Fair Trade Commission Fines Daebang Construction 14.5 Million Won for "Retention Money and Waste Disposal Cost Abuse"

Unfair "10% Payment Retention" Clause Imposed on 159 Subcontractors
Waste Disposal Costs Shifted to Subcontractors, Even Legal Obligations Passed On

Daebang Construction has been caught by the Fair Trade Commission for withholding part of payments to subcontractors under the pretext of defect repairs, or passing on waste disposal costs, which the company itself should have borne, to its subcontractors.

The Fair Trade Commission announced on the 13th that it has decided to issue a corrective order and impose a fine of 14.5 million won on Daebang Construction Co., Ltd. for violating the Subcontracting Act by setting unfair special contract terms.

According to the Fair Trade Commission, from April 2021 for about a year, Daebang Construction entered into 482 subcontracting contracts with 159 subcontractors, establishing what is called a "retention special agreement." This agreement stipulated that 10% of the contract amount must be deposited with the prime contractor as a defect repair guarantee, or that payment could be withheld until a guarantee bond was submitted.

Based on this special agreement, Daebang Construction actually withheld payments. As a result, some subcontractors experiencing financial difficulties pleaded to have the retention rate reduced to 5%. The Fair Trade Commission determined that such actions constitute unfair special contract terms that infringe on subcontractors' legitimate right to receive payment. However, Daebang Construction deleted this special agreement as of March 15, 2022, after internal review.

There were also instances of shifting waste disposal costs. For three years starting in 2021, Daebang Construction entered into special agreements requiring subcontractors to unconditionally bear any waste disposal costs exceeding the amount set at the time of contract, regardless of the cause or responsibility.

In practice, the company deducted the excess costs from the subcontractors’ progress payments (payments made based on construction progress) and even forced them to sign a confirmation letter stating that they would not raise any objections in the future. Under current law, environmental management costs arising from construction projects are, in principle, the responsibility of the prime contractor.

The Fair Trade Commission emphasized, "This action clearly establishes that withholding payments for defect warranties or passing on environmental costs are chronic unfair practices in the construction industry," and added, "We will continue to closely monitor and take strict action against any unjustified delays in payment."