No Cost Shifting or Personnel Interference in Public Contracts... Ministry of Economy and Finance Revises Contract Regulations

[Sejong=Asia Economy Reporter Kim Hyunjung] In public contracts issued by government ministries and public institutions, acts of unfairly shifting costs onto contractors will be prohibited. Excessive labor and personnel intervention by the contracting agency in relation to the contractor will also be restricted.

On the 18th, the Ministry of Economy and Finance announced that it has revised and promulgated contract regulations to implement these priority tasks through discussions by the Contract System Innovation Task Force (TF).

The revised regulations list major unfair acts as prohibited behaviors for contract officers to prevent contracting agencies from unfairly shifting costs and burdens onto contractors in public contract sites. For example, in long-term continuous contracts, if there is a reason to extend the contract period, terminating the current contract to avoid paying indirect costs and then re-contracting after the reason ends, or shifting various burdens of the contracting agency onto the contractor, are considered unfair acts. Additionally, requests related to contract changes such as design modifications must be made in writing and not verbally, which is also prohibited.

The longstanding practice of contracting agencies excessively intervening in labor and personnel matters, such as unilaterally demanding the replacement of workers performing the contract, has also been revised. Worker replacement decisions must be made through mutual consultation between the contracting agency and the contractor, and the reasons for replacement requests are limited to violations of relevant laws or fraudulent acts.

Measures have also been established to eliminate the practice of contracting agencies unilaterally using the contractor’s technology and knowledge. Technology and knowledge submitted by the contractor during contract execution may only be used restrictively for public interest purposes, and even then, appropriate compensation must be paid for such use.

To prevent contracting agencies from excessively undercutting prices, when preparing the estimated price, the calculation must apply the estimated price rather than the winning bid price from previous contracts for the same goods.

The government has introduced a "Fair Contract Pledge System" for contracting agencies to ensure compliance with the revised regulations. Since contractors are required to submit integrity pledges, contracting agencies are also required to prepare fair contract pledges.

Accordingly, public contract issuing agencies must pledge to prohibit bribery demands to contractors, refrain from interfering in management and personnel matters, and avoid imposing obligations or shifting burdens unrelated to the contract.

The revised regulations take effect immediately upon promulgation. However, detailed standards for contracting agencies related to the Fair Contract Pledge System and enhancements to cost calculation standards will be implemented 3 to 6 months later.

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