Standards Established for 'Payment Linked Pricing System' Agreement Details and Exception Rules

Full Implementation of Delivery Payment Linkage System Starting October 4

With the implementation of the 'Delivery Payment Linkage System' scheduled for October 4, criteria for the items to be recorded in the agreement and exceptions for short-term contracts exempt from the linkage system have been established.

The Ministry of SMEs and Startups announced that the amendment to the 'Enforcement Decree of the Act on the Promotion of Mutual Growth between Large and Small-Medium Enterprises,' which includes these details, was approved at the Cabinet meeting on the 19th.

Once the linkage system is implemented, entrusting companies that enter into or renew consignment agreements involving key raw materials must include matters related to delivery payment linkage in the agreement. This includes the names of the products subject to delivery payment linkage, key raw materials, adjustment conditions and formulas for linkage, reference indicators for key raw material prices, reference and comparison points for calculating price fluctuation rates, adjustment dates for delivery payment linkage, adjustment cycles, and the dates when adjusted payments are reflected.

To minimize side effects arising from the legalization of the linkage system, the exemption clauses for mandatory linkage have been further specified. Short-term contracts with a duration of 'within 90 days' or small-amount contracts with delivery payments 'under 100 million KRW' are exempt from the mandatory application of the linkage system. However, if the Minister of SMEs and Startups prescribes otherwise by considering transaction practices and characteristics, those provisions must be followed. This is interpreted as a measure to prevent loopholes aimed at evading the linkage system by splitting transaction scale and duration.

Standards for penalty points imposed for non-compliance with the linkage system have also been established. If an entrusting company forces or induces a non-linkage agreement through illegal acts related to delivery payment linkage, 5.1 penalty points will be imposed. For other types of illegal acts such as contract splitting, 3.1 penalty points will be imposed. If the accumulated penalty points exceed 5 points over three years, restrictions on participation in public procurement bidding may be applied. Additionally, if the agreement does not include matters related to delivery payment linkage or if the entrusting company fails to negotiate sincerely, penalty points ranging from 1.5 to 3.1 will be imposed depending on the disposition.

The criteria for reducing penalty points will also be expanded. Penalty points can be reduced if the company is designated as an excellent mutual growth company and rewarded (1 point), receives a rating of excellent or higher in the Win-Win Growth Index evaluation (up to 2 points), is selected as an excellent delivery payment linkage company or has delivery payment linkage performance (up to 2 points), or voluntarily remedies damages (up to 100% reduction of penalty points due to legal violations).

If an entrusting company fails to include matters related to delivery payment linkage in the agreement, the fine has been raised from the existing 5 million KRW to 10 million KRW. For illegal acts related to delivery payment linkage, fines of 30 million KRW for the first offense, 40 million KRW for the second, and 50 million KRW for the third and subsequent offenses will be imposed. A new regulation has been established to reduce fines by up to 50% for companies selected as excellent delivery payment linkage companies.

Investigation authority, corrective recommendation and orders, and penalty point imposition related to dispute mediation cases (reported cases) concerning the linkage system are delegated to the heads of local Small and Medium Venture Business Offices. The imposition of fines and ex officio investigations will be conducted by the headquarters of the Ministry of SMEs and Startups.

A Ministry of SMEs and Startups official stated, "The Ministry will operate a guidance period for the linkage system until the end of this year," adding, "During this period, no ex officio investigations related to delivery payment linkage will be conducted, and the system will be operated focusing on voluntary correction and guidance to ensure the linkage system is firmly established on the ground."

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