Mandatory Subcontracting

Most European public procurement law gives contractors discretion over how much to subcontract. Mandatory subcontracting reverses that default: the contracting authority requires that a defined share of the contract must flow to third parties, typically to promote smaller business participation or to serve specific industrial or policy goals.

What is mandatory subcontracting?

Mandatory subcontracting is most explicitly supported in the defence and security sector. Article 21 of Directive 2009/81/EC, which governs the award of defence and sensitive security contracts across EU member states, expressly permits contracting authorities to require tenderers to subcontract a portion of the contract to third companies. The authority specifies a minimum percentage, and the winning contractor must fulfil that obligation. The Directive also allows authorities to require competitive subcontracting, meaning the prime must obtain and compare offers before selecting its subcontractors.

Outside defence procurement, Directive 2014/24/EU does not contain an equivalent explicit provision for mandatory subcontracting. However, some member state implementing laws and individual contract conditions do impose subcontracting requirements in the civil sector, particularly in construction, to support SME access and local economic development. Such conditions must be compatible with EU Treaty principles of proportionality and non-discrimination; blanket mandatory subcontracting percentages without objective justification have been challenged before the Court of Justice of the European Union.

UK position. The UK Procurement Act 2023 does not introduce a general mandatory subcontracting duty, but contracting authorities may include conditions in contracts requiring subcontracting to certain categories of supplier (for example, social enterprises) where that is justified by the contract's objectives.

Why it matters for bidders

Where mandatory subcontracting applies, your delivery model must accommodate it from the outset. You cannot perform 100% of the work in-house, regardless of your capability. The subcontracting percentage limit sets the ceiling; mandatory subcontracting, where imposed, sets the floor. Together they define the corridor within which your supply chain must sit. For large prime contractors, mandatory subcontracting often requires early engagement with potential subcontractors before bid submission to demonstrate compliance.

Subcontractors, conversely, should monitor defence and major infrastructure procurements for mandatory subcontracting requirements, as these create structured access points that do not depend on the prime contractor's voluntary choices.

Example

A Belgian aerospace firm bids for a defence logistics support contract under Directive 2009/81/EC. The contracting authority specifies that a minimum of 30% of the contract value must be subcontracted to other enterprises. The prime must identify, solicit competitive offers from, and ultimately award that 30% to third parties. This obligation is documented in the contract and monitored by the authority throughout performance.

Frequently Asked Questions

Is mandatory subcontracting the same as an SME set-aside?

No. An SME set-aside reserves the entire contract for small and medium-sized businesses. Mandatory subcontracting requires a prime contractor of any size to pass a portion of the work to third parties, which may include SMEs but need not be limited to them.

Can an authority mandate subcontracting to domestic firms only?

No. Under EU Treaty principles and the procurement Directives, any mandatory subcontracting requirement must be open to all eligible European Economic Area firms without discrimination based on nationality. Requiring subcontracting exclusively to domestic companies would be incompatible with the internal market rules.

Does mandatory subcontracting affect the prime's liability?

No. Even where a specific percentage must be subcontracted, the prime contractor remains wholly liable to the contracting authority for the full contract. The obligation to subcontract does not transfer risk to the authority or to the subcontractors.