The Democratic Republic of the Congo (DRC) plays a major role in the mining sector, with subcontracting occupying a central position.
Recently, public attention has been drawn to media reports regarding the closure or threat of closure of several companies in the mining sector due to alleged fraud related to subcontracting legislation.
This current issue prompts us to highlight the provisions of the subcontracting legislation concerning the applicable sanctions in this area.
These sanctions are designed to ensure compliance with legal requirements and include the payment of fines, temporary closure of the business, and automatic nullification of the subcontracting contract.
What are the principles and obligations to be observed by principal and subcontracting companies under the subcontracting legislation in the DRC?
The subcontracting legislation in the Democratic Republic of the Congo imposes several obligations on companies. According to Law No. 17/001 of February 8, 2017, supplemented by its implementing measures, the essential principles and obligations regarding subcontracting are as follows :
The activity of subcontracting is reserved exclusively for Congolese capital companies promoted by Congolese nationals, regardless of their legal form, and whose registered office is located within the national territory. The law mandates that subcontracting be conducted only with Congolese companies, while the principal contractor may be a foreign company or a Congolese company with foreign capital promoted by foreigners.
Subcontracting companies must meet certain conditions, such as having a commercial and movable property registry, a national identification number, and a tax identification number, being in good standing with the tax administration, and being affiliated with a social security organization.
Subcontracting companies wishing to be eligible to engage in subcontracting activities in the private sector must identify and register with the Regulatory Authority for Subcontracting in the Private Sector (ARSP).
Subcontracting companies must obtain their insurance from insurance companies established in the DRC.
Payments made for the benefit of subcontractors, or those made by subcontractors for the benefit of third parties, should preferably be conducted through Congolese banks or other financial institutions.
The principal contractor, as the legal debtor, is required to withhold 1.2% from the pre-tax amount of each subcontracting contract in the private sector within fifteen (15) working days from the date of each payment made to the subcontracting company.
Any company established in the national territory must develop an internal training structure specialized in activities for which there is unavailability or inaccessibility of local expertise.
Any company established in the national territory is obligated to publish annually the revenue generated from subcontractors as well as the list of those subcontractors.
The law prohibits subcontracting more than forty percent of the total value of a contract.
The law mandates the use of a competitive bidding process when the contract cost is equal to or greater than one hundred million Congolese francs.
The law prohibits the illicit lending of labor and concealed work. Furthermore, poaching of subcontractor personnel by the principal contractor or by the project owner is also prohibited.
The subcontracting contract must specify several elements, including the identity and address of each contracting party, the works and services subcontracted along with their remuneration, the provision of goods, the requested labor, technical specifications, the timeline and locations for the execution of the works, the mutual obligations of the parties, the payment conditions, and the total cost of the works.
2. What is the jurisdiction of the regulatory authority concerning the oversight of subcontracting activities?
The oversight of subcontracting activities within enterprises is the responsibility of the Regulatory Authority for Subcontracting in the Private Sector (ARSP). This regulatory authority is a public administrative entity endowed with legal personality and is placed under the supervision of the minister responsible for small and medium-sized enterprises.
The ARSP carries out missions of planning, consultation, and oversight. Regarding its oversight mission, the ARSP is competent to :
Ensure compliance with the required conditions in the conclusion of contracts and in the execution of subcontracting activities;
Impose appropriate sanctions as stipulated in the event of violations of legal, regulatory, and contractual provisions related to subcontracting;
Implement the administrative sanction of temporary closure of a business as provided in Article 28, paragraph 2, of the law establishing the rules applicable to subcontracting in the private sector;
Conduct, under the conditions set by decree of the supervising minister, the registration and identification of eligible subcontractors to create a database that will serve, among other purposes, as a basis for tenders and oversight conducted by the ARSP;
Publish the list of eligible subcontractors according to their fields of activity.
It is important to note that the oversight conducted by the Regulatory Authority for Subcontracting in the Private Sector (ARSP) must follow a predetermined schedule to avoid multiple and simultaneous inspections of the same economic operator by two or more public services.
3. What are the sanctions applicable under the subcontracting legislation?
The subcontracting law provides for three types of sanctions in the event of violations of specific obligations imposed on contracting parties. These include :
Financial sanctions consisting of the payment of transactional fines, the rates of which are established by law;
The administrative measure of temporary closure; and
The automatic nullity of the subcontracting contract.
These sanctions, being strictly interpreted and applied, cannot be extended beyond what the law provides, such as "the delisting of companies from the subcontracting market" or "the reassignment of contracts to companies controlled by Congolese firms."
Payment of a fine: subcontracting with a company in violation of Article 6 of the Subcontracting Law
The sanction involving the payment of a fine, which ranges from 50,000,000 to 150,000,000 Congolese francs (approximately USD 18,000 to USD 55,000), may be imposed on any principal contractor who subcontracts with a company in violation of Article 6 of the Subcontracting Law. The amount of the fine is determined within the legal range based on the nature of the violation.
Offenses and any other violations of the subcontracting law that may lead to the imposition of fines as provided in Articles 28, paragraph 1, and 29 are recorded by sworn judicial police officers, in accordance with the applicable procedural rules.
The status of judicial police officer (OPJ) is conferred upon the officials and agents of the ARSP who perform the functions of director of inspection and oversight, director of operations, and legal director and auditor.
Their material jurisdiction extends throughout the national territory.
Temporary Closure of the Business: Subcontracting with a Company in Violation of Article 6 of the Subcontracting Law
In addition to the payment of the aforementioned fine, the administrative sanction of temporary closure of the business may be imposed, upon a substantiated request from the ARSP, and as applicable, by an order from the ministers responsible for economy, industry, and small and medium-sized enterprises, by a decree from the provincial governor, or by a decision from the local administrative authority, for a duration not exceeding six months.
It follows from the above that the ARSP does not have the authority to impose the administrative sanction of temporary closure against a business.
The ARSP can only refer the matter to the competent authorities, namely the Minister of Industry and SMEs (national), the Provincial Governor (provincial), or the local administrative authority (the Mayor, the Bourgmestre, the Sector Chief, or the Chief of the Chiefdom) to request this sanction.
The aforementioned authorities are required to communicate their orders or decisions to the ARSP within seven days for implementation.
Finally, it should be noted that it is possible to appeal against the administrative measure of temporary closure of the business, under the conditions provided by Organic Law No. 16-027 of October 15, 2016, concerning the organization, jurisdiction, and functioning of administrative courts.
Criminal Liability and Fines: Poaching of Personnel, Undeclared Work, and Illegal Lending of Labor
The poaching of personnel from the subcontractor refers to the recruitment or inducement of the subcontractor's employees to leave their jobs to join the principal contractor or the project owner, generally with the aim of benefiting from their skills, reducing competition, or undermining the subcontractor.
The poaching of personnel from the subcontractor by the principal contractor or the project owner is punishable by the same penalties as the diversion of labor. This latter offense is punishable by a prison sentence of 3 months to 5 years and a fine not exceeding one thousand zaïres, or by one of these penalties alone.
Undeclared work consists of employing workers without complying with the reporting and contribution obligations related to social security. This also includes non-compliance with legal provisions regarding working hours, weekly rest, paid leave, and the minimum wage.
Illegal lending of labor is defined by law as a fraudulent operation that removes the employee status between the lender and the borrower with the aim of profiting from the price that should have been paid for similar employment.
Illegal lending of labor and undeclared work are punishable by a fine ranging from 10,000,000 to 50,000,000 Congolese francs (approximately USD 2,700 to USD 18,000).
Automatic Nullity of the Subcontracting Contract: Clauses, Provisions, and Arrangements Violating the Provisions of the Subcontracting Law
The sanction of automatic nullity of a subcontracting contract, as provided in the final part of Article 28 of the subcontracting law as amended and supplemented, can only be pronounced by the competent judge, upon application by the ARSP within fifteen days following knowledge of the facts.
It is important to note that the principle derived from this provision, which requires referring the matter to a competent judge to declare the automatic nullity of a subcontracting contract, is in opposition to the general theory of automatic nullity.
Indeed, the automatic nullity of a contract occurs when the law provides that a contract is automatically invalid, without the need to obtain a judicial decision to declare it null. In other words, automatic nullity means that the contract is declared null automatically due to a violation of certain legal or regulatory provisions, without the need for legal action to establish this nullity.
4. Some Strategies to Mitigate the Risk of Sanctions
There are several strategies that companies can adopt to mitigate the risk of sanctions in the subcontracting sector in the Democratic Republic of the Congo (DRC). In this regard, we particularly recommend :
For subcontracting companies to comply with legal requirements, including Article 6 of the Subcontracting Law and its implementing measures.
For principal contractors to meticulously verify the legal compliance of the subcontractors with whom they contract and to fulfill their obligations under the law.
Contracting parties should work closely with the regulatory authority to ensure compliance with the applicable legislation.
In conclusion, the sanctions applicable to the subcontracting sector in the DRC are essential for promoting integrity and accountability among the actors in this sector. However, it is crucial that these sanctions are enforced in strict accordance with the relevant legislation.
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[1] DRC: Discussions between authorities and Kibali Gold Mine, threatened with closure.
DRC: Nine companies from a Russian mining group delisted from the subcontracting market.
[2] By exception, in cases of proven unavailability or inaccessibility of Congolese expertise, the contractor may engage any other Congolese legal entity or a foreign company for a maximum duration of six months. However, due to the specificity of certain markets, a permanent exemption or an extension beyond six months may be granted by the ARSP.
[3] Ministerial Order No. 02/CAB/MIN/CMPMEA/2021 of January 6, 2021, establishing the conditions and procedures for the identification and registration of companies eligible to engage in subcontracting activities in the private sector.
[4] Ministerial Order No. 001/CAB/ME/MIN/J&GS/2021 of July 22, 2021, granting the status of judicial police officer (OPJ) to certain officials and agents of a public administrative entity known as the Regulatory Authority for Subcontracting in the Private Sector, abbreviated as "ARSP."
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