Increase in Supply Costs to Be Reflected in Subcontract Payments... Woo Won-sik Proposes 'Subcontracting Act Amendment'

If a specific supply cost item rises by 3% or more, subcontract payment is automatically adjusted according to the calculation formula
Strengthening effectiveness by enhancing the subcontract standard contract

[Asia Economy Reporter Oh Ju-yeon] On the 7th, Woo Won-sik, a member of the Democratic Party of Korea, proposed the "Subcontracting Act Amendment" to allow the increase in supply costs to be reflected in subcontracting payments.

Rep. Woo pointed out that with the rapid rise in raw material prices, the management difficulties of subcontractors engaged in subcontracting transactions are worsening, but the current law's "delivery payment adjustment consultation system" is not functioning properly due to concerns about subcontractors' transaction discontinuation and insufficient obligation for the original contractor's participation in adjustments.

Accordingly, he emphasized the need to establish an institutional device that allows businesses such as small and medium enterprises to manage their operations stably despite soaring raw material prices through the so-called "automatic linkage system for supply cost," which reflects price fluctuations in subcontracting payments without a separate request when supply costs rise.

This amendment stipulates that the subcontracting contract must include the method for changing subcontracting payments due to supply cost increases, and defines the condition for supply cost fluctuations as when a specific supply cost item in the contract exceeds 3% compared to the time of contract conclusion. In addition, to address problems arising from the very abstract written contracts under the current law, such as disputes between the three major shipbuilders and subcontractors, the amendment specifies the contents to be written in the contract, including contract volume, timing, and work standards, so that these can be used as criteria for changing subcontracting payments and supply costs. Furthermore, to expand the use of the standard subcontracting contract, the Fair Trade Commission is mandated to recommend standard contracts related to supply cost fluctuations, and businesses are encouraged to request the establishment or revision review of standard subcontracting contracts in case of rapid raw material price increases.