1.

What You Need to Know
 

• On July 28, 2026, the Korea Fair Trade Commission (the “KFTC”) announced that the Cabinet approved the amendments to the Enforcement Decrees of the Fair Transactions in Subcontracting Act (the “Subcontracting Act”).

• The amended Enforcement Decrees include (i) the expanded scope of subcontract price linkage and (ii) the narrowed exemptions from the payment-guarantee obligation, and it further introduces improvements regarding (iii) whistleblower reward eligibility, (iv) support for use of the standard subcontract form, and (v) the surcharge aggravation ceiling.

• The amended Enforcement Decrees are expected to take effect on August 11, 2026 following presidential approval and promulgation; the provisions on the expanded price-link coverage and the payment-guarantee exemptions will apply to subcontracts first concluded or renewed on or after August 11, 2026, and the higher surcharge aggravation ceiling for repeat violations will take effect immediately upon promulgation.
   

2.

Background

The amended Subcontracting Act (Act No. 21340), expected to take effect on August 11, 2026, expands the scope of subcontract price linkage from the former “major raw materials” to major energy (fuel, heat, electricity and other energy under the Energy Act). Where there is a transaction subject to price linkage, this creates a need to reflect the change in the written agreement that a principal contractor must issue to a subcontractor.

In addition, the payment-guarantee system in construction subcontracting is a safeguard under which, if a principal contractor cannot pay a subcontractor because of insolvency or bankruptcy, a third-party guarantor with which the contractor is enrolled (such as a mutual-aid association or guarantee insurer) pays the subcontractor instead. The Subcontracting Act had delegated the exemptions from this obligation to the Enforcement Decree. Because the Subcontracting Act was amended to delete that delegation and to mandate payment guarantees for all construction subcontracts other than minor works (KRW 10 million or less), a corresponding amendment to the Enforcement Decrees became necessary.

Accordingly, together with the follow-up measures to these recent amendments to the Subcontracting Act, the KFTC announced the amended Enforcement Decrees, which also contain measures to encourage reporting of unfair subcontracting practices, strengthen incentives for using the standard subcontract form, and reinforce deterrence against repeat violations.
 

3.

What the KFTC Amended

The principal amendments to the Enforcement Decrees of the Subcontracting Act are summarized below.
 

(1)

Detailed Rules Following Inclusion of “Major Energy” in Price-Link Coverage

Because the amended Subcontracting Act expands the price-link scope from the former “major raw materials” to major energy under the Energy Act, such as fuel, heat and electricity, the Enforcement Decrees reflect this in the items required in the written agreement that a principal contractor must issue to a subcontractor. Accordingly, where there is a transaction subject to price linkage, the principal contractor must additionally state in that written agreement (i) the linked “major energy,” (ii) the reference index for “major energy” costs, and (iii) the base date and comparison date for calculating the rate of change in “major energy” costs.
 

(2)

Rationalization of Payment-Guarantee Exemptions

Because the amended Subcontracting Act mandates payment guarantees for all construction subcontracts other than minor works (KRW 10 million or less) and deletes the delegation of exemptions to the Enforcement Decrees, the Enforcement Decrees remove the payment-guarantee exemptions it previously set out. However, where a project qualified as minor work (KRW 10 million or less) at the time of contracting but the contract amount later exceeds KRW 10 million through a price increase or similar circumstance, so that a payment-guarantee obligation additionally arises for the principal contractor, the Enforcement Decrees provide an exemption under which the principal contractor need not obtain a payment guarantee if the “remaining balance” of the single project is KRW 10 million or less.
 

(3)

Expanded Whistleblower Reward Eligibility

The prior Enforcement Decrees designated as eligible for a whistleblower reward the person who first reported and submitted evidence substantiating certain violations of the Subcontracting Act by a principal contractor, while excluding the affected subcontractor from eligibility. To further encourage reporting of unfair subcontracting practices, the amended Enforcement Decrees provide that an affected subcontractor may receive a reward where it is the first to submit evidence substantiating the principal contractor’s violation in relation to a different subcontractor. For reference, the covered violations include unfair determination of subcontract price, unfair cancellation of consignment, unfair return of goods, unfair reduction of payment, and misappropriation of technology.
 

(4)

Strengthened Standard-Form Usage Incentive
 
The prior Enforcement Decrees allowed a penalty to be reduced by 2 points where a principal contractor used the standard subcontract form in at least 90% of its subcontracts. The amended Enforcement Decrees strengthens this incentive by adding a new tier granting a penalty to be reduced by 2.5 points where a principal contractor uses the standard subcontract form in 100% of its subcontracts.
 

(5)

Higher Surcharge Aggravation Ceiling for Repeat Violations

The prior Enforcement Decrees permitted surcharge aggravation, taking into account the number of past violations, up to a ceiling of 50%. To reinforce deterrence against repeat violations, the amended Enforcement Decrees raise that ceiling to 100%.
 

4.

Why This Matters

For principal contractors in the construction sector, there is a need to arrange guarantee-enrollment procedures in advance for contracts concluded or renewed on or after August 11, 2026 because payment guarantees are now mandatory for all subcontracts other than minor works. Whereas a direct-payment agreement with the ordering party or use of an electronic payment system alone was previously sufficient to be exempted from the payment-guarantee obligation, the amendment deleted those exemptions, so guarantee enrollment becomes mandatory even for transactions that previously relied on such exemptions and were not covered. For principal contractors in the manufacturing sector with a high proportion of energy costs, because the “major energy” items must additionally be reflected in the price-link written agreement, a review of standard contract templates and internal ordering processes is required.

In addition, because the surcharge aggravation ceiling for repeat violations has been raised to 100%, the level of sanctions may rise significantly where repeat violations are established. Moreover, as an affected subcontractor can now submit evidence and receive a reward even in respect of violations relating to a different subcontractor, subcontractors’ incentives to report voluntarily are strengthened and the likelihood that a principal contractor’s violations are detected may increase. The need to comprehensively review the history of past violations and the risk of recurrence, and to build a compliance system to prevent such violations, has therefore grown even greater.