City Construction (formerly Jungheung General Construction), a mid-sized builder ranked No. 61 in construction capability as of last year, was hit with a 38 million won penalty surcharge and a corrective order by the Korea Fair Trade Commission for allegedly violating the Fair Transactions in Subcontracting Act by issuing contract-related documents late to subcontractors. City Construction is wholly owned by Chair Jeong Won-cheol, the second son of the late founder Chair Jeong Chang-seon. It was under Jungheung Group and was split off as an affiliate in 2019.
According to the Korea Fair Trade Commission (FTC), from March 2019 to Nov. 2022, City Construction signed 61 contracts with 44 subcontractors to outsource rebar concrete work and landscaping infrastructure work, among others, and issued documents containing the subcontract price and payment method late. Article 3(1) of the Fair Transactions in Subcontracting Act requires corporations to issue contract-related documents to subcontractors by the start of construction. However, City Construction reportedly failed to issue them until as many as 310 days after construction began.
In addition, City Construction is suspected of failing to immediately pay subcontractors in cash even after receiving 100% of the contract price in cash from the client. Article 13(4) of the Fair Transactions in Subcontracting Act requires corporations to pay subcontractors at least the same cash ratio as that received from the client. However, City Construction either did not pay any cash at all or paid as little as 89% at most, it was found.
Furthermore, City Construction was also found to have issued bills to subcontractors with maturities exceeding the statutory 60 days without paying about 80 million won in bill discount fees (a penalty-like late fee). This conduct violates Article 13(6) of the Fair Transactions in Subcontracting Act. City Construction reportedly paid all bill discount fees after the Korea Fair Trade Commission (FTC) raised the issue.
The Korea Fair Trade Commission (FTC) said it imposed a 38 million won penalty surcharge and ordered measures to prevent a recurrence for violating the obligation to issue documents. It issued a corrective order for failing to comply with the cash payment ratio and a warning for not paying bill discount fees.