Fair Allocation of Defect Litigation Liability, Abolition of Retention Payments, and Elimination of Unfair Contract Clauses]
July 24, 2026
The Korea Fair Trade Commission (KFTC, Chairperson Biung-Ghi Ju) held the Construction Industry Shared Growth and Fair Trade Agreement Ceremony on July 24 at the Korea Specialty Contractors Association Hall. Representatives from both the general and specialty construction sectors attended the event.
Following the agreement signed with major construction companies in May, this initiative extends the culture of shared growth to 30 mid-sized construction firms, which play a central role in Korea's construction industry.
The construction industry is one of the foundations of the Korean economy. However, unfair business practices have persisted, including delayed subcontract payments, retention of contract payments, unfair contractual clauses, and the transfer of liability to subcontractors in construction defect lawsuits.
Although the KFTC has strictly enforced the Subcontracting Act against such violations, it sought a faster and more sustainable improvement in market practices. Accordingly, on May 28, the KFTC signed a shared growth agreement with the top 20 construction companies by construction capability evaluation
The latest agreement expands the initiative to companies ranked 21st to 50th, with the aim of eliminating unfair practices throughout the industry and fostering a broader culture of cooperation between contractors and subcontractors.
(Fair Allocation of Liability in Construction Defect Litigation)
In some cases, when construction defect lawsuits are filed against general contractors, subcontractors are not informed during the litigation process. After the lawsuit concludes, subcontractors are sometimes required to bear excessive compensation costs.
To address this issue, general contractors agreed to promptly notify subcontractors when such lawsuits are filed and to allocate compensation fairly based on each party's degree of responsibility through good-faith consultation after the court's decision.
(Abolition of Retention Payments)
A common practice has been to pay only about 90 percent of progress payments to subcontractors while withholding the remaining balance until project completion. This has created financial difficulties for subcontractors, affecting payroll and material procurement.
Under the agreement, subcontract payments will be made in cash within the statutory payment period, and all forms of retention payments will be abolished.
(Elimination of Unfair Contract Clauses)
Some subcontract agreements continue to impose costs such as workplace safety expenses and waste disposal costs on subcontractors or otherwise restrict their contractual rights.
Participating companies agreed to conduct internal reviews and remove such unfair provisions from their contracts.
(Settlement of the Price Indexation System and Rapid Price Adjustments During Emergencies)
Despite increases in material costs caused by events such as the conflict in the Middle East, subcontractors have often been forced to absorb additional costs due to delayed adjustment schedules or concerns about disrupting business relationships.
The parties agreed to establish standards and procedures for promptly adjusting subcontract prices during emergencies, including armed conflicts and other exceptional circumstances.
(Establishment of Internal Dispute Resolution Bodies)
Each participating company will establish an internal dispute resolution mechanism to facilitate discussions and voluntary settlements regarding subcontract payment disputes, price adjustments, and other subcontract-related issues.
(Formation of a Public-Private Consultative Body)
To ensure effective implementation of the agreement, the KFTC, participating general contractors, and the specialty construction industry will form a public-private consultative body. The consultative body will monitor implementation, share enforcement trends under the Subcontracting Act, and exchange best practices for shared growth.
etc/English