Hanil Cement, Simmons, and SIDIZ were fined by the Fair Trade Commission for not issuing subcontract price indexation agreements to subcontractors.
On the 22nd, the Fair Trade Commission said it imposed fines of 5 million won on each of Hanil Cement, Simmons, and SIDIZ for violating the subcontract price indexation requirements set forth in the Act on the Fairness of Subcontract Transactions.
The subcontract price indexation system, implemented in Oct. 2023, requires adjusting subcontract prices for the portion of change when the prices of key materials and supplies fluctuate by 10% or more. It was introduced to reflect the reality that subcontractors find it difficult to directly request price adjustments from prime contractors, who hold a superior position in the transaction, when materials and supplies prices change abruptly.
This Fair Trade Commission action is the first sanction since the system's implementation and follows a probe into potential violations in furniture and ready-mixed concrete, industries with high shares of materials and supplies.
In on-site inspections, the Fair Trade Commission checked whether: ▲ contracts included indexation terms for subcontract prices ▲ there were good-faith consultations with subcontractors ▲, if the parties agreed not to apply indexation, the intent and reasons were stated in the contract ▲ the prime contractor abused its superior position in the transaction or evaded the system through false or improper means.
According to the Fair Trade Commission, Hanil Cement did not document indexation terms in writing in a contract in which materials and supplies for cement packaging accounted for 60% of the subcontract price per unit of packaging in an outsourced packaging manufacturing deal. SIDIZ, in an outsourced sponge processing deal where materials and supplies (sponge) accounted for more than 80% of the subcontract price, and Simmons, in an outsourced bed frame and other manufacturing deal where materials and supplies (wood plywood) accounted for 20% or more of the subcontract price, did not issue indexation agreements.
After the on-site inspections, the three companies agreed with subcontractors not to apply indexation to subcontract prices. Taking into account that they corrected the legal violations, the Fair Trade Commission imposed fines of 5 million won on each company. When indexation-related terms are not stated, the standard fine is 10 million won, but it can be reduced by up to one-half if there are mitigating factors.
The Fair Trade Commission said, "To establish the indexation system, we are checking compliance with the system in all ex officio subcontract investigations," and added, "If we confirm evasive practices such as omissions in written documentation or coercion to agree to non-indexation, we will take strict action."