Electricity, fuel, heat and other major energy costs will be added to the list of items subject to subcontract price-linkage rules, and payment guarantees will in principle become mandatory for all construction subcontracts except those valued at 10 million won ($6,820) or less.

The whistleblower reward program and incentives for using standard subcontract agreements will also be expanded, while the surcharge cap for repeat violators will double from 50 percent to 100 percent.

The Korea Fair Trade Commission at Government Complex Sejong in Sejong [Newsis]
The Korea Fair Trade Commission at Government Complex Sejong in Sejong [Newsis]

The Korea Fair Trade Commission said Tuesday that the Cabinet approved an amendment to the enforcement decree of the Subcontracting Act.

The centerpiece of the amendment is an expansion of the price-linkage regime. A revision to the Subcontracting Act broadened the scope of linkage from "major raw materials" to include "major energy," and the enforcement decree has been updated to align the required written contract disclosures accordingly.

Going forward, prime contractors must include in the written notices they issue to subcontractors the specific energy items subject to linkage, the benchmark indicators for energy costs, and the reference and comparison points used to calculate cost-change rates.

The payment guarantee system for construction subcontracts will also be tightened. The revised Subcontracting Act makes payment guarantees mandatory for all construction subcontracts except those worth 10 million won or less, and removes previously available exemptions under the enforcement decree — including agreements for direct payment by the project owner and the use of electronic payment systems.

However, if a contract was initially valued at 10 million won or less but the construction cost subsequently increases, the obligation to provide an additional payment guarantee will be waived when the remaining contract value stays at or below 10 million won.

The whistleblower reward program will be broadened to encourage reporting of unfair subcontracting practices. Even subcontractors who have themselves suffered harm will now be eligible for a reward if they are the first to submit evidence of a legal violation involving another subcontractor.

Incentives for using standard subcontract agreements will also be expanded. Previously, firms using the standard agreement for 90 percent or more of their contracts received a two-point reduction in penalty points. Under the new rules, firms with a 100 percent usage rate will receive a 2.5-point reduction, while the two-point reduction for those in the 90-to-under-100 percent range remains unchanged.

Penalties for repeat violators will be strengthened. The Fair Trade Commission said it is raising the maximum surcharge premium — which reflects the number of past violations — from 50 percent to 100 percent, with the aim of deterring habitual noncompliance.

Most provisions of the amendment take effect Aug. 11, while the higher surcharge cap for repeat violations takes effect immediately upon promulgation.

The Fair Trade Commission said it expects the amendment to give subcontractors a more stable basis for receiving payment, while promoting greater use of standard contracts, encouraging reporting of violations and deterring repeat offenders — all contributing to a fairer subcontracting order.


y2k@heraldcorp.com