Afriwise Brown Bag Lunch Series - An update on the DRC's private sector subcontracting law

  • On 28 July 2020, Afriwise organised a virtual brown bag lunch for some of its subscribers with Liedekerke, a law firm active in the DRC and one of the contributors to the Afriwise legal platform.

    Thibault Hollanders of Liedekerke shared his views on the DRC, including on the current business environment and the legal issues companies are often confronted with.

    One of the topics that was clearly trending is the uncertainty surrounding the requirements for subcontracting in the private sector. Some recent developments in this respect were discussed at the virtual brown bag lunch.

    In Summary…

    Subcontracting activities in the DRC must be carried out in accordance with the Law No. 2017-01 dated 08 February 2017 setting out the rules applicable to subcontracting in the private sector (the “Law”)

    This law is notoriously broad and vague. Pursuant to the law:

    ·      subcontracting is reserved to businesses “promoted” by Congolese nationals and which have their registered office in DRC

    ·      the subcontractor must be affiliated to the local social security and provide evidence of its tax compliance, and

    ·      any subcontractor is also allowed to subcontract its activities subject to complying with the provisions of this law.

    In the event of the unavailability or inaccessibility of duly proven expertise in the sector of activity concerned, a contractor may not resort to any other undertaking governed by Congolese law or to a foreign undertaking unless the concerned activity does not exceed six months.

    A special authority to regulate subcontracting in the private sector (the ARSP) was created by decree later in 2018 and started operations in 2019.  It was decreed that the ARSP would license companies that want to participate in subcontracting activities and that unauthorised companies would be excluded from the marketplace.

    In addition, decreed that the ARSP would be part-financed by a 5% levy on the value of every subcontracting agreement. The fee is to be paid by the company commissioning the work, which can pass the cost on to the subcontractor.

    Given the uncertainty surrounding a number of issues related to the application of the Law and the implementing decrees and following requests made to the ARSP by the Congolese Federation of Enterprises (FEC) and the Delegation of the European Union; the Government has authorised the holding of consultations, between all the stakeholders, on the implementation measures of the Law.

    In execution of this government decision, on March 9, 2020, the Minister of Middle Classes, Small and Medium Enterprises, Crafts (CMPMEA) opened the consultations by specifying that they must relate only to the measures of execution of the Law in order to reach a common understanding of the terms thereof and facilitate its application.

    Three major questions were examined:

    • The scope of the Law

    • The legality of the creation and supervision of the ARSP

    • The approval of subcontracting companies by the ARSP and the 5% levy on each subcontracting market

    After consideration of these issues by experts from all stakeholders, a related report was sent to the Minister of CMPMEA. The content of this report was the subject of further discussions at the level of the Minister's office.

    On June 3, 2020, the Minutes sanctioning the end of these consultations were signed by His Excellency the Minister of CMPMEA, the Director General of the Private Sector Subcontracting Regulatory Authority (ARSP) and the National President of the Congo Business Federation (FEC).

    These Minutes summarize the following points:

    1.                Scope of the Law

    In light of the provisions of articles 2 and 3 of the Law, subcontracting concerns all sectors of activity except certain sectors of activity or certain professions that are governed by specific legal provisions.

    2.                Legality of the creation of the ARSP and its supervision

    As a public establishment, the ARSP finds its legal basis in Law n ° 08/009 of 07 July 2008 laying down general provisions applicable to public establishments, which in no way requires that a sectoral law provide for the creation of a public establishment. Therefore, the legality of the creation of the ARSP is unequivocal. In accordance with its missions, the ARSP comes under the supervision of the Ministry of CMPMEA.

    3.                The approval of subcontracting companies by the ARSP and the levy of 5% on each subcontracting market

    The ARSP will register companies likely to compete in subcontracting contracts, in particular to facilitate consultation in terms of calls for tenders and / or control.

    The 5% levy was reduced to 1.2% (of which a quota of 0.2% will feed the Guarantee Fund for SMEs) with a basis for the calculation the amount of the subcontracting contract excluding VAT. The actual party liable is the subcontractor himself, while the legal party liable is the main company (master of the contract), which will withhold it at source as and when payments are made for the benefit of the Subcontractor.

    A record of the minutes can be found here.

    Operating in the DRC? Struggling to keep on top of important legislation such as the subscontracting act? Get in touch now to hear how Afriwise can help you better navigate the legal and regulatory landscape: