

  • A non-technical summary of the information listed above.

The results of the EE, together with certain additional information required under the Environmental Code, are submitted to the General Council for the Environment and Sustainable Development (under the authority of the Minister for Environment) for its opinion. It is then transmitted to the competent public authority (the Ministry for Environment).

Sustainable development

Please see Question 25.

 
26. Do new buildings need to meet carbon emissions or climate change targets?

After the oil crises in 1973 and 1979, the French Government became aware of its energy dependency. It adopted thermal regulations in 1974 and in 1982 to improve the energy efficiency (performance énergétique) of buildings. Since that time, several thermal regulations have followed in 1989, 2000 and 2005, to take account of new energy efficiency requirements.

The current thermal regulation was issued in 2012 (réglementation thermique 2012), with the aim of reducing the energy consumption from new buildings in both residential and commercial use. This regulation specifies that new buildings must have an energy consumption of less than 50kWhep/m2 per year. This standard of low energy-use buildings (bâtiment de basse consummation) (BBC) is now the norm.

The Code of Construction and Housing requires the employer to provide both:

  • A document certifying that the new building complies with the thermal regulations mentioned above (Article R. 111-20-1).

  • A feasibility study on energy supply (Article R. 111-20-2).

In addition, when constructing a new building, the employer must undertake an energy assessment (diagnostic de performance énergétique) that will evaluate the building's energy consumption, as well as its impact in terms of greenhouse gas emissions (Article L. 134-1, Code of Construction and Housing).

Finally, the Energy Transition Act (Loi relative à la transition énergétique pour la croissance verte), promulgated on 17 August 2015, sets out key objectives for a new French energy model in a global and European context in the aftermath of the Grenelle de l'Environnement. One of its main objectives is to reduce greenhouse gas emissions to meet the European goal of a 40% decrease (compared to the 1990 baseline) by 2030. To this end, new decrees are being drafted to strengthen the buildings energy efficiency requirements.

 

Prohibiting corrupt practices

27. Are there any rules prohibiting corrupt business practices and bribery (particularly any rules targeting the projects sector)? What are the applicable civil or criminal penalties?

Rules

There are no specific rules prohibiting corrupt business practices and bribery targeting the project sector, but the Penal Code contains general rules prohibiting them. These include prohibitions on both:

  • Bribery and corruption of public and international officials (Article 435-1 and 435-3).

  • Traffic of influence exercised over agents of international organisations (Article 435-4).

Penalties

The Penal Code sets out penalties for parties violating the above rules. For example, bribery and corruption of public and international officials is punishable by imprisonment of up to ten years and a fine of up to EUR1 million.

 

Bankruptcy/insolvency

28. What rights do the client and funder have on the contractor's bankruptcy or insolvency?

On a contractor's bankruptcy two types of proceeding may be initiated:

  • The receivership procedure (Article L. 631-1 et seq., Commercial Code), which can be initiated by the contractor itself within 45 days from the suspension of payments, by any interested creditor or by the public prosecutor.

  • The liquidation procedure (Article L. 640-1 et seq., Commercial Code), which can be initiated where the contractor has suspended payments and the recovery of debts under a receivership procedure is clearly impossible. This procedure can be initiated by the contractor itself, any interested creditor or the public prosecutor.

When proceedings are initiated under the above procedures, only the receiver or liquidator (depending on the proceeding initiated) can ask the contractor to perform the on-going contract or terminate it. Therefore, commencement of the above proceedings does not automatically lead to termination of the contract. The contractor must inform the employer of these proceedings within ten days following the opening judgment by providing it with a copy of the court ruling. Then, the employer must send a formal notice to the receiver or liquidator to obtain a decision on whether or not the contractor is in a position to perform the contract. If the receiver or liquidator confirms that the contractor can no longer perform its duties, or does not notify the employer of a decision within one month, then the employer will be entitled to terminate the contract.

If a performance bond has been entered into by the parties then an employer will be able to rely on this. A bank cannot oppose the validity of this on-demand guarantee even if the contractor is bankrupts or insolvent.

 

PPPs

29. Are public private partnerships (PPPs) common in local construction projects? If so, which sectors commonly use PPPs?

Before Ordinance 2015-899 of 23 July 2015 (see Questions30 and 37) was implemented, French PPPs traditionally referred to partnership agreements (contrats de partenariat), public service delegations (délégations de service public), long-term administrative leases (baux emphytéotiques administratifs) (BEA), temporary licences to occupy with a purchase option (autorisations d'occupation temporaire – locations avec option d'achat) as well as sectorial contracts (for example, in the health sector, long term leases called BEA hospitaliers).

French PPPs are common in local construction projects. Since the creation of partnership agreements (contrats de partenariat) in 2004, more than 540 of these have been concluded in the following sectors:

  • Urban facilities (for example, public lighting).

  • Social infrastructure such as schools, prisons, hospitals, cultural and sports facilities.

  • Energy and waste treatment facilities.

  • Transport.

  • Information and communication technologies.

 
30. What local laws apply to PPPs?

French procurement law has recently been reformed (see Questions 1and 37). Ordinance 2015-899 of 23 July 2015 on public procurement contracts, and its implementing decrees, unify the traditional forms of French PPPs in the form of unique partnership procurement (marché de partenariat).

This reform was intended to comply with EU requirements which categorise a contract as either a public procurement contract or a concession contract, while French PPPs were made up of mixed contracts (see Question 29). In addition, partnership agreements (contrats de partenariat) have been widely criticised since 2004 for the following reasons:

  • The public entity did not usually understand the consequences of adopting this form of procurement.

  • Small and medium enterprises were less able to be involved in these contracts.

Consequently, the reform had three main goals: simplicity, modernisation and support for small businesses. In addition, it aimed to promote efficient public spending given the growing scarcity of public financing and a high level of legal certainty for all economic operators involved (for example, lenders and investors) in the context of the global economic crisis.

This reform came into force on 1 April 2016 and applies to all projects in relation to which a notice of competitive public tender has been issued after 1 April 2016. It repealed the following:

  • The Public Procurement Code.

  • The Ordinance 2004-559 of 17 June 2004 on partnership contracts.

  • The Ordinance 2005-649 of 6 June 2005 on contracts awarded by public or private entities that are not subject to the Public Procurement Code.

 
31. What is the typical procurement/tender process in a PPP transaction? Does the government or another body publish standard forms of PPP project agreement and related contracts?

Before the start of the tender process, the contracting authority must provide:

  • A detailed assessment (évaluation préalable des modes de réalisation du projet or EMRP) comparing the different possible methods of carrying out the project.

  • A study of fiscal sustainability (étude de soutenabilité budgétaire).

In addition, the contracting authority must demonstrate that the use of partnership procurement for the project provides more benefits than other types of public procurement contract, particularly in the financial sphere (bilan favorable).

The contracting authority must also prove that the contract value will exceed EUR10 million, which total excludes:

  • EUR5 million for:

    • network infrastructure (energy, transport, urban development and sanitation); and

    • building works when the contract does not include servicing and maintenance.

  • EUR2 million for:

    • immaterial goods and information systems other than the works;

    • contracts that contain energy efficiency targets and provide that the remuneration of the owner is determined on the achievement of these objectives.

The tender process for partnership procurements is as follows:

  • The contracting authority publishes a contract notice (avis de marché) in the Official Journal of the European Union or the French Bulletin officiel des annonces des marchés publics (BOAMP), inviting any interested bidders to submit a tender in response.

  • This is followed by a competitive tender, which may vary depending on the chosen procedure:

    • competitive dialogue;

    • negotiated procedure; or

    • open or restricted invitation to tender.

The PPP support unit (Mission d'Appui aux Partenariats Public-Privé) (MAPPP) has recently been transformed into the Infrastructure Finance Support Unit (Mission d'Appui au Financement des Infrastructures) (Fin Infra). Fin Infra is a new expert body with extended powers, which is now required to evaluate any PPP project and provide consulting and expertise for contracting authorities. It also provides key documents and recommendations, such as:

  • Standard clauses for PPPs.

  • Guidelines for contracting.

However, the parties are free to depart from the standard clauses prepared by MAPPP.

 

Dispute resolution

32. Which are the most common formal dispute resolution methods used? Which courts and arbitration organisations deal with construction disputes?

Formal dispute resolution methods

Domestic construction matters are usually brought before:

  • An administrative court in the public sector. Typically, these courts have exclusive jurisdiction for interim measures (référés) and final decisions on contracts entered between public authorities and private companies.

  • A civil court if the claim stems from a contract entered into between private parties.

Domestic disputes can also be settled through domestic arbitration, which can either be ad hoc arbitration or domestic institutional arbitration (for example, before the Centre de médiation et d'arbitrage de Paris).

For international arbitration, the parties tend to favour the International Chamber of Commerce for administered arbitration.

Arbitration agreements cannot be enforced against public entities if the dispute is domestic. Under French law, public entities cannot arbitrate their disputes. However, where the dispute is international, public entities are bound by the arbitration agreement they are a party to, provided it is related to a commercial activity.

Courts and arbitration organisations

France has a dual legal system split between civil courts and administrative courts, with administrative courts competent only for disputes involving the public sector. Most civil courts have a section dedicated to construction matters.

Subject to the limitations for public parties discussed above, French law offers commercial parties the right to choose whether they want their disputes to be resolved by an arbitration tribunal or a court, If they decide to give competence to a court, the parties can also decide on the most convenient court from a geographic point of view.

 
33. What are the most commonly used alternative dispute resolution (ADR) methods?

Mediation is sometimes contemplated in domestic contracts, as part of a multi-tiered dispute resolution clause (negotiation, mediation, court or arbitration). Mediation can also be ordered by the court as a preliminary step, where the judge believes the parties' positions may not be too far apart. Expert determination is also commonly used by the parties to settle specific issues, with the parties being able to decide whether the expert determination will be binding or will be reagarded as a recommendation only. In the latter case, the parties must go before a judge to obtain a binding decision.

Dispute Adjudication Boards (DABs) are often contemplated in construction contracts, and in particular those based on the FIDIC forms. DABs aim to address disputes during the course of the construction works to allow the parties to continue the works.

For international disputes, multi-tiered dispute resolution clauses have become widely used.

 

Tax

34. What are the main tax issues arising on projects?

The taxation of construction projects is highly regulated under French law. The main taxes arising on projects are as follows:

  • Low-density tax (versement pour sous-densité). Low-density tax must be paid for any new construction with a density below the minimum threshold. All construction in the general interest is exempted from this tax (Article L. 331-35 et seq., Town Planning Code).

  • Planning tax (taxe d'aménagement). The planning tax was established in 2012. It applies to all construction projects requiring prior planning consent. All construction in the general interest is exempted (Article L. 331-6, Town Planning Code).

  • Value added tax (Taxe sur la valeur ajoutée) (VAT). Different rates of VAT apply, as follows (Article 278, Tax Code):

    • the reduced 5.5% VAT rate applies for certain specific construction projects (for example, social housing construction projects); and

    • the normal 20% VAT rate applies on all other construction projects.

  • Corporate income tax (impôt sur les sociétés). Real estate developers are subject to corporate income tax, at a rate of 33.3%.

  • Preventive archaeology fee (redevance d'archéologie préventive). This tax is due for certain works requiring (Article L. 524-2, Heritage Code):

    • a planning consent (typically, a building permit);

    • a prior declaration; or

    • a risk study.

 
35. Are any methods commonly used to mitigate tax liability on projects? Are there any tax incentives to carry out regeneration projects?

Mitigating tax

The methods commonly used to mitigate tax liability on projects are the following:

  • Analysis of the risk of a double taxation. In international construction projects, it is essential to identify the potential states that may levy tax to optimise taxation.

  • Transfer pricing. If several companies or subsidiaries of an international group are involved, the transfer pricing policy of the group must be examined carefully to avoid a tax audit.

Tax incentives

The tax incentives to carry out regeneration projects are as follows:

  • Reduced rate of VAT. The 20% VAT rate can be reduced to 5.5% for regeneration projects such as, for example,an energy upgrade of residential premises.

  • Tax deductions. Deductions apply to taxpayers who rent out new housing after purchase for a period of six, nine or 12 years. The tax deductions will vary between 12, 18 and 21%, depending on both the rental duration and the property price.

  • Interest free eco-loan. This offers very advantageous terms for financing energy-saving works to make homes more energy efficient.

  • Property tax exemption. Taxpayers can benefit from a tax exemption for up to 20 years if their property meets specific environmental requirements.

  • Energy transition tax credit. This tax credit amounts to a refund of 30% of the total cost of energy renovation works, up to a limit of EUR8,000 for a single person and EUR16,000 per couple.

 

Other requirements for international contractors

36. Are there any specific requirements that international contractors or construction professionals must comply with?

There are currently no specific requirements that international contractors must comply with, except for non-EU architects (see Question 18).

 

Reform

37. Are there any proposals to reform construction and projects law?

French procurement law has recently been reformed following the implementation of three new EU directives dated 26 February 2014 (see Question 30):

  • Directive 2014/23 on the award of concession contracts.

  • Directive 2014/24 on public procurement and repealing Directive 2004/18/EC.

  • Directive 2014/25 on procurement by entities operating in the water, energy, transport and postal services sectors (repealing Directive 2004/17/EC).

These Directives were transposed into French law by both:

  • Ordinance 2015-899 of 23 July 2015 on public procurement contracts and its implementing decrees 2016-360 and 2016-361 of 25 March 2016.

  • Ordinance 2016-65 on concession contracts and its implementing decree 2016-86 of 1 February 2016.

This reform clarifies basic notions and concepts of public procurement, incorporates certain aspects of well-established case law from the Court of Justice of the European Union, and introduces a number of new rules which aim at guaranteeing equal access to public procurement, equal treatment between candidates and transparency of procedures.

French contract law has been thoroughly reformed by the Ordinance of 10 February 2016, which entered into force on 1 October 2016. Long overdue, this reform is one of the most important since the Civil Code was first enacted in 1804 and will affect the construction sector, which is inherently based on contract law.

The main innovations are as follows:

  • The duty of good faith (devoir de bonne foi). The Civil Code used to provide for an obligation on both parties to act in good faith during the performance of the contract. Following the entry into force of the reform, the duty of good faith is now extended to contractual negotiations. This will lead construction sector professionals to be more cautious when negotiating with a view to entering contracts.

  • The duty to inform (devoir d'information). The reform imposes on the parties a duty to provide crucial information, and so provides them with protection against unfair behaviour and dishonesty.

  • The concept of economic violence (violence économique). This has rarely been applied in practice. The following three conditions must be fulfilled:

    • a state of dependence must exist between the parties;

    • the dominant party must have exploited this state of dependence; and

    • the advantage must have been patently excessive.

  • The unforeseeability theory (théorie de l'imprévision). The doctrine of hardship has long been rejected by the Cour de cassation through the well-known Canal de Craponne case (1876). The reform now provides a right to renegotiate the contract, if there has been a change of circumstances that could not have been foreseen at the time the contract was concluded.

 

Main construction organisations

French Building Federation (Fédération Française du Bâtiment) (FFB)

Main activities. The FFB promotes the profession's interests with public authorities, public services operators, economic decision-makers and other stakeholders of the construction industry.

W www.ffbatiment.fr

National Federation of Public Works (Fédération Nationale des Travaux Publics) (FNTP)

Main activities. The FNTP is a federation of construction companies which intervene in public construction projects. It aims to promote, defend, advise and lobby on behalf of its members.

W www.fntp.fr



Online resources

Legifrance

Description. This website provides access to all legislation in France. It also gives access to translations of the main laws and regulations in several languages.

W www.legifrance.gouv.fr or www.legifrance.gouv.fr/Traductions/en-English



Contributor profiles

Stéphane Gasne, Partner, Projects

Pinsent Masons France LLP

T +33 1 53 53 09 89
F +33 6 35 52 14 16
E stephane.gasne@pinsentmasons.com
W www.pinsentmasons.com

Professional qualifications. Paris, Avocat à la Cour (Paris); England and Wales, Solicitor

Areas of practice. Construction; energy and infrastructure; project finance; concessions/PPP.

Cyrielle Barbier, Associate, Projects

Pinsent Masons France LLP

T +33 1 53 22 09 44
F +33 6 25 44 18 33
E cyrielle.barbier@pinsentmasons.com
W www.pinsentmasons.com

Professional qualifications. Paris, Avocat à la Cour

Areas of practice. Construction; energy and infrastructure; project finance; concessions/PPP.

Anne-Sophie Duprey, Trainee, Projects

Pinsent Masons France LLP

T +33 1 53 53 08 61
W www.pinsentmasons.com

Areas of practice. Construction; energy and infrastructure; project finance; concessions/PPP.


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