GS Construction Provides 1.1 Billion KRW Less Subcontract Payment Than Regulations... Fined 1.38 Billion KRW

Fair Trade Commission: "Unfairly Low Determination of Subcontract Payment"

[Asia Economy Reporter Moon Chaeseok] The Fair Trade Commission announced on the 13th that GS Construction violated the law by providing only 18.7 billion KRW in support for a construction project costing 19.8 billion KRW, and decided to issue a corrective order (recurrence prevention order) along with a fine of 1.38 billion KRW.

The commission judged that deciding subcontract payments lower than the total amount of the "direct construction cost" item in the prime contractor's subcontract details constitutes an unfair subcontract transaction violating the Subcontracting Act.

According to the Fair Trade Commission, GS Construction set subcontract payments below the legal level for four construction projects carried out from October 2012 to May 2016 in Hanam, Gyeonggi Province, and Daejeon City. They provided only 18.671 billion KRW, which is lower than the total amount of 19.805 billion KRW stipulated by the Subcontracting Act.

The commission explained, "Article 4, Paragraph 2, Item 6 of the Subcontracting Act prohibits deciding subcontract payments lower than the total amount without justifiable reasons when entering into a subcontract contract through a private contract."

GS Construction decided subcontract payments as follows: 6.098 billion KRW, lower than the total amount of 7.024714 billion KRW for the Hanam construction; 11.311486 billion KRW for machinery and equipment supply and installation in Daejeon construction; 1.326 billion KRW, lower than the total amount of 1.367978 billion KRW for instrumentation equipment supply and installation in Daejeon construction; and 99.3 million KRW, lower than the total amount of 101.68 million KRW for electrical equipment supply and installation in Daejeon construction.

Kim Donghyun, head of the Construction Service Subcontract Improvement Division at the Fair Trade Commission, stated, "This action penalizes GS Construction for unfair subcontract transactions by deciding subcontract payments lower than the total amount without justifiable reasons when entering into subcontract contracts through private contracts."

Kim added, "When subcontract payments are decided through private contracts where the subcontractor's bargaining power is weaker than in bidding, it is expected that substantive consultations between the prime contractor and subcontractor will take place during the process."

A GS Construction official said, "Although the initial subcontract amount was contracted lower than the prime contractor's direct construction cost, the final subcontract amount was contracted at or above the prime contractor's direct construction cost, and all payments were made. Due to the nature of large-scale turnkey projects, quantity increases and decreases frequently occur during construction, so the initial subcontract contract is concluded on the premise of quantity changes, and the final settlement contract reflecting quantity changes has been recognized as the substantive contract. However, moving forward, we will take corrective measures to ensure that no violations of the law occur even at the time of the initial subcontract contract."

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