'Illegal Subcontracting Cases Detected: From 20% Standard to 70% of Contract Amount'

2022 First Half Illegal Subcontracting Inspection in Construction Projects

Last April, at an apartment construction site in Buk-gu, Gwangju Metropolitan City

The Ministry of Land, Infrastructure and Transport announced on the 4th that, as a result of an on-site inspection of compliance with subcontracting regulations at 161 construction sites nationwide in the first half of this year, illegal subcontracting cases were confirmed at 36 sites, accounting for 22% of the inspected sites.

This inspection targeted 161 sites suspected of illegal subcontracting among public construction sites ordered by the national and local governments and public institutions since October last year, where mutual market entry between general and specialized construction businesses is permitted.

Following the restructuring of construction work sectors, public construction projects ordered after January 1, 2021, allow general contractors to enter specialized construction markets and specialized contractors to enter general construction markets.

During this inspection, the Ministry focused on checking compliance with the obligation to directly perform at least 80% of the total contract amount when entering mutual markets and whether approval from the ordering agency was obtained for subcontracting.

Since last year, the government has removed sectoral barriers between general and specialized construction businesses for public construction projects, allowing mutual market entry, with the condition that the original contractor directly performs at least 80% of the contract amount.

However, exceptions allow subcontracting up to 20% of the contract amount if there is prior written approval from the ordering party or if the subcontractor possesses new technology or patents.

Among the detected cases, 34 out of 36 violated the obligation to directly perform at least 80% of the contract amount, accounting for the majority (94.4%) of violations.

Among these, 7 cases were found to have subcontracted without even obtaining prior approval from the ordering agency.

One general construction company subcontracted as much as 70%, far exceeding the allowed 20% subcontracting limit, while carrying out a specific specialized construction project.

Additionally, 2 other cases complied with the obligation to directly perform at least 80% of the contract amount but failed to obtain prior approval from the ordering party.

The Ministry plans to request the registration authorities (local governments) to impose administrative sanctions on the construction companies involved in the 36 illegal subcontracting cases and to file criminal charges if the acts are subject to criminal penalties.

If a construction company violates subcontracting regulations, it may face suspension of business for up to one year or a fine of up to 30% of the subcontracted amount, and in some cases, criminal penalties including imprisonment of up to three years or fines up to 30 million KRW.

The Ministry of Land, Infrastructure and Transport plans to continue rigorous inspections and crackdowns on illegal subcontracting on a quarterly basis.

Park Hyo-cheol, head of the Fair Construction Promotion Team at the Ministry, stated, "Violations of subcontracting regulations not only disrupt the order of the construction market but also have a negative impact on public safety, making it a serious illegal act. We will conduct rigorous inspections and crackdowns to eradicate it."

He added, "To eradicate illegal subcontracting, the role and interest of the ordering party are most important. We ask that subcontracting management be strengthened by more closely reviewing compliance with laws and regulations when subcontracting approval is required."

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