1. Reasons for Proposal

As the Fair Transactions in Subcontracting Act was amended (Act No.18757, promulgated on Jan. 11, 2022; to be enforced on Jan. 12, 2023) so that the prime contractor who participates in a construction bidding and signs a contract with the state or a public institution has to disclose the bidding price, successful bidder and amount, and reasons for failure in bidding when subcontracting jobs related to that construction undergo competitive bidding; the prime contractor belonging to an enterprise group subject to disclosure has to publicly announce the means, amount, and period of payment for subcontracting consideration and matters related to “subcontracting consideration dispute mediation organization” established within the prime contractor’s company; the Korea Federation of Small and Medium Business (KBIZ) is included as a negotiator acting as a mediator for adjusting the subcontracting consideration; and small and medium businesses can pay a penalty surcharge in installments even if it is KRW 1 billion or less, this Bill is intended to determine what is delegated by the Act.

 In addition, a flat-rate penalty surcharge is imposed on acts that are difficult to calculate the amount of violation of the law, such as misappropriation of technology. But the surcharge limit is KRW 1 billion for such acts, which was pointed out as not sufficient to deter violation of the law. Thus, the flat-rate penalty surcharge is raised and penalty points are reduced for prime contractors who revise the subcontracting consideration or sign a subcontracting consideration interlocking contract to entice companies to voluntarily link the unit price of delivery.

2. Major Provisions

A. Disclose construction subcontracting bidding results (Article 6-5)

 1) Prescribe the scope of construction subject to notification of the bidding results entrusted by the amended Act as construction work applied with the comprehensive examination on tendering system under Article 42 (4) of the Enforcement Decree of the Act on Contracts to which the State is a Party.

 2) Notify the bidding results in writing or electronically to the person participating in the bidding without any delay after opening the bid.

B. Disclose payment conditions for subcontracting consideration (Article 8-2)

 1) Disclose the means of payment paid during the period subject to disclosure (semi-annually), amount and proportion of subcontracting consideration paid by period, dispute mediation organization, etc. through the Financial Supervisory Service’s electronic disclosure system, DART, within 30 days from the last day of June and December.

 2) Disclose items such as the amount paid by means of payment, for example, cash, alternative payment method to bills and bill; amount paid by payment period; whether dispute mediation organization is in place; department in charge and its contact information; dispute mediating procedure and expected time taken for mediation.

C. Disclose results of construction subcontracting bids and regulate administrative fines related to disclosure obligations (Article 18, attached Tables 4 and 5)

 1) Stipulate so that an administrative fine of KRW 1 million is imposed each time the duty for disclosing results of construction subcontracting bids is violated.

 2) Impose an administrative fine of KRW 5 million if payment conditions for subcontracting consideration are not disclosed, KRW 2 million (KRW 2.5 million) for omitting or falsely disclosing major contents before (after) the disclosure period, and KRW 1 million if the omitted or falsely disclosed major contents are supplemented before the prior notice of an administrative fine is sent. 

D. Revise regulations in accordance with an extension of the negotiator acting as a mediator for adjusting the subcontracting consideration (Article 6 (1) 7 (c), Article 9-2 (8) and (9), subparagraphs 1 and 2 of Article 9-3).

 1) Revise related regulations as the Korea Federation of Small and Medium Business (hereinafter referred to as “Federation”) is included in the scope of those applying for subcontracting consideration adjustment.

 2) Add the Federation in the scope of those applying for mediation for the regulation requiring retention of documents on subcontracting consideration adjustments; newly add related regulations on the cooperative’s proxy application procedure and the Federation’s document submission, etc.; and include the Federation’s mediation failure in the reasons for applying dispute adjustment as the application by a small and medium enterprise cooperative and negotiating procedure and method of the Federation etc. are delegated to be stipulated in the Presidential Decree.

E. Ease criteria for penalty surcharge installment payments (Article 13-2)

 1) Prescribe the standard amount for installment payments as KRW 1 billion, whereas KRW 500 million for small and medium-sized businesses, as the Subcontracting Act was amended and the Presidential Decree stipulates the standard amount for installment payments to be prescribed.

 2) Stipulate other matters to be considered when delaying payment deadline or paying in installments as delegated by Presidential Decree.

F. Raise flat-rate penalty surcharge (Attached Table 2).

 Raise the penalty surcharge limit for acts that are difficult to calculate the amount of violation of the law, such as misappropriation of technology, from KRW 1 to 2 billion since KRW 1 billion is considered to be too little to deter violation of the law.

G. Add interlocking contracts and unit price adjustments as reasons for reducing penalty points (Attached Table 3).

 Reduce penalty points after evaluating signed interlocking contracts and revised subcontracting consideration.