July 28, 2026
The Korea Fair Trade Commission (KFTC, Chairperson Biung-Ghi Ju) announced that the amendment to the Enforcement Decree of the Fair Transactions in Subcontracting Act passed today's Cabinet meeting.
The amended Enforcement Decree of the Fair Transactions in Subcontracting Act contains follow-up measures to the amended Fair Transactions in Subcontracting Act — whose main content is (1) expanding the scope of items subject to subcontract-price linkage and (2) narrowing the exceptions to the payment-guarantee obligation — as well as other improvements regarding (3) eligibility for reporting reward payments, (4) incentives for using the standard subcontract, and (5) the upper limit for aggravating administrative fines. The main content is as follows.
① Detailed provisions following the inclusion of major energy costs as subject to subcontract-price linkage
Until now, the Fair Transactions in Subcontracting Act defined the items subject to subcontract-price linkage as major raw materials, and required that, where a linkage-subject transaction existed, the principal contractor's written document issued to the subcontractor specify: ▲the major raw material subject to linkage, ▲the reference index for the price of the major raw material, and ▲the base point in time and comparison point in time for calculating the rate of change in the price of the major raw material. Subcontract-price linkage is a system whereby, when the price of an item subject to linkage — such as a major raw material — changes in a subcontracting transaction, the subcontract price is adjusted in accordance with that change, based on a prior agreement between the principal contractor and the subcontractor.
As the amended Fair Transactions in Subcontracting Act expanded the scope of items subject to subcontract-price linkage from major raw materials to include major energy costs, it became necessary to reflect this in the matters to be recorded in the written document as well.
Accordingly, the amended Enforcement Decree of the Fair Transactions in Subcontracting Act requires that the written document a principal contractor must issue to a subcontractor additionally specify: ▲the major energy item subject to linkage, ▲the reference index for the cost of the major energy item, and ▲the base point in time and comparison point in time for calculating the rate of change in the cost of the major energy item.
② Rationalizing the exceptions to the subcontract-price payment-guarantee obligation
The subcontract-price payment-guarantee system is a key safety mechanism in construction subcontracting transactions: if a principal contractor is unable to pay the subcontract price to a subcontractor due to reasons such as default or bankruptcy, a third-party guarantee institution that the principal contractor has subscribed to pays the amount to the subcontractor on the principal contractor's behalf.
Previously, the Fair Transactions in Subcontracting Act delegated to the enforcement decree the authority to define exceptions under which a principal contractor would not need to obtain a payment guarantee. The amended Fair Transactions in Subcontracting Act removed the basis for delegating these exceptions to the enforcement decree, and instead made the payment guarantee mandatory for all construction subcontracting transactions except small-value construction work.
Accordingly, the amended Enforcement Decree of the Fair Transactions in Subcontracting Act deletes the previously defined exceptions to the subcontract-price payment-guarantee obligation (such as an agreement for direct payment by the project owner, or use of an electronic payment system).
Meanwhile, the Fair Transactions in Subcontracting Act provides that where a contract initially qualified for a payment-guarantee exception as small-value construction work, but the contract value subsequently increased — for example due to a price increase — to exceed KRW 10 million, thereby creating an additional payment-guarantee obligation for the principal contractor, the enforcement decree is to define exceptions to that additional obligation, taking into account factors such as the remaining contract amount.
To reasonably exempt the principal contractor's payment-guarantee obligation in cases where obtaining an additional guarantee has little practical benefit, the amended Enforcement Decree of the Fair Transactions in Subcontracting Act provides an exception under which, if the remaining amount of a single construction contract is KRW 10 million or less, the principal contractor is not required to obtain a payment guarantee.
③ Expanding eligibility for reporting reward payments
The Enforcement Decree of the Fair Transactions in Subcontracting Act had provided that reporting rewards be paid to persons who first report or provide information on certain violations of the Act by a principal contractor and submit evidence proving the violation, while excluding subcontractors who were themselves harmed by the violation from eligibility for such rewards.
To further encourage reporting of unfair subcontracting practices, the amended Enforcement Decree of the Fair Transactions in Subcontracting Act now provides that, among harmed subcontractors, a person who first submits evidence proving a principal contractor's violation of the law in relation to a different subcontractor may also receive a reporting reward.
④ Strengthening incentives for using the standard subcontract
The Enforcement Decree of the Fair Transactions in Subcontracting Act had encouraged the use of the standard subcontract by, among other things, allowing a 2-point reduction in penalty points where 90% or more of a principal contractor's subcontracts were concluded using the standard subcontract.
The amended Enforcement Decree of the Fair Transactions in Subcontracting Act strengthens this incentive by adding a new tier allowing a 2.5-point reduction in penalty points where a principal contractor uses the standard subcontract for 100% of its subcontracts.
⑤ Raising the upper limit for aggravating administrative fines for repeated violations
The Enforcement Decree of the Fair Transactions in Subcontracting Act had allowed administrative fines to be aggravated in consideration of factors such as the number of past violations, subject to a maximum aggravation of 50%.
To strengthen deterrence against repeated violations, the amended Enforcement Decree of the Fair Transactions in Subcontracting Act raises the upper limit for aggravating administrative fines — based on factors such as the number of past violations — to a maximum of 100%.
The amendment to the Enforcement Decree of the Fair Transactions in Subcontracting Act that passed today's Cabinet meeting will, following presidential approval and promulgation, take effect on August 11, 2026. The provisions on ▲expanding the scope of items subject to subcontract-price linkage and ▲the exceptions to the subcontract-price payment-guarantee obligation will apply to subcontracts first concluded or renewed on or after August 11. However, the provision raising the upper limit for aggravating administrative fines for repeated violations will take effect immediately upon promulgation.
This amendment to the Enforcement Decree of the Subcontracting Act is expected to lay the groundwork for subcontractors to more stably receive subcontract payments from principal contractors, and further to help establish a fairer order in subcontracting transactions by invigorating the payment of reporting rewards, expanding the use of the standard subcontract, and strengthening deterrence against repeated violations of the law.