Raw Material Price Rise Leads to Higher Payment... Subcontract Payment Linkage System Fully Implemented

Fair Trade Commission Subcontract Payment Linkage System F&Q
"Incentives Granted to Companies Participating in the Linkage System"

Starting from the 4th, the subcontract payment linkage system will be implemented. From this day onward, when entering into or renewing a subcontract agreement, if there is a raw material that accounts for more than 10% of the payment, a linkage contract must be concluded.

On the 3rd, the Fair Trade Commission released a booklet containing answers to 200 corporate questions related to the subcontract payment linkage system. The subcontract payment linkage system is a mechanism that adjusts payments according to changes in the prices of major raw materials when they deviate from the agreed rate within 10%. The goal is to alleviate the burden on businesses caused by raw material price fluctuations and was established in line with the national agenda of creating an environment where suppliers receive fair prices.

Going forward, companies must enter into linkage contracts unless they fall under exceptions such as small-amount or short-term transactions. Once negotiations are complete, the product name, raw materials, adjustment conditions, and other details must be recorded in writing. Even if it is agreed not to link payments, the reasons must be documented in the contract to prevent disputes.

Companies participating in the linkage system will receive incentives across government ministries. These include reductions in penalty points and fines under the Subcontracting Act, bonus points in the evaluation of fair trade agreement compliance and selection as exemplary subcontracting companies, exemption from linkage exemplary company surveys, bonus points in support projects by the Ministry of SMEs and Startups, and interest rate reductions from the Korea Development Bank.

Meanwhile, the Fair Trade Commission will designate a “Subcontract Payment Linkage Support Headquarters” within this month. The headquarters will support cost analysis, develop raw material price benchmark indicators, and assist in counseling and dispute resolution between large and small-to-medium subcontractors.

The Fair Trade Commission stated, “As the system is fully implemented, we expect to establish a culture of linkage contracts through sincere negotiations between principals and subcontractors and to lay the foundation for the joint growth of large and small-to-medium enterprises.”

Meanwhile, the government will operate a guidance period until December 31. During this period, no ex officio investigations related to subcontract payment linkage will be conducted, and voluntary corrections will be encouraged if necessary.

[Image source=Yonhap News]

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