The Korea Fair Trade Commission (“KFTC”) announced on November 21, 2025, a Comprehensive Plan to Strengthen the Stability of Subcontract Payment Settlements, aimed at creating an environment in which small and medium-sized subcontractors are paid fairly and promptly for the work they perform.
This policy was prepared based on discussions by the “Task Force for Strengthening the Stability of Subcontract Payment Settlements,” which consists of experts recommended by academia, the legal profession, and four major economic organizations, including the Korea Chamber of Commerce and Industry. The plan reflects feedback from various stakeholders and consultations with relevant government ministries.
The main measures under the Plan include:
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(1)
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Strengthening Payment Guarantees: Significantly improving the subcontract payment guarantee system so that payments can be made through guarantee institutions when prime contractors with payment obligations are unable to pay
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(2)
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Information Access Rights: Granting subcontractors the right to request information about the main contract (between the project owner and the prime contractor) necessary to directly request payment from the project owner, thereby enhancing the effectiveness of the direct payment system
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(3)
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Mandatory Electronic Payments: Gradually making it mandatory to use electronic payment systems for payments in both public and private construction subcontracts
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As a result, prime contractors will be subject to additional obligations, such as stricter conditions for exemption from payment guarantees, the duty to provide guarantee certificates to subcontractors, and the obligation to provide information necessary for subcontractors to file direct payment claims with the project owner. Therefore, it will be necessary for companies to establish or strengthen compliance systems related to subcontracting and to take proactive measures to manage legal risks. In addition, since amendments to the Fair Transactions in Subcontracting Act (“Subcontracting Act”) and its Enforcement Decree are required and are expected to be completed by the first half of 2026, companies should continuously monitor future legislative and regulatory developments related to these measures.
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1.
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Expansion of the Obligation for Payment Guarantee of Subcontract Prices
The grounds for exemption from payment guarantees under the current Subcontracting Act will be significantly reduced. The Subcontracting Act will clearly specify the obligation of the prime contractor to provide a payment guarantee certificate to subcontractors. In addition, a constant monitoring system will be established and operated to verify whether the payment guarantee obligation is being fulfilled. The goal is to establish a system that enables small and medium-sized subcontractors to receive their subcontract payments in a timely manner through payment guarantee institutions. The details are as follows.
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Item
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Description
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Significant Reduction of Payment Guarantee Exemption Grounds
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Payment guarantees will be mandatory for all construction subcontract transactions, except for small-scale projects (contract amounts of KRW 10 million or less). This ensures that, even if a direct payment agreement with the project owner exists, subcontractors can secure payment through a guarantee institution if the project owner becomes insolvent (e.g., default or bankruptcy).
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(Current regulation) The payment guarantee obligation is exempted for small-scale projects of KRW 10 million or less, when there is an agreement for direct payment by the project owner, or when payments are made through an electronic payment system (Article 8 of the Enforcement Decree of the Subcontracting Act).
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Stipulation of the Obligation to Provide
a Payment Guarantee Certificate
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In addition to imposing an obligation on the prime contractor to provide a payment guarantee, the regulation also requires the issuance of a payment guarantee certificate to subcontractors, thereby preventing situations where subcontractors are unable to claim payment from the guarantee institution because they are unaware of whether the prime contractor has obtained the payment guarantee.
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Establishment of a Real-time Monitoring System
for Payment Guarantee Performance
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Through a written survey conducted annually on approximately 5,000 construction companies, the KFTC will closely monitor compliance with payment guarantee obligations, encourage corrective actions, conduct ex officio investigations for companies that fail to make corrections, and impose strict sanctions in case of legal violations.
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2.
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Establishment of a Subcontractor’s Right to Request Information Related to Main Contracts
If the prime contractor is demonstrably unable to pay the subcontract price, such as in cases of insolvency or default on two consecutive installments of the subcontract price, the subcontractor is entitled to request direct payment of the subcontract price from the project owner (Article 14 of the Subcontracting Act).
However, as the subcontractor is not a party to the main contract, it is difficult for them to obtain details regarding the main contract. Furthermore, they typically lack information regarding any seizure or provisional seizure of the main contract receivables by third parties. Therefore, in order for the subcontractor to quickly and easily make a request for direct payment to the project owner in the event of non-payment by the prime contractor, it is necessary for the subcontractor to have prior knowledge regarding payment-related matters under the main contract.
Accordingly, subcontractors are granted the right to request information from the prime contractor or the project owner concerning: (i) the timing, frequency, and amount related to claims or payments of the main contract price, and (ii) the status of provisional seizure, seizure, or other claims by third-party creditors on the prime contractor’s receivables from the project owner. The prime contractor or project owner who receives such a request for information is obligated, unless there is a special reason, to provide the requested information in writing within 15 days. The main purpose of this system is to enhance the effectiveness of the project owner’s direct payment system.
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Mandatory Use of Electronic Payment Systems
In the case of public construction projects, the Electronic Procurement Act and the Framework Act on the Construction Industry mandate that claims and payments for subcontract prices be made through electronic payment systems. These regulations ensure that intermediate parties (such as prime contractors and subcontractors) cannot arbitrarily withdraw or misappropriate funds that do not belong to them when the system is used.
However, for public subcontract transactions (including construction, manufacturing, and services) and private construction subcontract transactions, the KFTC has so far only encouraged the use of electronic payment systems by providing incentives in its evaluation process of the Fair Trade Agreement implementation, rather than making their use mandatory. Therefore, by making the use of electronic payment systems mandatory, the aim is to monitor the flow of claims and payments in real time and to restrict intermediate parties from misappropriating funds intended for lower-tier subcontractors. This is intended to ensure that payments are made securely and seamlessly from the project owner to the subcontractor, without any misappropriation by intermediaries.
Going forward, the KFTC plans to first implement the mandatory use of electronic payment systems for public and private construction subcontract transactions (beginning with large-scale projects), and then gradually expand this obligation to other sectors in consultation with relevant ministries and agencies, such as the Ministry of Land, Infrastructure, and Transport.
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Rationalization of Regulatory Burden on Prime Contractors
The upper limit of payment guarantees that prime contractors are required to obtain will be reasonably restricted. In cases where there is little practical benefit to obtaining payment guarantees, such as small-scale construction projects, the obligation to secure guarantees will not be imposed. This will help ensure timely payment to subcontractors, while also improving regulations that have imposed unreasonable and excessive burdens on prime contractors.
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Item
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Description
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Upper Limit on Payment Guarantee Amount
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Under the current Subcontracting Act, the guarantee amount is sometimes unreasonably calculated at up to twice the contract amount, exceeding the actual subcontract price. Therefore, a cap will be set to ensure that the payment guarantee amount calculated by the formula does not exceed the subcontract price.
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Exemption from Additional Payment Guarantee Obligations
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In cases where a project was initially considered a small-scale construction and thus qualified for exemption from the payment guarantee, but the obligation to provide a payment guarantee arises due to an extension of the construction period or an increase in the contract amount, an exception will be newly established in the Enforcement Decree of the Subcontracting Act. Specifically, if the remaining subcontract amount is KRW 10 million or less, or the remaining contract period is 30 days or less—where the practical benefit of an additional payment guarantee is minimal—the obligation to provide such a guarantee will be reasonably exempted.
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[Korean Version]
