Fair Trade Commission "38 Construction Companies Violate Subcontract Payment Guarantee"

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The Fair Trade Commission announced on the 12th that it conducted an emergency inspection of 87 construction companies and completed voluntary corrections to prevent subcontractors from not receiving payments due to insolvency caused by the economic downturn.

The 87 companies subject to inspection were selected based on their ranking in construction capability evaluation, exemption from mandatory investigations on subcontract transactions, and results from written surveys on subcontract transactions. As of the inspection start date, January 25, payment guarantee subscriptions were checked for all 33,632 ongoing subcontracting projects.

The inspection revealed a total of 551 cases (1.6%) of violations involving 38 companies (44%), including ▲non-subscription to payment guarantees ▲failure to renew payment guarantees after contract changes ▲incomplete direct payment agreements. For the violating companies, approximately 178.8 billion KRW worth of new payment guarantee subscriptions were induced through voluntary corrections. Thirty construction companies that voluntarily corrected their violations after the investigation start date were issued warnings.

The payment guarantee system for subcontract payments is a system that allows subcontractors to receive subcontract payments through guarantee institutions in case the original contractor becomes insolvent in construction subcontracting projects.

In response to the recent deterioration of the construction market and the risk that original contractors (construction companies) may fail to properly pay subcontractors (subcontracting companies) in subcontract transactions, the Fair Trade Commission formed a dedicated team and conducted an emergency inspection. This is the first time the Fair Trade Commission has conducted a full-scale investigation into payment guarantee violations by construction companies.

The Fair Trade Commission distributed a response manual to prevent damage to small and medium subcontractors, urging them to utilize systems that guarantee subcontract payments such as payment guarantees under the Subcontracting Act and direct payment by the ordering party. It also provided guidance on how subcontractors should respond to different types of construction company crises such as workouts (corporate financial restructuring), corporate rehabilitation, and corporate bankruptcy.

The Fair Trade Commission plans to conduct training sessions with the Korea Specialty Contractors Association in major regions nationwide starting from the 22nd, targeting subcontractors in the construction sector.

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