(1) Reasons for Proposal
Article 13-2 of the Fair Transactions in Subcontracting Act (hereinafter “Act”) stipulates that in cases of entrustment with construction, the prime contractor shall provide the subcontractor with a guarantee for payment of the construction consideration, and that grounds for exemption from the guarantee shall be prescribed in the Enforcement Decree. Accordingly, this Amendment aims to protect subcontractors by deleting a number of grounds for exemption and clarifying the meaning of existing grounds for exemption.

(2) Major Provisions
A. Delete grounds for exemption from the payment guarantee obligation in relation to credit ratings (Article 8, paragraph 1, subparagraph 2 deleted)
1) Although the Decree currently stipulates as grounds for exemption “cases where a principal contractor’s credit rating is equal to or higher than specified”: i) Even if a principal contractor’s credit rating is equal to or higher than specified, there is a risk that the financial position thereof may deteriorate in a short period and the subcontractor may not properly receive the construction consideration, and ii) The Enforcement Rule of the Framework Act on the Construction Industry formerly prescribed the exemption of high credit rating firms from the obligation to provide a guarantee for the payment of the construction consideration, but on February 6, 2014, this was excluded from the grounds for exemption to increase protection for subcontractors’ claim to the construction consideration. The Decree still stipulates this as grounds for exemption, undermining consistency between the two laws.
2) Delete “cases where a principal contractor’s credit rating is equal to or higher than specified” from the grounds for exemption from guarantee for payment of the construction consideration, and thereby increase protection of subcontractors’ claim to the subcontract consideration.
B. Clarify grounds for exemption from payment guarantees in relation to direct payment agreements (Article 8, paragraph 1, subparagraph 3)
1) The current Decree stipulates as grounds for exemption from guarantee for payment of construction consideration cases where an agreement has been made among the person placing an order, principal contractor, and subcontractor that the person placing an order shall pay the subcontract consideration directly to the subcontractor (hereinafter “direct payment agreement”). Article 13-2, paragraph 1 of the Act prescribes that the guarantee for payment shall be provided within 30 days from the date the subcontract is concluded, which means that direct payment agreements should also take place within 30 days but the Decree does not specify a deadline for direct payment agreements.
2) Prevent disputes by specifying that the grounds for exemption from guarantee for payment of the construction consideration shall be “cases where a direct payment agreement has been reached within 30 days from the date the subcontract is concluded.”