Private or Public Works Contracts: The Decisive Criterion of the Employer's Status

Imagine the scene. A property developer in Boulogne-Billancourt entrusts a company with the construction of a housing and warehouse complex. Work progresses, but a dispute arises over payment. The worried contractor turns to the bank that provided a guarantee for the proper execution of the works. The bank refuses to pay, arguing that the contract is a public contract and that the guarantee has become void. Who is right? This question, which may seem technical, affects thousands of owners, developers, and contractors every year.

The decision of the French Supreme Court of 22 June 1981 (No. 79-13.597) provides a clear answer, even if it may be surprising. To determine whether a contract is public or private, you must not look at what is being built, but rather for whom it is built. A semi-public company (SEM) acting in its own name, even for a public utility operation, is not a public employer. The contract it enters into is therefore a private contract, subject to the Law of 16 July 1971, with its own rules on guarantees.

What does this mean concretely for you, a homeowner in Rueil-Malmaison or a developer in Paris? That if you sign a contract with an SEM for a development project, you are not bound by the restrictive framework of public contracts. The rules on guarantees, payment periods, and liability are those of private law. This detail can save you from many disappointments... or conversely, expose you to risks you had not anticipated.

The Facts: A Story Like Many Others

In the early 1970s, the city of Boulogne-Billancourt entrusted a semi-public company, the SEM for development and construction, with the realisation of a large urban programme: housing, warehouses, and public facilities. The SEM acted as a construction concessionaire for public utility works. It then entered into a contract with the company Ganaye for the execution of the works.

To secure its obligations, Ganaye obtained a guarantee from the Banque de la Construction et des Travaux Publics. Under private law, a guarantor is released one year after the completion of the works if the employer has not taken action. But the bank refused to pay, arguing that the contract was a public contract and that the guarantee was not subject to this one-year period.

The dispute came before the Paris Court of Appeal. The judges had to decide: was this contract public or private? The answer would determine the guarantor's obligation. In 1979, the Court of Appeal decided that the SEM had entered into the contract in its own name, not on behalf of the city. Regardless of whether the operation was for public utility, between two private-law persons, the contract was private. The bank was therefore released one year after the completion of the works because the employer had not taken action within that period.

The bank appealed, but the Supreme Court upheld the appeal decision. On 22 June 1981, the Cour de cassation dismissed the appeal: "whatever its purpose, this contract, concluded between two private-law persons, was not a public contract and was subject to the provisions of the Law of 16 July 1971 on private works contracts." A reversal? No, a confirmation of prior case law. But a confirmation with real consequences.

The Court's Reasoning — Analysed

The core of the reasoning is summed up in one sentence: the status of the employer determines the nature of the contract. If the employer is a public person (State, local authority, public establishment), the contract is public. If it is a private person, the contract is private, even if the works serve the general interest.

Here, the SEM is a private-law legal person, even if it has a public utility mission. By signing the contract with Ganaye, it did not act as the city's agent but in its own name as a concessionaire. The Court of Appeal had sovereignly found this to be the case. Therefore, the contract was not a public contract (subject to the Public Procurement Code) but a private contract, governed by the Law of 16 July 1971. This law, now codified in the Civil Code, sets out the rules applicable to private works contracts, particularly regarding guarantees.

The bank argued that because the works were for public utility, the contract should be classified as public. But the judges rejected this argument: the purpose of the contract does not change its legal nature. It is the status of the contracting party that matters. An essential lesson for all property professionals: do not rely on appearances, look at who signs.

This decision follows a consistent line of the Cour de cassation. As early as 1969, it had held that contracts entered into by an SEM on its own account are private contracts (Civ. 3e, 8 May 1969). The 1981 judgment merely restates this. Nothing new under the legal sun, but a useful reminder.

What This Means for You — Concretely

For a contractor or developer: You sign a contract with an SEM to build a housing estate in Rueil-Malmaison. If the SEM acts in its own name, you are in a private contract. Consequence: the guarantee you have provided (or that your co-contractor asks of you) is subject to the one-year release period from the completion of the works (Article 1799-2 of the Civil Code, derived from the 1971 Law). After this period, if the employer has not taken legal action, the guarantor is released. You must therefore be vigilant: if a dispute arises, act within one year.

For a landlord owner: You entrust renovation works to a company. If your social landlord is an SEM, check whether it acts on its own account or on behalf of the municipality. If on its own account, private contract rules apply: no advertising, no mandatory competitive tendering, but different guarantee rules. Be aware that you may face longer payment periods or less protective guarantees.

For a co-owner: Your co-ownership association, a private-law legal person, entrusts works to a company. This is a private contract, even if the building is located in a planned development zone (ZAC). The rules are those of the Civil Code. You are not subject to the Public Procurement Code, even if the managing agent is a professional.

Example with figures: a contractor carries out road works for an SEM in Boulogne-Billancourt for €150,000. The SEM does not pay. The contractor has one year from the completion of the works to take action against the guarantor. If they wait 18 months, the guarantor is released. They can only then pursue the SEM, with the risk of insolvency. Acting quickly is crucial.

Four Tips to Avoid Such Disputes

• Check the legal status of your co-contractor. Before signing, ask for the articles of association of the SEM or legal person. Is it a public or private person? If it is an SEM, ensure it acts in its own name or as an agent of a local authority. This changes everything.
• Draft a precise contract on the nature of the contract. Clearly state that it is a private contract subject to the Law of 16 July 1971 (or Articles 1799-1 et seq. of the Civil Code). This will avoid any subsequent dispute.
• Respect the guarantee deadlines. If you are a creditor, act within one year of the completion of the works. If you are a guarantor, know that you are released after this period if the employer has not taken action. Note the completion date in your files.
• In case of doubt, consult a specialised lawyer. An incorrect classification can be costly. A simple 30-minute appointment can save you years of litigation.

Further Analysis: Related Case Law and Developments

This decision is part of consistent case law. As early as 1969, the Cour de cassation held that a development SEM that enters into a contract in its own name makes a private contract (Civ. 3e, 8 May 1969, No. 67-13.234). In 1994, it extended this reasoning to local semi-public companies (SEML): even if they perform a public service mission, they remain private persons (Civ. 3e, 9 March 1994, No. 92-13.558). The trend is therefore stable: the organic criterion (the person) prevails over the material criterion (the purpose).

Since then, public procurement law has evolved with the Public Procurement Code (2018). But the rule remains the same: a contract concluded by a private person is not a public contract, unless it acts as an agent of a public person. However, beware: if the SEM is transparent (i.e., it has no real autonomy), the courts may reclassify the contract as a public contract. This is a risk to be aware of.

For the future, with the proliferation of public-private partnerships (PPP) and semi-public companies, this issue remains relevant. Professionals must be vigilant in drafting contracts and regarding the status of the parties.

Frequently Asked Questions

• How do I know if an SEM acts on its own account or on behalf of the city? Look at the concession contract. If the SEM is designated as "concessionaire" and signs in its own name, it acts on its own account. If it signs "on behalf of the city," it is an agency relationship. If in doubt, ask for the articles of association or the concession contract.
• Can I challenge the classification of a private contract if the works are for public utility? Yes, but you risk losing. Case law is consistent: the purpose is not decisive. Only the status of the employer matters. If you believe the SEM was an agent, you must prove it.
• What are the time limits for taking action against a guarantor in a private contract? You have one year from the completion of the works to sue the guarantor. After this period, the guarantor is released (unless it has waived this period).
• What should I do if the guarantor refuses to pay by invoking the public nature of the contract? Consult a lawyer. The contract and the status of the parties will need to be analysed. If the case law is in your favour, you may succeed.
• Does this decision apply to local semi-public companies (SEML)? Yes, the Cour de cassation applied the same reasoning to SEMLs in 1994. They are private persons, so their contracts are private.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of litigation — and often much more. Book an appointment →