The Fair Trade Commission announced a comprehensive plan to strengthen the stability of subcontract payment on the 23rd. It said it will operate "triple safeguards," including expanding the payment guarantee obligation, disclosing the ordering party's payment capacity information, and mandating the use of the electronic payment system. To that end, it plans to revise the relevant laws and enforcement decrees by the first half of next year.
In prime contract and subcontract transactions, payment proceeds in three major stages. Funds flow in the order of ordering party → prime contractor → subcontractor. The prime contractor must guarantee payment to the subcontractor through entities such as the Construction Guarantee Cooperative, but currently, this guarantee obligation is waived if the ordering party pays directly or if the electronic payment system is used. This time, the Fair Trade Commission required that the guarantee obligation apply even in those cases. It also decided to specify in the Fair Transactions in Subcontracting Act that the prime contractor must issue a payment guarantee certificate to the subcontractor.
The Fair Trade Commission also allowed subcontractors to request from the prime contractor and the ordering party information on the timing and amount of prime contract payments, the order of fund execution, and the status of seizures by third-party creditors. This creates a right for subcontractors to accurately ascertain information about the prime contract payments that are the source of the amounts they are to receive. The Fair Trade Commission plans to add a provision to the Fair Transactions in Subcontracting Act requiring prime contractors and ordering parties to provide the information in writing within 15 days of receiving a request from a subcontractor, absent special circumstances.
Along with this, the Fair Trade Commission decided to mandate the use of the electronic payment system for public subcontract transactions and private construction subcontract transactions. The system has functions such as separating accounts for the prime contractor and the subcontractor by the ordering party, which can prevent the problem of the prime contractor diverting funds in the middle.
Hong Hyeong-ju, director of corporate cooperation policy at the Fair Trade Commission, said, "Once the triple safeguards are in place, we will do our best to create conditions where the flow of funds runs smoothly from the ordering party to the subcontractor so that payments are made on time and in full."