Delivery Different from Contract Due to Civil Servants' Demands... Court Rules "Cancellation of Direct Production Confirmation is Lawful"

[Asia Economy Reporter Seongpil Jo] A court ruling has determined that the cancellation of 'direct production confirmation' against a small and medium-sized enterprise (SME) that purchased and supplied products from a different company than the contract made with the Public Procurement Service (PPS) at the request of a corrupt public official was lawful. Direct production confirmation is a system that mandates public institutions to verify whether SMEs directly produce the products when entering into procurement contracts.

According to the legal community on the 27th, the Administrative Court of Seoul, Administrative Division 4 (Presiding Judge Mi-yeon Jo) ruled against CCTV manufacturer Company A in a lawsuit filed against the Korea Federation of SMEs seeking to cancel the revocation of direct production confirmation. The court stated, "The contract between Company A and the PPS is of the nature of a contract for a third party, with the county office being merely the beneficiary, and it cannot be considered that the contract terms were changed at the request of the county office supervisor." It further ruled, "Even if the county office requested the delivery of products from another company, Company A should have proposed to fulfill the contract terms as agreed with the PPS."

Company A, an SME, won the bid in 2016 for a CCTV purchase and installation project issued by the PPS for a county office in Chungbuk Province and intended to supply products it manufactured. However, the responsible public official at the county office demanded that Company A purchase and supply finished products from a specific company he introduced, stating that the products must be compatible with the existing system, and Company A complied. In 2018, the Board of Audit and Inspection uncovered this corruption, reported the official to the prosecution on charges of abuse of authority, and requested disciplinary action against the county office. In July 2019, the Korea Federation of SMEs revoked Company A’s direct production certification on the grounds that it did not supply products it directly produced, leading Company A to file an administrative lawsuit in protest.

In court, Company A argued, "The responsible public official instructed us to purchase and supply products from another company," and "Since there is no fault on our part, the cancellation of direct production confirmation violates the principle of trust protection." However, the court rejected Company A’s claims, stating, "Considering the strict procedures, transparency, and fairness required in government procurement contracts, it cannot be assumed that the county office could change the contract terms. If the county office forced the delivery of products produced by another company, it should have notified the PPS to resolve the issue."

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