Managing Construction Payment Deposits via Trust Accounts to Resolve Delays and Nonpayment Risks
Realizing ESG by Protecting Vulnerable Construction Workers and Material/Equipment Suppliers
Implementable While Maintaining Existing Large Contractor Fund Execution Processes
[Asia Economy Reporter Lee Seon-ae] NH Investment & Securities announced on the 22nd that it has developed the ‘Win-Win Bond Trust System’ to resolve frequent payment delays occurring at construction sites. This system enables ESG management in line with the ‘ESG Transformation 2025’ vision declared by NH Nonghyup Financial Group.
The ‘Win-Win Bond Trust System’ entrusts the subcontract payment claims held by subcontractors to a trust company, which then deposits and manages the construction payments in a trust account. In this case, even if provisional seizure or rehabilitation procedures arise due to the subcontractor’s insolvency, forced execution of the subcontract payment is prohibited as it is considered separate trust property. The preserved subcontract payments can be directly paid from the trust account to laborers, material and equipment suppliers, thereby eliminating the risk of construction delays caused by wage arrears.
Currently, the subcontract payment system works as follows: the main contractor (large construction company) signs a subcontract agreement with the subcontractor (specialized construction company) and pays the subcontract payment, after which the subcontractor pays labor costs and material/equipment fees to the sub-subcontractors (laborers, etc.) with whom they have labor contracts or material rental agreements.
If the subcontractor becomes insolvent, the sub-subcontractors cannot receive labor and material payments, leading to strikes at the site and construction schedule delays. Additionally, strikes and legal disputes by sub-subcontractors cause reputational damage and increased workload for the main contractor.
By adopting the ‘Win-Win Bond Trust System,’ construction companies can protect socially vulnerable parties such as laborers and material/equipment suppliers, prevent provisional seizures, rehabilitation, and bankruptcy, and ensure smooth construction progress.
The system implementation process is very simple. After the subcontractor (specialized construction company) signs a trust contract for the subcontract payment claims it holds, the existing fund execution process used by the main contractor (large construction company) is maintained until concerns or occurrences of subcontractor insolvency arise. At that point, payments are made through the trust company’s account. Since the main contractor does not need to change the existing fund execution process, this system can be easily applied, and a new fund execution system can be introduced together with the trust company.
Kang Seung-wan, Head of the Property Trust Department at NH Investment & Securities, said, “The existing direct payment system is vulnerable to seizure and rehabilitation, and if a provisional seizure is placed on subcontract payment claims, it causes payment delays and legal disputes that risk construction delays.” He added, “By utilizing the Win-Win Bond Trust System, subcontract payments can be directly made to daily workers or material and equipment suppliers without separate contract termination, even in cases of subcontractor insolvency or rehabilitation, enabling smooth construction progress.”
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