The Fair Trade Commission has signed a cooperation agreement with mid-sized construction companies to improve unfair practices in the construction industry.
On July 24, the Fair Trade Commission held a "Construction Industry Cooperation and Fair Trade Agreement Ceremony" at the Specialized Construction Hall in Dongjak-gu, Seoul. This agreement aims to promote a culture of cooperation among 30 mid-sized construction firms, which are pivotal to the industry. The agreement was signed by representatives from comprehensive construction companies ranked 21st to 50th in construction capability evaluation and the Korea Specialty Contractors Association.
Unfair practices in the construction industry have included delayed payments, retention funds, unjust special provisions, and shifting responsibility in defect lawsuits. The Fair Trade Commission has enforced the subcontracting law to impose penalties but has now decided to sign agreements with mid-sized construction firms following similar agreements with large construction companies to expedite and effectively improve market order.
The key points of the agreement include: sharing responsibility for defect lawsuits, prompt payment and elimination of retention funds, correction of unjust special provisions, establishment of a linkage system for subcontracting payments, rapid adjustment of delivery prices in emergencies, creation of a subcontracting dispute resolution body, and formation of a public-private consultative body.
Among these, the sharing of responsibility for defect lawsuits was not included in the initial agreement with large construction companies in May. Previously, when lawsuits related to defects in construction projects such as apartment buildings were filed against comprehensive construction companies, the main contractor often proceeded with the lawsuit without informing the subcontractor, leading to excessive liability for damages imposed on the subcontractor after losing the case.
Going forward, comprehensive construction companies will promptly notify subcontractors when a defect lawsuit is filed and will share the damages determined by the lawsuit according to the responsibility involved.
The practice of retaining funds will also be abolished. In some construction sites, only about 90% of the progress payment was made to subcontractors, with the remaining balance delayed until after project completion. Under the agreement, the construction industry will pay subcontracting fees in cash within the legal deadline unless there are special reasons and will eliminate unjust retention fund practices.
Unjust special provisions that shift costs for industrial safety and waste disposal to subcontractors will also be removed through self-inspection. If there are changes in supply costs, the parties will sincerely engage in negotiations to adjust subcontracting fees, and if delays occur in project execution, they will negotiate adjustments to contract terms, including extensions and waivers of penalties.
To enhance the effectiveness of the agreement, a public-private consultative body will be established. The Fair Trade Commission, comprehensive construction companies, and the specialty construction industry will share information on the implementation of the agreement, trends in enforcing the subcontracting law, and best practices for cooperation. Meetings of the consultative body are scheduled for September with 19 large construction companies and in November with 30 mid-sized construction companies.
The Fair Trade Commission stated that this agreement will encompass 19.89% of the total number of subcontracting transactions and 59.53% of the transaction value in the construction industry by 2025. Last year, the total value of subcontracting contracts in the construction industry was 54 trillion 131.6 billion won (approximately 54.1 billion USD) across 61,673 cases.
Chairman Joo Byeong-ki of the Fair Trade Commission remarked, "The participation of mid-sized construction companies in cooperation following large construction companies signifies that our construction industry is moving to a new stage. I hope this cooperation agreement serves as a catalyst for eradicating unfair practices across the construction industry and establishing a culture of cooperation."
* This article has been translated by AI.
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