"Contract Will Be Given Later, Start Work First"... Fair Trade Commission Sanctions Daewoo Shipbuilding & Marine Engineering for 'Build First, Contract Later' Practice

Corporate Prosecution and 15.3 Billion KRW Fine
Violation of Prior Written Issuance Obligation and Subcontract Payment Set Below Manufacturing Cost

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[Sejong=Asia Economy Reporter Joo Sang-don] Daewoo Shipbuilding & Marine Engineering (DSME) was caught by the Fair Trade Commission (FTC) for starting work with subcontractors without issuing contracts and unilaterally setting low payments afterward.

On the 29th, the FTC imposed corrective orders and a fine of 15.3 billion KRW on DSME for failing to issue written contracts in advance when outsourcing ship and offshore plant processing and related parts manufacturing to subcontractors, unfairly deciding subcontract payments, and unjustly canceling or changing entrusted work. The corporation was also referred to the prosecution.

According to the FTC, from 2015 to 2019, DSME entrusted 16,681 ship and offshore plant manufacturing tasks to 186 in-house subcontractors, issuing contracts detailing the work and subcontract payments only after the work had started.

There were 7,254 contracts where the work start date was earlier than the written contract issuance date, and 9,427 contracts where the first work performance month was earlier than the written contract issuance date.

Yook Sung-kwon, Director of the Corporate Transaction Policy Bureau at the FTC, said, "Subcontractors proceeded with work without knowing the specific tasks and payments accurately, and were forced to accept payments unilaterally set by DSME, placing them in a disadvantageous position."

DSME also unilaterally set subcontract payments below manufacturing costs. From 2016 to 2019, DSME entrusted 1,471 cases of revised additional work to 91 in-house subcontractors without deciding subcontract payments beforehand, and after the work was performed, set payments below the subcontractors’ manufacturing costs. When additional revised work occurs, the additional hours are calculated based on actual labor hours input. DSME reduced subcontract payments by arbitrarily lowering the hours counted. In particular, for these 1,471 cases of revised additional work, subcontract payments were confirmed to have been set below the subcontractors’ manufacturing cost levels.

Additionally, from 2016 to 2019, DSME arbitrarily canceled or changed 111,150 manufacturing outsourcing cases entrusted to external subcontractors for ship and offshore plant parts, even though there was no reason to hold the subcontractors responsible.

Director Yook stated, "This action penalizes the practice of setting low subcontract payments for subcontractors who were already in a disadvantageous position when payments were decided after work had started," and added, "It is expected that transparency will be ensured and substantive consultations will take place in the subcontract payment decision process going forward."

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