Approval of the Amendment to the Mutual Growth Cooperation Act at the Cabinet Meeting

Deletion of Application Requirements for Delivery Payment Adjustment Negotiation through Small and Medium Enterprise Cooperatives
Transfer of Burden of Proof for Circumvention of Linked System to Consigning Companies

The Ministry of SMEs and Startups (Minister Oh Young-joo) announced that the amendment to the "Act on the Promotion of Mutual Growth between Large Enterprises and SMEs" (Mutual Growth Act), which removes the application requirements for delivery payment adjustment consultations (agency consultations) through SME cooperatives and the Korea Federation of SMEs, and shifts the burden of proof in disputes related to illegal acts linked to delivery payments from subcontractors to contractors, was approved at the Cabinet meeting on the 2nd.

First, the application requirements for subcontractors to request agency consultations through SME cooperatives or the Korea Federation of SMEs have been removed. When the supply costs such as material costs, labor costs, and expenses increase, subcontractors can use the delivery payment adjustment consultation system to directly negotiate delivery payment adjustments with contractors or request agency consultations through SME cooperatives or the Korea Federation of SMEs.

Previously, when subcontractors applied for agency consultations through SME cooperatives or the Korea Federation of SMEs, they had to meet conditions such as ▲ material costs of raw materials accounting for 10% or more of the contract amount changing by 10% or more, ▲ labor costs accounting for 10% or more of the contract amount with changes in the minimum wage, or ▲ material costs, labor costs, or expenses changing by 3% or more of the remaining delivery payment. With this amendment to the Mutual Growth Act, the application requirements have been removed, allowing subcontractors to utilize agency consultations without separate verification procedures.

The burden of proof in civil disputes related to illegal acts linked to delivery payments has shifted from subcontractors to contractors. Previously, the burden of proof shifted from subcontractors to contractors only in cases of ▲ unjust refusal to accept and reduction of delivery payments, ▲ determination of significantly low delivery payments, ▲ contractors not passing on increased amounts received from the ordering party to subcontractors, and ▲ forced purchase of goods. With this amendment, the scope has been expanded to include illegal acts linked to delivery payments.

The punitive damages system for unfair trade practices in subcontracting and contracting transactions has also been expanded. Under the previous Mutual Growth Act, punitive damages applied only to retaliatory acts by contractors and technology misappropriation. With this amendment, subcontractors can receive compensation up to three times the damages incurred for ▲ unjust refusal to accept and reduction of delivery payments, ▲ determination of significantly low delivery payments, and ▲ reduction or suspension of orders without justifiable reasons.

The amended provisions regarding agency consultations will take effect from January 9. Other amendments will be enforced from July 10. Jeong Ki-hwan, Director of the Mutual Growth Policy Division at the Ministry of SMEs and Startups, said, "With the removal of application requirements for agency consultations, subcontractors are expected to more easily adjust delivery payments through agency consultations via SME cooperatives and the Korea Federation of SMEs in response to increases in supply costs such as material costs, labor costs, and expenses."

Director Jeong added, "The shift of the burden of proof in illegal acts linked to delivery payments will enable subcontractors to respond more easily in related disputes," and "The Ministry of SMEs and Startups will also conduct special ex officio investigations on the linkage system to prevent illegal acts."

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