If you are a foreign company having business in France, some of your French clients may request the conclusion of a specific written agreement based on a new French regulation as described below. In view of improving transparency in subcontracting relationships, with the aim of ensuring more fairness in the relationships between principals and subcontractors and of facilitating the control of French authorities as the case may be (1), the Hamon Act dated March 17, 2014 inserted a new Article L.441-9 in the French Commercial Code requiring the execution of a written agreement, including certain provisions, for any purchase of manufactured goods, produced at the buyer’s request in order to be included in his own production. This text provided though that such requirement to enter into a written agreement would only apply to purchases exceeding an amount that would be determined by decree.

In the absence of any implementing decree, this text remained unimplemented for a couple of years. The decree (No. 2016-237) dated March 1, 2016 published on March 4, 2016 finally fixed this threshold to EUR 500,000.

From now on, any purchase of manufactured goods, produced at the buyer’s request in order to be included in his own production, and which amount is higher than EUR 500,000 (the text does not indicate though if it is a global amount per agreement or an amount per order), must give rise to the signature of a written agreement indicating the terms and conditions agreed upon by the parties and, in particular:

  • the purpose of the agreement and the respective obligations of the parties;
  • the price or how to determine it;
  • the invoicing and payment conditions in compliance with applicable legislative provisions;
  • the respective liabilities of the parties and the warranties, such as, if applicable, the implementation terms of a retention of title;
  • the rules governing the intellectual property between the parties, in compliance with applicable legislative provisions, when justified considering the nature of the agreement;
  • the term of the agreement and its termination conditions;
  • the dispute settlement conditions relating to the enforcement of the agreement and, should the parties decide to use it, the implementation terms of a mediation.

Non-compliance with the foregoing is subject to penalties. Failure to enter into an agreement that meets the requirements indicated above, is subject to an administrative fine of up to EUR 75,000 for a natural person or EUR 375,000 for a legal entity.

It should be noted that such new requirement only applies, in principle, to a very specific category of purchases, i.e. purchases of manufactured goods, produced according to specifications indicated by the customer, within the framework of a subcontracting operation. Thus, purchases of standard products or of manufactured products that are not intended to be included in the own products of the buyer, are in principle excluded from the scope of that Article.

Finally, Article L.441-9 specifies, very logically, that the agreement to be entered into shall also be governed by the provisions of Articles L. 441-6 and L. 442-6 of the French Commercial Code. Therefore, all the rules relating to, in particular, general terms and conditions of sale that shall constitute the unique basis for negotiations, maximum payment terms, pricing, prohibition of significant imbalance, etc. must be complied with when entering into the agreement requested by article L.441.9.