47% of Subcontractors Reflect Less Than Half of Raw Material Price Increases in Delivery Prices

Fair Trade Commission, 2021 Subcontracting Transaction Survey Results
This Year Also Conducted a 'Survey on Delivery Price Adjustment Negotiation System'

[Sejong=Asia Economy Reporter Joo Sang-don] Despite the recent surge in raw material prices, 47% of subcontractors reflected less than half of the raw material price increase in their delivery prices. Policy measures are needed to activate subcontract price adjustment negotiations, especially in industries where the reflection of raw material price increases is insufficient.

On the 16th, the Fair Trade Commission announced the results of the 'Subcontracting Transaction Survey.' The 2021 subcontracting transaction survey targeted 93,972 companies engaged in manufacturing, service, and construction industries, focusing on their 2020 subcontracting transactions.

In response to the recent rise in raw material prices, this survey additionally asked about the methods of determining raw material purchase prices and the extent to which the increase in raw material prices was reflected in delivery prices. According to the results, 36% of suppliers answered that they 'fully reflected' the increase in raw material prices in delivery prices, and 17.0% said they 'reflected more than 50%.' Conversely, 29.0% responded that they 'reflected less than 50%,' and 17.1% answered that they 'did not reflect at all.' In total, 47% of respondents reflected only half or less of the raw material price increase in delivery prices.

Regarding the method of determining raw material purchase prices, 59.1% of suppliers responded that they 'decide after sufficient mutual consultation,' which was the most common answer. However, 17.3% said 'consultation is conducted but insufficient,' and 23.6% answered that 'the raw material supplier unilaterally decides.' Particularly in the wood and petrochemical sectors, the rates of respondents who said 'consultation is conducted but insufficient' or 'the raw material supplier unilaterally decides' were high at 50.8% and 45.1%, respectively.

The proportion of suppliers aware of the subcontract price adjustment system was 52.8%, an increase from 49.6% the previous year. Additionally, 11.4% of businesses (compared to 10.1% the previous year) reported having received subcontract price adjustment requests from suppliers due to increased supply costs in 2020, and 4.0% of suppliers (compared to 1.9% the previous year) said they had applied for subcontract price adjustments.

A Fair Trade Commission official stated, "Policy measures are needed to activate subcontract price adjustment negotiations, especially in industries where the reflection of raw material price increases is insufficient. Although awareness and utilization of the subcontract price adjustment system are gradually increasing, it is necessary to enhance its use through active promotion."

The response of 'average' to overall transaction practice improvement increased from 37.3% to 41.7%, while 'improved' or 'worsened' responses decreased from 59.4% to 57.1% and 3.3% to 1.2%, respectively.

Among primary contractors, 61.6%, and among suppliers, 87.2% reported using the standard subcontract contract in all subcontracting transactions. By industry, the construction sector showed the highest rate of full use of the standard subcontract contract (based on primary contractor responses) at 98.1% (up from 97.2% the previous year), manufacturing was at 63.3% (down from 65.3%), and service was at 56.5% (down from 63.2%).

The most common reason for not using the standard subcontract contract was that 'the contents of the standard subcontract contract do not match the realities of the work' (33.3% based on primary contractor responses).

The proportion of primary contractors paying subcontract prices in cash decreased to 75.6% from 83.7% the previous year. The rate of cash-equivalent payments also dropped from 93.5% to 84.7%.

A Fair Trade Commission official said, "We are reviewing incentive provision measures such as awarding additional points by improving the Fair Trade Agreement evaluation system to consider the rate of delivery price increases relative to raw material price rises. Also, to address the core issue of subcontracting cases?non-payment of fees?we plan to explore various measures such as issuing prompt future prohibition orders and corrective actions upon confirmation of non-payment, imposing orders for payment adjustment negotiations, and providing incentives to encourage dispute resolution or arbitration."

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