Mid-tier construction companies ranked 21st to 50th in construction capacity have agreed to promptly notify subcontractors when defect lawsuits are filed and to share any resulting damages according to each party's responsibility — provisions absent from a similar pact signed with the top 20 builders in May.

The companies also agreed to pay subcontracting fees within the legally required period and in cash unless special circumstances apply, and to abolish the practice of withholding a portion of contract payments until after project completion.

A housing reconstruction site in Seoul. This photo is not directly related to the article. [Herald DB]
A housing reconstruction site in Seoul. This photo is not directly related to the article. [Herald DB]

The Korea Fair Trade Commission said Friday it held a "Construction Industry Mutual Cooperation and Fair Trade Agreement" ceremony at the Specialty Contractors Hall in Dongjak-gu, Seoul, with 30 mid-tier general contractors and the Korea Specialty Contractors Association in attendance.

The 30 companies that joined the pact range from Wumi Construction, ranked 21st in construction capacity, to Seohan, ranked 50th. The move extends the initiative — which began with the top 20 builders on May 28 — to mid-tier firms.

The new agreement adds two provisions not included in the earlier pact: an obligation to notify subcontractors of defect-related lawsuits or mediation proceedings, and a framework for sharing damages. General contractors must promptly inform subcontractors upon learning that a defect lawsuit or mediation has been filed for a construction project such as an apartment complex, and must engage in good-faith consultations. Any damages determined by the outcome of such proceedings are to be divided between prime and subcontractors through consultation, based on each party's share of responsibility.

The Fair Trade Commission said general contractors had repeatedly pursued defect litigation without informing subcontractors, then passed the resulting damages on to them after losing. Following the May agreement with large builders, the commission gathered feedback from specialty contractors and added the new provisions in response.

Payment practices will also be reformed. Participating builders agreed to pay subcontracting fees within 60 days as required by law and contract, and in cash unless special circumstances apply. They also agreed to end the practice of withholding a portion of progress payments and deferring the remainder until after project completion.

Unfair contract clauses that unilaterally shift industrial safety or waste disposal costs onto subcontractors will be identified through self-audits and removed. The builders also pledged not to pressure subcontractors into signing contracts at prices below their submitted bids, or to refuse to conclude contracts on such grounds.

When supply costs fluctuate due to war, international conflict, sharp rises in oil or raw materials prices, or supply chain instability, the builders agreed to engage in good-faith consultations on adjusting subcontracting fees and to implement any agreed changes without delay. If construction is disrupted, contract terms such as project timeline extensions or waivers of delay penalties will also be adjusted through mutual consultation.

Prime and subcontractors will jointly establish the standards and procedures needed to make subcontracting fee indexation work in practice on job sites. Builders will also set up internal dispute resolution bodies — or equivalent procedures — to handle subcontracting disputes and unit price adjustments independently.

According to the Fair Trade Commission, the construction industry's total subcontracting contracts in 2025 numbered 61,673 cases worth about 54.13 trillion won ($36.6 billion). The top 50 builders by construction capacity — those covered by both the May agreement and Friday's pact — accounted for 12,269 contracts worth about 32.23 trillion won, representing 19.89 percent of all subcontracting transactions by volume and 59.53 percent by value.

Fair Trade Commission Chairman Ju Byung-gi said the participation of mid-tier builders following their larger peers "shows that our construction industry is moving to a new stage," adding that "20 percent of all construction subcontracting transactions by volume and 60 percent by value will now fall within the framework of the mutual cooperation agreement."

The commission, the general contractors and the specialty construction industry will also operate a public-private consultative body to share updates on agreement compliance, subcontracting law enforcement trends and best practices in mutual cooperation. The commission plans to hold consultative meetings with 19 large builders in September and with the 30 mid-tier builders in November.


y2k@heraldcorp.com