Advance Payment Limit Raised from 70% to 80% in Public Contracts... Easing Financing Burden for SMEs

'Revision of the Enforcement Decree of the National Treasury Management Act' Approved at the Cabinet Meeting

[Asia Economy Reporter Lee Kwang-ho] From now on, when companies enter into construction, manufacturing, or service contracts with government ministries, they will be able to receive up to 80% (previously 70%) of the contract amount as an advance payment. This is expected to ease the financial burden on small and medium-sized enterprises struggling due to the novel coronavirus disease (COVID-19).

On the 14th, the government deliberated and approved the partial amendment to the Enforcement Decree of the National Treasury Management Act, which expands the advance payment limit in national contracts, at the 18th Cabinet meeting.

An advance payment is a system where the ordering agency pays wages and material purchase costs in advance before contract fulfillment to ensure smooth progress of construction work.

The Enforcement Decree of the National Treasury Management Act (Article 40, Paragraph 1, Subparagraph 15) previously allowed national agencies to pay advance payments up to 70% of the contract amount for construction, manufacturing, and service contracts. However, with this amendment, if the head of a central government office consults with the Minister of Strategy and Finance, advance payments can be made up to 80% of the contract amount when necessary for smooth construction progress.

Advance payments are prioritized for wages directly necessary to achieve the contract purpose (excluding construction and simple labor services) and securing materials. While the existing 70% advance payment limit is generally maintained, if consulted with the Ministry of Strategy and Finance, advance payments can be made up to 80% excluding expenses unrelated to the contract purpose, such as general administrative costs.

The Ministry of Strategy and Finance plans to immediately issue contract exception guidelines to central government offices upon the promulgation of this amendment (end of April) and apply the 80% advance payment limit until December 31 of this year.

A government official stated, "With this amendment, the government enables national agencies to pay advance payments up to 80% of the contract amount, which will alleviate the financial burden on public procurement participating companies struggling due to COVID-19 and support the prompt execution of the budget."

This content was produced with the assistance of AI translation services.