Energy Cost Increases to Be Reflected in Subcontract Payments... Enforcement Decree of Subcontracting Act Revision Announced

Expansion of Cost Adjustment Beyond Raw Materials to Include 'Energy Costs'
Direct Whistleblower Rewards for Affected Companies

Going forward, in subcontracting transactions, not only increases in raw material prices but also surges in 'energy costs' such as electricity and gas rates must be mandatorily reflected in subcontracting payments. In addition, if a small or medium-sized business suffers damages from unfair transactions and reports the case to the main contractor, it will now be able to receive a direct whistleblower reward.

The Fair Trade Commission announced that it has prepared a revision to the Enforcement Decree of the Fair Subcontract Transactions Act, which contains these key provisions, and will hold a legislative notice period from March 25, 2026, to May 6, 2026. This revision is part of the current government's national agenda and is being promoted with the aim of implementation on August 11, 2026.

According to the amendment, the scope of the subcontract payment adjustment system will be expanded from major raw materials to include 'major energy sources' (fuel, heat, electricity, etc.). Accordingly, the main contractor must clearly state in the written document issued to the subcontractor the major energy items subject to adjustment, the price reference indicators, and the timing for calculating the rate of change.

The whistleblower reward system will also change significantly. Previously, rewards were only given for third-party reports, but going forward, subcontractors who have suffered damages from unfair practices such as unjust payment decisions or technology misappropriation can submit evidence and receive rewards for reporting directly. The intent is to significantly strengthen the monitoring system for illegal activities in the closed subcontracting market.

Additional safeguards to prevent payment defaults at construction sites will also be implemented. Payment guarantees will be mandatory for all construction subcontracting transactions except for small-scale projects (worth 10 million won or less), with most previous exceptions removed. However, a degree of flexibility will be allowed: even if the payment amount increases during the project, additional guarantee requirements will be waived if the remaining balance is 10 million won or less.

Furthermore, if companies use the 'standard subcontract contract'—a contract promising fair trade—100% of the time, the benefit of penalty point reductions will be expanded from 2 points to 2.5 points to encourage the spread of a voluntary culture of mutual cooperation.

The Fair Trade Commission stated, "We will gather feedback during the legislative notice period and complete the revision in time for the law to take effect."

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