"Blocking Low-Priced Bids"... Government to Raise Minimum Bid Price Rate for Public Sector Contracts by 2 Percentage Points

The government is pushing to raise the minimum bid price rate for public sector contract workers by 2 percentage points from the current level of 88% in order to improve the low-wage structure. Based on the assessment that low bid rates lead to lower wages for workers, the plan aims to structurally address the entrenched contract and subcontracting systems.

On April 16, the Ministry of Employment and Labor and other relevant ministries held a labor safety-related ministers' meeting at the Government Complex Seoul and announced the "Improvement Plan for Public Sector Contract Operations," which includes these measures. According to a survey conducted last August in six sectors, including power generation, energy, railways, and airports, some institutions recorded minimum bid rates as low as 61% for main contracts and 82-87% for subcontracts. There were also cases where labor costs dropped to the minimum wage level.

In August last year, workers were working at an apartment construction site in Seoul, where the government launched a crackdown on illegal subcontracting at construction sites. Photo by Yonhap News

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Accordingly, the government plans to raise the minimum bid price rate for contract services in public sectors such as cleaning, security, and facility management (currently 87.995%) by 2 percentage points. The minimum bid price rate refers to the lowest price allowed in bidding; no matter how low a bid is, it cannot win below this threshold. In contrast, the "lowest bid method" selects the company that offers the lowest price, which can result in excessive price competition and even cuts in labor costs. The core of the government's improvement plan is to raise the minimum bid price rate to prevent cutthroat low-price competition and ensure a certain level of labor costs.

Additionally, labor costs will be specified and disclosed as a separate item in contracts, and their use will be restricted to wages and retirement benefits only. Transparency in the payment process will be enhanced by using the electronic procurement system and dedicated labor cost accounts. To reduce disparities arising from performing the same or similar work, "three welfare benefits"-a meal allowance of 140,000 won per month, annual welfare points of 500,000 won, and holiday bonuses equivalent to 120% of base salary-will be excluded from the calculation of the total wage increase rate.

The employment stability of contract workers will also be strengthened. Currently, more than half of contract terms are one year or less, so unless there are special circumstances, the government will encourage setting contract periods of at least two years and aligning employment contracts accordingly. This is intended to prevent so-called "split contracts," which involve repeated short-term contracts.

In the public sector, multi-layered subcontracting structures will, in principle, be prohibited. In unavoidable cases, only exceptions that pass prior review will be allowed. The government plans to implement these measures step by step through the establishment of guidelines and revisions to regulations, and to increase compliance on the ground by reflecting them in management evaluations and inspections. Minister of Employment and Labor Kim Young-hoon stated, "Through these improvement measures, the public sector will establish a transparent and fair contract management system as a 'model employer.'"

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