Direct Payment to Subcontractors

Direct payment to subcontractors addresses one of the most persistent problems in public procurement supply chains: the risk that a main contractor is paid promptly by the authority but delays or withholds payment from the firms doing the actual work. Some European jurisdictions have introduced mechanisms that allow or require the authority to pay subcontractors directly, short-circuiting this risk.

What is direct payment to subcontractors?

Directive 2014/24/EU does not mandate direct payment to subcontractors as a general rule. Article 71(3) permits member states to introduce measures that allow subcontractors to request direct payment from the contracting authority for services provided, supplies delivered, or works performed. Implementation varies significantly across European markets.

France has one of the most developed frameworks: the Law of 31 December 1975 on subcontracting gives accepted subcontractors a statutory right to direct payment for contracts above a threshold. The main contractor must accept or refuse subcontractors formally, and accepted subcontractors can invoice the authority directly if the main contractor fails to pay within the required period.

Italy and Germany have also implemented direct payment rights in certain categories of public contract, particularly construction.

UK position. The UK has no general statutory right to direct payment to subcontractors in public procurement, but the government's Construction Playbook and associated guidance strongly encourages payment terms that flow down the supply chain within 30 days. The Procurement Act 2023 introduces payment reporting obligations and strengthens prompt payment enforcement. Some public sector frameworks, particularly in construction, include direct payment provisions as contract conditions rather than statutory rights.

Where direct payment is available, the contracting authority typically holds the main contractor's payment pending confirmation from subcontractors that they have been paid, or pays the subcontractor's invoice amount directly and deducts it from the main contractor's payment.

Why it matters for bidders

For subcontractors, direct payment rights (where available) significantly reduce credit risk on public sector work. Rather than depending on the main contractor's financial health and payment culture, you have a statutory or contractual route to the authority's payment system. Understanding whether the relevant member state or contract framework offers direct payment is part of assessing the financial risk of participation.

For main contractors, direct payment mechanisms impose transparency obligations. You must formally register your subcontractors with the authority, and your payment behaviour is visible. Late payment to registered subcontractors can trigger direct payment by the authority, which reduces your cash flow flexibility.

For supply chain management, direct payment frameworks incentivise subcontractors to accept public sector work even from primes with whom they have had payment disputes, because the authority provides a payment backstop.

Example

A German main contractor performing a federal office building project fails to pay its registered electrical subcontractor within the contractual 30-day period. Under the applicable direct payment provisions in the contract, the subcontractor notifies the federal contracting authority. The authority deducts the outstanding invoice amount from the next payment to the main contractor and transfers it directly to the subcontractor.

Frequently Asked Questions

Is a subcontractor's claim for direct payment the same as suing the contracting authority?

No. Direct payment is a contractual or statutory mechanism that operates within the existing payment structure. It is not litigation. The subcontractor does not become a party to the main contract; it uses an administrative process to redirect money that the authority owes the main contractor.

Can a main contractor block a subcontractor's direct payment request?

In jurisdictions with statutory direct payment rights (such as France), the main contractor generally cannot veto a properly submitted direct payment request from an accepted subcontractor. In jurisdictions relying on contract conditions, the scope for blocking depends on the specific contract terms.

Does direct payment change who is liable for the subcontractor's work?

No. The main contractor remains liable to the contracting authority for the quality and timeliness of all work, including that performed by subcontractors. Direct payment affects financial flows, not the contractual responsibility structure.