Unfair Contracts Using Superior Position by Korea Land and Housing Corporation Remain 'Persistent'

Excessive Liquidated Damages and Defect Repair Deposits

Assemblyman Jo O-seop Urges Eradication of Subcontracting Responsibility Shifting

[Asia Economy Honam Reporting Headquarters Reporter Yoon Jamin] It has been revealed that unfair contracts exploiting superior positions are still ongoing in various construction projects carried out by Korea Land and Housing Corporation (hereinafter LH).

On the 8th, Assemblyman Jo O-seop (Democratic Party of Korea, Gwangju Buk-gu Gap) stated, “An analysis of the top 20 LH construction projects (by amount) showed that violations of the ‘unfair subcontract special contract’ regulations are rampant, but LH’s management and supervision have not reached these issues.”

The Enforcement Decree of the Subcontracting Act specifies that it is an unfair special contract to impose defect liability or compensation responsibilities, which should be borne by the original contractor, onto the subcontractor.

Also, liquidated damages are a form of predetermined compensation that the subcontractor must pay to the client (original contractor) if the contract execution is delayed. Public institutions generally regulate this at ‘0.05% of the contract amount per day.’

However, the original contractors of the top 20 LH projects signed contracts with 389 subcontractors, and among them, 224 (57.6%) subcontractors had liquidated damage rates higher than those of the original contractors, constituting unfair subcontract special contracts.

All 224 subcontract contracts with liquidated damage rates higher than the original contractors were more than twice as high, and 13 subcontract contracts for the ‘Hwaseong Dongtan2 A-104BL Apartment Construction Project Section 22’ reached six times (0.30%) the original contractor’s 0.05% rate.

Furthermore, the Fair Trade Commission’s guidelines on unfair special contracts define agreements where ‘the subcontractor must pay the original contractor several times the amount of the relevant compensation cost’ as unfair special contracts, but these are not being observed.

Among the 224 subcontract contracts, 69 (17.7%) had rates higher than the original contractors, and 12 contracts were even more than three times (10%) higher than those of the original contractors.

Defect repair deposits are a form of collateral to prepare for defects occurring after contract completion and are set at 2?5% of the contract amount.

Unfair special contracts that shift responsibility onto subcontractors are also problematic.

The Subcontracting Act prohibits setting special contracts that restrict the interests of subcontractors or transfer obligations imposed on the original contractor to subcontractors.

Upon reviewing 198 ‘site briefing documents’ of subcontract contracts from the top 20 projects, 143 cases were analyzed as unfair special contracts under the Subcontracting Act, including ▲ assuming all responsibility for safety accidents during construction ▲ bearing matters not specified in documents such as site briefing documents, statements, or drawings ▲ full responsibility for safety accidents ▲ responsibility for waste disposal and environmental pollution facilities.

Assemblyman Jo O-seop said, “Unfair practices continue where original contractors impose unfavorable conditions on subcontractors when signing contracts,” and added, “LH, as the management and supervisory institution, must thoroughly check for unfair special contracts according to the Act on the Fairness of Subcontract Transactions and approve subcontract contracts accordingly.”

In response, an LH official stated, “Since August 2016, we have been operating a dedicated subcontracting organization and are seeking ways to further strengthen it.”

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