Fair Trade Commission to Sanction Subcontractors Ignoring Requests for Delivery Price Adjustments

'Preparation of the "Delivery Unit Price Adjustment Guidebook"'

[Asia Economy Sejong=Reporter Dongwoo Lee] From now on, if a subcontractor requests an adjustment of the delivery price due to an increase in raw material costs, negotiations must begin within ten days. Failure to do so may result in sanctions from the Fair Trade Commission.

On the 22nd, the Fair Trade Commission announced that it has prepared a "Delivery Price Adjustment Guidebook" containing these details. When readjusting delivery prices, factors such as the extent of raw material price increases and the proportion of raw material costs in the supply cost must be considered.

The Fair Trade Commission explained that the guidebook was prepared to promote prompt and fair negotiations for delivery price adjustments and to prevent unnecessary disputes.

Even if there is no explicit refusal to negotiate, if there is no evidence that negotiations started within 10 days, it is considered a violation of the law. Also, repeatedly proposing prices that the other party cannot accept without objective grounds or reasonable reasons such as market surveys or cost calculations is prohibited.

Including clauses in contracts that prohibit delivery price adjustments or retaliating by cutting off transactions due to adjustment requests is also forbidden.

It is advisable to specifically discuss and specify the scope of raw materials subject to delivery price adjustments, conditions for reviewing adjustments, methods for calculating adjustment amounts, timing of payment, and other requirements, methods, and procedures at the time of contract.

This guide from the Fair Trade Commission comes in response to the low rate of delivery price adjustments despite recent raw material price increases. According to the Commission’s survey, only 62.1% of suppliers responded that their contracts included delivery price adjustment clauses, and 48.8% reported that the primary contractor either did not start or refused negotiations after a delivery price adjustment request.

However, the primary contractor is not obligated to accept the subcontractor’s request for a price increase. Even if the delivery price adjustment does not occur, if the primary contractor sincerely engaged in negotiation efforts, it is considered compliant with the Subcontracting Act.

If negotiations fail, subcontractors can apply for mediation at the Subcontract Dispute Mediation Committee established by the Korea Fair Trade Mediation Agency or the Korea Federation of SMEs. To anonymously report illegal acts related to delivery price adjustments, the "Delivery Price Adjustment Reporting Center" can be used.

The Fair Trade Commission plans to post the guidebook on the websites of major business organizations and distribute it as a booklet at regional on-site briefing sessions.