Three Companies Caught in First Ex Officio Inspection of Supply Price Indexation System... To Be Conducted Twice a Year Going Forward

First Ex Officio Inspection Conducted Since Last Year’s Implementation
Administrative Actions Taken Against Three Companies, Including Improvement Requests and Penalty Points
56.1% Contract Indexation Rate... System Taking Root

The Ministry of SMEs and Startups announced on the 26th that it had conducted its first ex officio inspection to determine whether the supply price indexation system, implemented since last year, is operating in line with its intended purpose in the field, and released the results.

The supply price indexation system is a policy that adjusts the supply price in accordance with fluctuations in the prices of key raw materials for goods supplied by subcontractors to contractors, if those prices change beyond a certain threshold.

This inspection was launched to check whether increases in the price of linerboard, the main raw material for corrugated boxes, were being appropriately reflected in supply prices through the indexation system, amid a sharp rise in linerboard prices in the second half of last year.

Although there were no requests for inspection from subcontractors supplying corrugated boxes, the Ministry proactively selected related supply transactions for ex officio inspection as part of its active administration, based on monitoring of items with significant cost fluctuations.

The inspection targeted contractors in two industries with particularly high demand for corrugated boxes?food manufacturing and mail-order sales?selecting the top five companies by sales in each sector, for a total of ten contractors. The Ministry conducted 'document inspections', 'on-site inspections', and 'subcontractor surveys'.

Through the document inspections, the Ministry identified four companies suspected of violating the Win-Win Cooperation Act. For these companies, additional on-site inspections were conducted to secure transaction records, contracts, and other relevant materials. To identify illegal practices such as forcing non-indexed contracts to evade the system, the Ministry also conducted surveys of subcontractors doing business with the inspected companies.

As a result, violations of the Win-Win Cooperation Act were found at three companies: two companies failed to issue indexed contracts, and one company failed to issue any contract at all. Administrative actions were taken, including 'requests for improvement and corrective orders', 'imposition of penalty points (2 points)', 'fines (up to 10 million KRW)', and 'mandatory education'.

In terms of major violations, Company A continued to do business without issuing a new contract after the previous contract period for manufacturing and supplying corrugated boxes had expired. The other two companies were found to have failed to issue indexed contracts after concluding price change agreements for corrugated boxes.

Meanwhile, a survey conducted by the Ministry on 4,580 subcontractors regarding transactions in the first half of last year found that the contract execution rate for indexed contracts among companies required to apply the system was 56.1%, indicating that the indexation system is gradually taking root in the field.

Accordingly, the Ministry plans to further expand ex officio inspections to at least twice a year, incorporating monitoring results for the supply price indexation system and industries vulnerable to unfair trade into its annual inspection plan to ensure strategic direction and effectiveness.

Choi Wonyoung, Director General of SME Policy, stated, "Since the supply price indexation system was established by the Ministry in response to longstanding demands from the SME community, we will take responsibility and do our utmost to ensure that the system becomes truly effective and beneficial for subcontractors, through regular annual surveys and ad hoc ex officio inspections."