Correction Order Issued to Hwaseong Togeon for Unfair Subcontracting Transactions

[Asia Economy Reporter Moon Chaeseok] The Fair Trade Commission issued a corrective order (including a payment order) against Hwaseong Togeon, located in Daejeon, for engaging in unfair subcontracting transactions. It was revealed that the company failed to issue written documents to subcontractors, set unfair special agreements, and did not pay delayed interest and bill discount fees.

On the 14th, the Fair Trade Commission announced that Hwaseong Togeon engaged in such unfair transactions while entrusting construction work to subcontractors from August 2014 to November 2016.

Regarding the subcontract for the "Reinforced Concrete Work for the Construction of Jeongnim-dong Peaceful Apartment," Hwaseong Togeon did not issue written documents to subcontractors when additionally subcontracting external fence work on August 15, 2014.

They were supposed to provide key details such as subcontract payment and payment methods in writing but failed to do so.

There were also delays in issuing the documents. The subcontractor started the "Reinforced Concrete Work for the Construction of Gyeryong-si Geumam-dong Row Houses" on October 2, 2015, but the written document was issued only on April 1, 2016.

Hwaseong Togeon claimed, "We could not issue the contract because the unit price was not finalized."

The Fair Trade Commission explained, "Disagreements over unit prices do not constitute a legitimate reason under Article 3, Paragraph 3 of the law, so a written document excluding the unit price must be issued before the start of construction. Once the unit price is finalized, it must be promptly included and issued."

Source=Korea Fair Trade Commission

Contract terms were also set unfairly. While entrusting the above two construction projects to subcontractors, Hwaseong Togeon restricted the rights of subcontractors in the subcontract agreements and general conditions. They also included contract terms that shifted costs they should bear onto the subcontractors.

Specifically, these included ▲an agreement to withhold 30% of the progress payment to the subcontractor ▲an agreement to pass on costs arising from additional or repair work directed by the primary contractor to the subcontractor ▲an agreement restricting the subcontractor's demand for increased construction costs due to labor and raw material price increases.

There were cases where bill discount fees of 2.26 million KRW and delayed interest of 43.82 million KRW were not paid.

Here, the bill discount fee refers to costs incurred due to setting a bill maturity date exceeding 60 days from the date of acceptance of the object when paying subcontract fees by bill. The annual interest rate is 7.5%.

Delayed interest refers to interest incurred because subcontract fees were paid more than 60 days after the acceptance date of the object. An annual interest rate of 20% was applied until June 30, 2015, and 15.5% after July 1, 2015.

The Fair Trade Commission imposed a recurrence prevention order on Hwaseong Togeon's failure to issue written documents and unfair special agreement setting. For non-payment of bill discount fees and delayed interest, both recurrence prevention and payment orders were issued.

Yeon Gyuseok, head of the Daejeon Regional Fair Trade Office, said, "Through these measures, we expect to contribute to improving unfair subcontracting practices where the primary contractor sets unfair special agreements to withhold part of the progress payment and shift costs such as additional construction expenses, which they should bear, onto subcontractors."

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