Prime contractors who repeatedly commit subcontracting unfair practices will face heavier surcharges in the future.

The Fair Trade Commission (FTC) announced that the revision to the Enforcement Decree of the Subcontracting Act, which contains these measures, was approved during the Cabinet meeting held today (the 28th).

The core of the revised enforcement decree is raising the surcharge aggravation limit for repeated law violations.

Previously, the maximum limit for increasing surcharges—taking into account the number of past law violations—was up to 50%, but this will now be raised to 100%.

The FTC explained that this measure is intended to deter repeated violations of the Subcontracting Act.

The revised enforcement decree also included victimized subcontractors as eligible recipients for reporting reward money.

Accordingly, if a victimized subcontractor is the first to submit evidentiary materials proving a prime contractor's law violation related to another subcontractor, they will also be eligible to receive a reporting reward.

In addition, as the previously revised Subcontracting Act expanded the scope of subcontract price linkage to include not only "major raw materials" but also "major energy," this was newly reflected in the enforcement decree.

The subcontract price linkage system is a system in which, if the prices of major raw materials or similar items fluctuate in subcontracting transactions, the subcontract price is adjusted according to the prior agreement between the prime contractor and the subcontractor.

The revised enforcement decree requires prime contractors to additionally specify in the documents issued to subcontractors the linkage targets for major energy, the baseline index for major energy costs, the base period for calculating the fluctuation rate of major energy costs, and the comparison period.

Along with this, a new interval has been established allowing penalty points to be reduced by 2.5 points if prime contractors use the "standard subcontract agreement" for all subcontract contracts.

The standard subcontract agreement is a contract established and distributed by the FTC so that transaction conditions between prime and subcontractors can be set in a balanced manner.

Previously, using standard subcontract agreements for 90% or more only reduced penalty points by 2 points, but an additional bracket has been established to further strengthen the benefits.

Furthermore, the revised enforcement decree deleted all exceptions to the "subcontract price payment guarantee system" except for cases involving "small-scale construction projects of 10 million won or less."

The subcontract price payment guarantee system ensures that in construction subcontract transactions, if a prime contractor is unable to pay the subcontract price to a subcontractor due to reasons such as bankruptcy, a third-party guarantee institution joined by the prime contractor pays the price on behalf of the subcontractor.

With the removal of the exception clauses, payment guarantees have become mandatory for all construction subcontract transactions exceeding 10 million won.

However, exception clauses have been stipulated to rationally exempt the obligation of additional payment guarantees when the practical benefit of an additional guarantee is low—such as when a project initially fell under the small-scale construction exception at the time of contract, but subsequently incurred an additional payment guarantee obligation due to an increase in the contract price.

The revised enforcement decree will take effect starting on the 11th of next month.

(Photo: Yonhap News)