※ Contract Formation Methods (Examples):

① Private Contracts : Contracts entered into without a bidding process, where a suitable counterpart is selected at sole discretion

② Open Competitive Contracts : Contracts formed after determining the successful bidder through an open competitive bidding process without limiting or designating the participants

③ Restricted Competitive Contracts : Contracts formed after limiting the qualifications of participants and determining the successful bidder through a competitive process

④ Designated Competitive Contracts : Contracts formed by designating participants and determining the successful bidder through a competitive process

Large enterprises may operate on-site briefing sessions or online proposal platforms to allow new companies seeking transactions to present proposals directly.

※ PRM (Partner Relationship Management) or SRM (Supplier Relationship Management) refers to a management system that ensures transparency and stability in transactions by sharing essential information for transactions between large enterprises and their partners. It also aims to provide partners with management-related information necessary for mutual development.

A dedicated support organization shall be in place to handle technical support, financial assistance, training, and proposal systems for partner companies.

*As a rule, contracts must be executed in writing prior to commencement of work such as delivery (or “handover” for construction; the same shall apply hereinafter). Contracts bearing the signatures and seals of both parties must be executed prior to the initiation of such work.

Contracts must include specific provisions stipulated by enforcement regulations such as subcontract payment amounts, payment methods, and adjustment conditions, methods, and procedures for subcontract prices in response to changes in raw material costs. (Newly established on August 3, 2010)

For frequent transactions, a master agreement must be issued first; for transactions occurring over a specific period, a settlement statement must be issued.

In cases of minor and frequent additional work where fluctuations in volume are clearly anticipated, a settlement agreement must be issued immediately after completion of delivery.

If additional demands are made within a significantly shorter period than what is commonly permitted, key terms must be agreed upon in writing in advance.

The unit price of components shall be determined through consultation based on rational calculation methods, taking into account factors such as quantity, quality, specifications, delivery deadlines, payment methods, material costs, labor costs, or market trends. Adequate management costs and profits must be factored in as well.

If a reason for adjusting the initial unit price arises during the contract period, either party may request a price adjustment; in such cases, mutual agreement must be reached within thirty (30) days (with a possible extension of thirty (30) days) of the request.

If unit price determination is delayed due to exceptional circumstances, an interim unit price agreed upon through consultation shall apply, and the difference between the interim and final unit prices shall be retroactively settled once the final unit price is determined.

To present realistic unit prices, the labor rates serving as the basis for cost calculation must be periodically reviewed. These rates must reflect industry-standard wages, working conditions, company size, technical level, and other specific characteristics of each company.

The contract must specify the criteria and procedures for possible price adjustments to the initially set unit price.

These shall include the reasons for price adjustment (e.g., inflation, raw material costs, exchange rate fluctuations), consultation periods, and payment terms in clear detail.

Large enterprises shall determine delivery deadlines through sufficient consultation with SMEs, taking into account the characteristics of each industry.

Delivery deadlines must be explicitly specified when entering into contracts, and any changes to deadlines must be clearly documented as well. In case shorter-than-usual delivery deadlines are set under the pretext of urgent orders, such deadlines must be agreed upon through consultation with the transaction partner.

If the transaction partner sustains damages due to unjustified delays or refusals to accept deliveries without valid reasons, the large enterprise shall compensate for such damages.

For inspections of delivered goods (or “completed works” in the case of construction; the same shall apply hereinafter), objective, fair, and reasonable inspection standards and methods must be established through consultation with the transaction partner.

Upon delivery, a receipt must be issued immediately even before the inspection. Inspections must be promptly conducted in accordance with predetermined inspection regulations and procedures.

Except in the case of reasonable cause, inspection results must be communicated to the transaction partner within ten (10) days of the delivery date.

During the inspection or prior to its completion, the ordering party must exercise due diligence in managing the ordered components as a prudent administrator.

In cases where a company outsources manufacturing or similar tasks to a transaction partner, payments must be made by the payment due date, which shall be set within sixty (60) days or the shortest possible period from the receipt date of the delivered goods (or the acceptance date in construction, completion date of entrusted services in services, or date stipulated for frequent transactions with regular issuance of tax invoices at least once a month; hereinafter referred to as "receipt date").

If a company receives completion payments for manufacturing, repair, construction, or service activities from the ordering party based on the completion of such tasks, payments must be made to the transaction partner within fifteen (15) days of the date of receipt of such payments (or the payment due date, if it comes earlier).

If progress payments are received for manufacturing, repair, construction, or service activities, an amount corresponding to the portion completed by the transaction partner must be paid within fifteen (15) days of the date of receipt of such payments (or the payment due date, if it comes earlier).

Payments to transaction partners must be made in a cash ratio that is equal to or greater than that received from the ordering party in connection with the entrusted tasks.

In cases where payments are made by promissory notes, the promissory notes issued must have a maturity date within the payment period of promissory notes received from the ordering party in connection with the entrusted tasks (from the issuance date to the maturity date).

If promissory notes are issued within sixty (60) days of receipt, any discount charges for the period exceeding sixty (60) days after receipt to the maturity date must be paid within sixty (60) days of receipt.

When payments are made using promissory note alternatives such as corporate purchase cards, accounts receivable-backed loans, or purchase loans, fees (including loan interest) for the period from the payment date (e.g., card approval date for corporate purchase cards, transaction transmission date for accounts receivable-backed loans, or purchase fund payment date for purchase loans) to the subcontract payment deadline must be paid on the payment date.

If such payment methods are used within sixty (60) days of the receipt date, fees for the period exceeding sixty (60) days after the receipt date to the subcontract payment deadline must be paid to the subcontractor within sixty (60) days of the receipt date.

In cases where payments are made after sixty (60) days from receipt, interest for the period exceeding sixty (60) days must be paid in accordance with the interest rate set and publicly notified by the Fair Trade Commission.

The returns must be handled via mutual agreement between the parties, stipulating the party responsible for determining the defect cause, type of defect cause, and proportion of responsibility.

The grounds for revocation or termination must be established through mutual agreement between the parties, distinguishing between cases “where prior notice is not required” and those “where prior notice is necessary.” In the event of termination or cancellation grounds, written notification must be promptly provided without delay.

Circumstances in which prior notice is not required include the following:

- When the counterpart is subject to transaction suspension by a financial institution, or it receives business cancellation or suspension orders from a supervisory authority

- When the counterpart resolves to dissolve, transfer business operations, or merge with another company, or when both parties recognize that fulfilling the basic or individual contract obligations has become difficult due to disasters or other reasons

Circumstances wherein prior notice is required are described below, and in such cases, a period of at least one month must be given for the counterpart to fulfill its obligations. If the counterpart fails to fulfill such obligations within this period, the contract may be terminated or canceled.

- When the counterpart breaches a significant provision of the master or individual contract, or when the recipient of goods delays the execution of essential obligations for the production of ordered components without legitimate reasons, causing disruption to the transaction partner’s operations

- When the transaction partner refuses production of the ordered components without valid reasons or delays commencement to the extent that delivery by the deadline is deemed unfeasible

- When there are substantial reasons to believe that the transaction partner’s technical, production, or quality management capabilities are insufficient to fulfill the contractual obligations satisfactorily

※ In addition to the aforesaid compliance requirements for contract execution, the following may be deemed as recommended practices if necessary:

Technical Data Depository System

- To protect the proprietary technology of transaction partners, utilize a “technical data depository system” that allows such data to be deposited securely with a third-party institution

Improvement of Ad-Hoc Orders

- To mitigate operational instability for transaction partners, provide predictable order volumes on a quarterly basis rather than through ad-hoc ordering practices

Issuing written documents omitting matters that are difficult to determine at the time of entrustment without legitimate reasons, while failing to include the reasons for omission and scheduled date for their determination

Delaying the issuance of, or failing to issue new written documents to the transaction partner even after finalizing matters omitted from the initially issued documents

Failing to respond in writing within fifteen (15) days to a request from the transaction partner to confirm orally entrusted details, such as scope of work, subcontract payments, and date of entrustment, by either acknowledging or denying the request

Responding to orally entrusted matters without the signature or seal of the original contractor (e.g., the company’s contract-responsible executive) on the response

Failing to issue revised contracts or settlement documents in construction projects when additional or modified work volumes are substantiated during the construction process, but disputes arise between parties over the settlements

Destroying statutory documents within three (3) years based on the internal regulations of the original contractor instead of retaining them as required

Retaining documents for three (3) years after the conclusion of a transaction but maintaining false documents or retroactively creating false records for retention

Failing to retain documents related to subcontract payment determinations, such as bidding details, successful bidder determination reports, quotations, site instructions, and specifications, in case of construction subcontracting

Determining subcontract payments by lowering unit prices at a uniform rate without reasonable cause

Allocating a specific amount under any pretext and unilaterally deducting it from the subcontract payment

Determining payments by discriminating against specific transaction partners without legitimate reasons or unilaterally setting lower unit prices without the transaction partner’s agreement

Misleading transaction partners regarding transaction conditions such as order quantities, or utilizing fabricated or misleading estimates from other contractors to determine payments

In private contracts, determining payments below the combined cost of direct construction cost items without justifiable grounds

In competitive bidding, setting payments below the lowest bid amount without legitimate reasons

Uniformly lowering unit prices to determine payments without objectively valid reasons, such as drop in material costs or labor costs

Determining payments at lower levels for certain transaction partners without differences in payment terms, order quantities, or work complexity

Soliciting quotations based on bulk orders and subsequently placing small orders while setting payments based on the original quotation

Entrusting manufacturing or similar tasks without agreeing on payments and then setting payments below customary levels without consultation with the transaction partner

Obtaining delivery-related technical materials and providing them to other contractors to lower payments based on their quotations

Drafting significantly lower execution budgets compared to the original contract price and using such budgets to justify lower payments

Determining payments significantly below customary compensation for reasons such as exports, promotional sales, or sample provisions

Coercing suppliers in the distribution industry to deliver at significantly reduced prices for special sales events like discount promotions

Canceling development after facility or production readiness has been completed or demanding lower unit prices based on oral proposals

Interfering in personnel matters by requiring transaction partners to seek approval for appointing or dismissing employees or by forcing them to hire specific individuals against their will

Restricting subcontracting practices unrelated to the quality or delivery schedule of entrusted goods or services, such as selection and contract terms for secondary subcontractors

Mobilizing workers to execute construction against the will of small and medium-sized enterprises during ongoing construction

Restricting the production items or facility sizes of transaction partners or prohibiting them from transacting with competitors of the primary contractor or its affiliates

Requiring transaction partners to provide delivery-related technical materials without justifiable grounds

Forcing transaction partners to participate in promotional events or to purchase goods or gift certificates

Prohibiting subcontractors from requesting settlement for additional quantities after project completion

Passing on the costs of establishing and operating the supervisor’s office to subcontractors or entirely prohibiting contract modifications due to wage increases or price fluctuations after the initial agreement

Excluding construction delays or suspensions caused by site circumstances, natural disasters, or monsoon conditions from the construction period and refusing to recognize additional contracts on these grounds

Receiving additional funds from the project owner for design changes or economic shifts and either failing to pay subcontractors or paying them less than the received amount or proportion

Failing to adjust the contract amount for an increase or decrease within thirty (30) days after receiving revisions from the project owner due to design changes or fluctuations in economic conditions, or making adjustments after more than thirty (30) days.

Paying subcontractors in cash, promissory notes, or other settlement instruments more than fifteen (15) days after receiving additional funds from the project owner and failing to pay interest, note discount fees, or service charges for the delayed period

Failing to notify subcontractors within fifteen (15) days of receiving adjustments to the contract amount from the project owner due to design changes or economic conditions, except when directly notified by the project owner

Failing to respond to a negotiation request or to proceed with substantive negotiation steps such as holding meetings, exchanging opinions, or proposing price adjustments after notifying the initiation of negotiations

Allowing thirty (30) days to pass after a negotiation request without a responsible person with actual authority over price adjustments participating in the negotiation

Repeatedly proposing unacceptable prices to the other party without conducting objective market research or cost estimation for price adjustments

Requiring exclusive transactions by prohibiting transaction partners from engaging with anyone other than the primary contractor or specified entities (except in cases where exclusivity is mutually agreed upon for joint technical development)

Unilaterally passing all economic and administrative responsibilities for handling complaints during construction to subcontractors and deducting related costs from progress payments if disputes persist

Establishing contractual terms and conditions that unfairly infringe or restrict the interests of subcontractors

Setting agreements that require subcontractors to bear costs arising from demands for items not stipulated in the contract

Imposing on subcontractors the costs for complaint handling or industrial accidents that should be borne by the primary contractor

Creating agreements that make subcontractors bear the costs incurred from requirements not included in the bidding details

The Parties shall comply with the principles of good faith and sincerity, including all pertinent statutes such as the Subcontracting Act and the Fair Trade Act, while ensuring that any disputes are resolved in writing on the basis of documented evidence.

Where unit prices are to be decreased on account of decreased raw material costs or increase in order volumes, the principal contractor must present a reasonable basis for such decrease attributable to increased order volumes in order to reach an amicable resolution.

If additional costs are incurred due to modifications of the contract such as additional specifications, the principal contractor shall settle the corresponding fees accordingly.
※ Recommended Practices
The agreement shall be revoked or terminated in accordance with the stipulations set forth in the agreement; however, insofar as the reason for revocation or termination does not conform to the specified grounds in the agreement, it is recommended that the principal contractor provide prior written notice to the subcontractor, preferably two (2) to three (3) months in advance of any interruption of the transaction.

Refusing to accept delivered goods or services due to unclear entrusted contents, making it difficult to determine if the delivered items align with the entrusted requirements

Rejecting the receipt of goods already entrusted due to complaints from project owners, foreign importers, customers, or citing poor sales performance

Refusing to accept delivery due to the delayed supply of raw or construction materials and citing delivery delay as the reason, even though it is impossible to meet delivery deadlines or construction schedules as a result

Applying higher inspection standards than usual without establishing specific inspection criteria

Refusing to accept goods by applying vague or excessively high inspection criteria compared to those specified in the original contract, even if inspection standards are set

Rejecting delivery demands from transaction partners without justifiable reasons, such as lack of storage space

Refusing to accept goods already ordered based on unilateral judgment that stable supply is unlikely due to the transaction partner's bankruptcy or other reasons

Refusing to accept other items due to defects in certain entrusted items, or citing the cancellation or suspension of orders by the project owner

Returning goods citing order cancellations or changes in economic circumstances as reasons

Returning goods by unfairly determining them as defective due to unclear inspection criteria or methods

Returning defective items despite their evaluation as non-conforming due to the quality issues of the supplied raw materials

Returning goods despite the delivery delays caused by delays in the supply of raw materials

Returning previously received goods, citing complaints from project owners, foreign importers, or customers or poor sales performance

Returning goods inspected and approved by a third party even though the subcontractor had already passed the third-party inspection

Returning goods by citing delivery or construction delays after previously allowing such delays based on objective facts

Reducing payment after entrustment without specifying payment reduction conditions in advance, citing unjustifiable reasons such as cooperation requests, order cancellations, or changes in economic circumstances

Retrospectively applying a unilateral price reduction to goods or services entrusted before an agreement on price reductions was reached/p>

Excessively reducing payment by citing early payment in cash or before the due date

Reducing payment unilaterally for minor errors by the transaction partner that do not substantially affect damages

Deducting amounts exceeding the reasonable price or use fees when requiring transaction partners to purchase goods or use equipment provided by the principal contractor

Reducing payment due to a decline in prices of materials or market rates at the time of payment compared to the delivery or service period

Citing unjustifiable reasons, such as operational losses or price reductions, to reduce payment unjustly

Reducing indirect labor costs, general administrative expenses, profits, or value-added taxes contrary to the original contract terms

Passing on employment insurance premiums, occupational safety expenses, or other costs legally borne by the principal contractor to transaction partners in accordance with the Act on the Collection of Insurance Premiums for Employment Insurance and Industrial Accident Compensation Insurance and Occupational Safety and Health Act

Delaying material or equipment supply or setting unreasonable delivery or construction deadlines, and reducing payment for failure to meet such deadlines

Reducing subcontract payments for reasons of continued orders or revising payments for total contracts citing specific manufacturing or construction details

Reducing payment contrary to the original contract by citing reasons such as low bids for entrusted goods

Changing the contract terms despite no changes to the entrusted contents or conditions, resulting in reduced payment

Passing on foreign exchange losses to transaction partners contrary to the original contract terms and reducing payment

Demanding sponsorship fees, incentives, or support funds as conditions for initiating or expanding transactions

Citing operational losses or deteriorating financial conditions to demand sponsorship fees, incentives, or support funds unjustly

Demanding sponsorship fees, incentives, or support funds without any legal obligation on the part of the transaction partner

Passing on costs incurred due to wage increases or delays in internal approval processes to transaction partners

Demanding the acceptance of goods as payment instead of the agreed-upon payment terms against the will of the transaction partner

Limiting opportunities for subcontractors to secure orders or imposing other disadvantages in retaliation for reporting violations of subcontracting laws to the Fair Trade Commission

Employing indirect methods to circumvent the application of subcontracting laws to subcontracting transactions

Recovering payments to transaction partners through methods such as deductions from delivery payments following corrective measures imposed by the Fair Trade Commission

Uniformly lowering unit prices equivalent to paid promissory note discount fees or delay interests after payment to transaction partners

Unjustly forcing transaction partners to purchase or use products or services from the principal contractor, its affiliates, or specified companies without valid reasons

Forcing transaction partners to purchase materials used at construction sites against their will or unjustly requiring the use of specified goods or equipment

Repeatedly demanding purchases even when the transaction partner has clearly expressed no intent to buy/is reasonably deemed unwilling to purchase

Requiring transaction partners to purchase goods or use equipment from the principal contractor and demanding payment for all of part of the purchase or use costs before the payment due date

Requiring transaction partners to purchase goods or use equipment under significantly unfavorable conditions compared to those applied to the principal contractor or third parties

Forcing transaction partners to provide technical data such as the following to the principal contractor or third parties without justifiable reasons

- Confidential information on manufacturing, repair, construction, or service methods kept secret through considerable effort

- Information related to intellectual property rights including patents, utility models, design rights, and copyrights

- Technical or business information with independent economic value and useful for business activities

Misappropriating technical data obtained from transaction partners for the benefit of the principal contractor or third parties

1. The principal contractor has reflected the contents of the measures to rules related to contract administration (bylaws, work guidelines, etc.)

2. The principal contractor has incorporated the main contents of the measures—such as standards for adjusting or negotiating the delivery unit prices—into the contract

3. The principal contractor has disclosed said measures (e.g., via its website) or given notice thereof to partnering subcontractors

4. The principal contractor has established criteria for the selection of methods of contract conclusion under these measures

These measures present only the major general requirements necessary to ensure autonomy, transparency, and fairness in the principal contractor’s selection of transaction partners and operation of transaction partner pool; beyond these provisions, the principal contractor may stipulate and implement individual and specific details considering its own circumstances.

(1) Matters related to the criteria and procedures for selecting transaction partners must be disclosed for at least fifteen (15) days at the business site or via electronic media (including the principal contractor’s website) no later than thirty (30) days prior to the expiration of registration validity period for transaction partners or commencement of registration (including renewal) review process.

(2) When intending to amend the criteria for selecting transaction partners, the principal contractor shall provide individual written notice (including electronic documents; the same shall apply hereinafter) to each enterprise subject to renewal registration at least forty-five (45) days in advance.

(3) Within fifteen (15) days of the date of selecting the transaction partners, the principal contractor must individually notify the results in writing and—with respect to those enterprises not selected—must specify the reasons for non-selection in written form.

The principal contractor shall formulate its selection criteria for transaction partners in a sufficiently specific, clear manner so as to eliminate the risk of arbitrary interpretation.

(1) The criteria for selecting transaction partners must be relevant to the content of the outsourced transaction, and they must fairly distribute the weighting assigned to each detailed selection standard.

① Whether the transaction partner holds any specialized license as mandated by the relevant statutes

② Whether an external professional assessment agency has verified the financial soundness of the candidate enterprise

③ Whether the enterprise has violated any relevant statutes, including the Subcontracting Act, within a certain period

④ Whether the enterprise has a record of technology development and possesses facilities relevant to the transaction in question

① Capitalizing on relationships with retired employees, academic ties, regional ties, or relatives as criteria for selection

② Assigning excessively high weight to past transaction records, thereby impeding the entry of new enterprises

③ Penalizing an enterprise for engaging in transactions with a competitor or for maintaining overlapping registrations as a transaction partner with multiple entities

(2) The period for application and receipt of registration as a transaction partner shall be at least fifteen (15) days.

(3) For any enterprise that deems itself excluded from the selection of transaction partners due to the principal contractor’s fault, the principal contractor shall grant the enterprise an opportunity to file an objection for a minimum period of fifteen (15) days from the date the enterprise was notified of the non-selection.

(4) Absent justifiable cause, the principal contractor shall not discriminate in its selection criteria between already registered enterprises and newly registering enterprises.

Any business entity that has been selected and registered as a transaction partner shall not be unduly restricted or discriminated against with respect to opportunities to participate in bidding or otherwise commence transactions, absent legitimate reasons.

Simultaneous with the disclosure of criteria and procedures for selecting transaction partners, the principal contractor shall also disclose—for at least fifteen (15) days at its business site or via electronic media—the criteria and procedures concerning the cancellation of registration.

The principal contractor shall set forth the criteria for canceling the registration of transaction partners in a specific, clear manner in order to prevent the risk of arbitrary interpretation.

(1) The criteria for canceling the registration of transaction partners shall be established based on objective and appropriate grounds.

< Legitimate Criteria for Registration Cancellation and Examples of Application >

① Where a serious, clearly attributable fault arises on the part of the subcontractor in relation to the subcontract transaction in question

② Where normal business operations become impossible due to bankruptcy, suspension of operations, or permanent closure

③ Where the subcontractor has violated the Subcontracting Act or other relevant laws

④ Where a relevant statutory license has been revoked pursuant to applicable regulations

< Improper Criteria for Registration Cancellation and Examples of Application >

① Canceling registration because the subcontractor fails to cooperate with the unilaterally proposed initiatives by the principal contractor such as cost reduction plans or requests lowering the delivery unit prices

② Canceling registration solely because the subcontractor is dually registered as a transaction partner with a competing entity

③ Canceling registration based on the subcontractor’s lack of transaction records if the principal contractor never placed an order or entrusted work, even though the subcontractor bears no fault
(In cases wherein the subcontractor has no transaction records for a significant period due to legitimately losing in competitive bidding, however, registration cancellation may be allowed.)

④ Canceling registration because the subcontractor declined to comply with the principal contractor’s directives regarding the subcontractor’s personnel

(2) In canceling the registration of a transaction partner, the principal contractor shall notify the transaction partner in writing—stating the reasons for such cancellation—and allow at least fifteen (15) days from the date of receipt of said notice to lodge an objection; if the registration is canceled due to reasons attributable to the principal contractor, the principal contractor shall promptly proceed with re-registration measures.

The principal contractor is deemed to have introduced and implemented these measures if, for the past year, it has continually satisfied all of the following conditions:

A. The principal contractor has incorporated the content of these measures into the criteria regarding the registration and operation of transaction partners (such as company regulations or work guidelines)

B. The principal contractor has disclosed the criteria for registering and operating transaction partners (for instance, on its website)

C. The principal contractor has complied with these measures when registering transaction partners or canceling such registrations

D. The principal contractor has granted fair opportunities to commence transactions

These measures present only the major general requirements designed to ensure autonomy, appropriateness, and effectiveness in the internal review committee established and operated by the principal contractor for fair subcontract transactions; for any other matters, the principal contractor may determine and implement individual specific provisions considering its respective circumstances

(1) The internal review committee shall consist of at least three employees or officers including an executive in charge of subcontract-related tasks, and may appoint external experts such as outside directors whenever necessary.

(2) If an existing deliberative body formed for operating a compliance program (CP) meets the requirements set forth in subparagraph (1), it may function as the internal review committee.

(1) The internal review committee shall be convened regularly—at least once a month—and may be convened ad hoc whenever urgent issues arise.

(2) The internal review committee shall conduct a preliminary review concerning the fairness of contract conclusion and price determination, as well as the legality under the Subcontracting Act and other relevant regulations, with respect to those transactions wherein the projected individual subcontract amount for each subcontractor in the current business year constitutes a certain percentage (for example, 10% if the principal contractor’s total subcontract transactions for the previous year are under KRW 100 billion, 5% if between KRW 100 billion and KRW 500 billion, 2% if between KRW 500 billion and KRW 1 trillion, and 1% if over KRW 1 trillion) of the principal contractor’s total subcontract transaction amount for the preceding business year.

< Examples of Matters for Preliminary Review Under the Subcontracting Act >

① Compliance with the obligation to issue written contracts

② Compliance with the obligation to open domestic letters of credit

③ Compliance with the obligation to guarantee the payment of subcontract fees

④ Potential violations of the prohibition against unfair determination of subcontract fees

⑤ Potential violations of the prohibition against compelling purchase of certain goods

⑥ Potential violations of the prohibition against unjust demands for economic benefits

(3) The internal review committee shall conduct a preliminary review concerning the appropriateness of the criteria and procedures for registering and canceling transaction partners.

(4) The internal review committee shall deliberate on any objections raised regarding non-selection or registration cancellation of transaction partners.

(5) The committee may, when needed, solicit the opinions of the relevant subcontractors while ensuring anonymity if necessary.

(6) If a matter under deliberation is likely to violate the Subcontracting Act or other pertinent regulations, the committee shall rectify it on its own initiative; in the event of intentional or gross negligence by the relevant staff, commensurate disciplinary measures (e.g., personnel sanctions) shall be imposed in proportion to the violation’s severity.

(7) Documents associated with the internal review committee’s deliberations and resulting actions shall be retained for a minimum of three (3) years from the date the deliberation concludes.

The principal contractor is deemed to have introduced and implemented these measures if, for the past year, it has continually satisfied all of the following conditions:

A. The principal contractor has established criteria (bylaws, work guidelines, etc.) for the formation and operation of the internal review committee

B. The principal contractor has disclosed (e.g., via its website) the criteria for setting up and operating the internal review committee

C. The principal contractor has formed an internal review committee

D. The internal review committee has records of deliberations (including a review of the measures’ content, etc.)

When entrusting the manufacturing, repair, construction, or performance of services (hereinafter referred to as “manufacturing, etc.”) concerning the subject matter pursuant to the Subcontracting Act to the subcontractor, the principal contractor shall—after agreeing with the subcontractor on the main contractual details such as content, quantity, and unit price of the entrusted subject matter—issue a written subcontract agreement.

If the initial contractual terms and conditions are revised due to design modification or entrustment of additional construction, the principal contractor shall—barring special circumstances—prepare and issue an additional or a revised written document.

The written subcontract agreement must accurately reflect the actual transaction and shall include the following items, in principle:

① Date of entrustment, details of the subject matter to be entrusted and its quantity and unit price, time and place for delivering, handing over, or otherwise providing the subject matter, method and timing for inspecting the subject matter, and subcontract payment (including advance payments, partial payments, and completion payments for construction work) as well as the method and due date for its disbursement

② If the principal contractor intends to provide raw materials or similar items needed for the subcontractor’s manufacturing, etc., of the subject matter, then the name, quantity, and date of provision of said raw materials, as well as the method and due date for paying the corresponding cost

③ Conditions, methods, and procedures for adjusting the subcontract payment in light of fluctuations in the cost of raw materials or similar factors after entrusting the manufacturing, etc., of the subject matter

In principle, the principal contractor shall issue a written subcontract agreement without delay after agreeing with the subcontractor on the essential terms of the entrusted contract.

Even if there are circumstances preventing the principal contractor from promptly delivering the written contract to the subcontractor, the principal contractor must, absent special grounds, issue the written contract by at least the following deadlines for each of the following categories:

① Manufacturing entrustment: Before the subcontractor commences work aimed at delivering goods, etc.

② Repair entrustment: Before the subcontractor initiates the repair work agreed under the contract

③ Construction entrustment: Before the subcontractor begins the contracted construction

④ Service entrustment: Before the subcontractor commences the service tasks stipulated in the contract

The principal contractor shall issue to the subcontractor a contract bearing the signature (including an accredited electronic signature under Article 2(3) of the Digital Signature Act) or the name and seal of the company or its representative.

If the written document is issued without the signature or name and seal of the parties to the subcontract, such issuance is deemed not to meet the requirement of issuing a written contract.

A written document may also be issued through the provision of electronic records as follows:

- Issuing via transmission over a telecommunication line and recording the content in the file of an electronic data device used by the subcontractor (e.g., email)

- Providing it for the subcontractor’s perusal through a telecommunication line and recording it in the file of an electronic data device the subcontractor uses (e.g., web-based access)

- Delivering electronic records such as floppy disks or CD-ROMs to the subcontractor, among other means

If the written document is issued in a rational manner compatible with actual subcontract transaction practices as exemplified below, the obligation to issue the written document may be considered fulfilled even if it differs from the items to be included and the timing set forth above.

If certain matters are difficult to finalize at the time of entrustment; provided, however, that the principal contractor must have a legitimate reason for omitting such matters from the written document if they cannot be confirmed at that point in time
* Nonetheless, in such case, the principal contractor must specify why those items could not be determined including the expected date they would be established and, upon finalizing them, must issue a written document detailing those items without delay.

When, in light of industry practices or actual circumstances, frequent transactions occur in a manner that does not fundamentally hinder contract formation or maintenance

- When a master agreement has been delivered, and the issuance of orders via fax or other electronic or digital means clearly identifies the content of the order

- When certain legally required information is omitted in the agreement but may be identified through quantity statements or work orders provided for each individual order

- When, having sent a master agreement for manufacturing export goods, the subcontractor’s offer sheets submitted to the principal contractor can serve as individual contracts

- When, with respect to entrusting additional construction, the relevant portion of the work is subject to minor but frequent additions with clearly anticipated quantity changes, and the parties immediately substitute a settlement agreement for a contract upon completion of construction

However, the following cases constitute a failure to issue a written document:

When additional construction is clearly delineated and a substantial sum is involved, yet the principal contractor fails to issue any detailed supplementary contract or work order

When additional or modified construction quantities have been verified during construction, yet no revised contract or settlement documentation is issued due to a dispute between the parties

If, when entrusting the manufacturing, etc., the principal contractor does not issue a subcontract agreement written in accordance with Article 3(2) of the Subcontracting Act (including cases wherein certain items were omitted pursuant to Paragraph 3), the subcontractor may issue a written notice stating the details of the entrusted work, subcontract payment, date of entrustment, names and addresses of the principal contractor and the subcontractor, and any other entrusted content for confirmation.

- In such cases, the subcontractor shall use [Form 1] “Request for Confirmation of Entrusted Content” as stipulated by the “Guidelines for Fair Subcontract Transactions” as the standard format.
※ Appendix 1: Standard Format for a Written Request to Confirm Entrusted Content

Within fifteen (15) days of receiving such written request for confirmation of entrusted content from the subcontractor, the principal contractor shall reply in writing to acknowledge or deny the content.

- In this context, the principal contractor shall use [Form 2] “Reply to the Request for Confirmation of Entrusted Content” as the standard format under the “Guidelines for Fair Subcontract Transactions.”
※ Appendix 2: Standard Format for the Written Reply to the Request for Confirmation of Entrusted Content

If the principal contractor does not send a reply within fifteen (15) days, except in cases where force majeure or calamity prevents such reply, entrustment is presumed to have occurred as stated in the subcontractor’s notification.

Both written notification requesting confirmation of entrusted content and written reply to such request must be sent to the addresses of the principal contractor and the subcontractor, using certified mail or another method (excluding email) that can objectively confirm the content and receipt of such notice and reply.

Where a joint contract has been formed under a joint performance structure, either all joint contractors may jointly execute the subcontract agreement and issue a written contract, or each party may individually form a subcontract agreement concerning their respective allocated portions, or the representative company of the joint consortium may execute and issue the subcontract agreement on behalf of the joint consortium as a whole.

When deciding not to pay the subcontract fee originally determined “at the time of entrustment” for manufacturing, etc. to the subcontractor in full, choosing to reduce it instead, the principal contractor shall issue a written document to the subcontractor indicating such reduction.

If, at the time of executing the subcontract agreement, the parties document the general terms in the basic contract (such as payment, shipping, inspection, return conditions, specifications, materials, and manufacturing processes) yet delegate the unit price, quantity, and other matters related to subcontract fees to a special agreement or purchase order, and if the payment is determined based on such special agreement or order, then the time the subcontractor is informed of said special agreement or order is considered “the time of entrustment.”

In a written document that must be delivered by the principal contractor in order to reduce the subcontract fee, items to be included shall encompass the reasons and standards for reduction, quantity of subject matter that is subject to the reduction, reduced amount, method of reduction such as offsets, and other details demonstrating the legitimacy of the reduction.

When intending to reduce the subcontract fee, the principal contractor shall, ahead of effecting such reduction, issue to the subcontractor a written document specifying such reduction.

When requesting a reduction of the subcontract fee in writing from the subcontractor, the principal contractor shall provide a document bearing the signature (including an accredited electronic signature as defined in Article 2(3) of the Digital Signature Act) or the name and seal of the company or its representative.

When intending to reduce the fee, the principal contractor shall use the standard form indicated in Appendix 4.
※ Appendix 3: Standard Form for a Written Document Reducing the Subcontract Fee

A written document may also be issued through the provision of electronic records as follows:

- Issuing via transmission over a telecommunication line and recording the content in the file of an electronic data device used by the subcontractor (e.g., email)

- Providing it for the subcontractor’s perusal through a telecommunication line and recording it in the file of an electronic data device the subcontractor uses (e.g., web-based access)

- Delivering electronic records such as floppy disks or CD-ROMs to the subcontractor, among other means

If certain matters cannot be definitively determined at the time the principal contractor issues the written document on the reduction, the principal contractor may omit them from the document only when there is a legitimate reason.
* Nonetheless, in such case, the principal contractor must specify why those items could not be determined including the expected date they would be established and, upon finalizing them, must issue a written document detailing those items without delay.

When requiring the subcontractor to provide technical data for legitimate reasons, the principal contractor shall issue a written request to the subcontractor.

< Examples of Legitimate Reasons for Requesting Technical Data >

▪ When requesting the subcontractor’s technical data in the course of concluding a subcontract agreement via private contracts, competitive bidding (open competition, limited competition, designated competition, etc.), or similar means in order to evaluate the transaction partner’s technical capabilities, establish baseline pricing for the ordered items, review proposals, carry out joint technology development, or meet the requirements of the ordering party’s Request for Proposals (RFP), among other reasons

▪ When the principal contractor, in the midst of subcontract transactions, demands the subcontractor’s technical data under pretexts such as providing technical guidance, quality management, or performance tests to the subcontractor, jointly filing a patent, assisting with patent applications, engaging in joint technology development, or requesting cost data for adjusting the supply price

▪ When, for technology placed in escrow, conditions arise under the escrow agreement requiring delivery, prompting the principal contractor to request the subcontractor’s technical data

A written document demanding the provision of technical data shall include the name and scope of the relevant technical data, purpose of the request, confidentiality requirements*, details concerning ownership of rights*, price for the technical data, date of the request, delivery date, method of delivery, and any other items evidencing the legitimacy of the principal contractor’s demand for technical data.
* Confidentiality: Which portions of the technical data shall remain confidential must be specified, and any existing confidentiality memorandum between the parties shall be attached thereto
* Ownership of Rights : Who currently owns the rights to the technical data requested by the principal contractor, whether a technology transfer agreement exists between the parties, whether the requested technology was jointly developed, and any mutual agreements regarding rights ownership after the provision of technical data

When requesting technical data, the principal contractor, in principle, shall first consult with the subcontractor regarding the name and scope of the technical data, purpose of the request, request date, delivery date, delivery method, confidentiality provisions, ownership matters, and cost of the technical data, and thereafter promptly issue a written document to the subcontractor.

The principal contractor shall issue to the subcontractor a written request for technical data bearing the signature (including an accredited electronic signature under Article 2(3) of the Digital Signature Act) or name and seal of the company or its representative.

When seeking technical data from the subcontractor in writing, the principal contractor should ideally adopt the standard form (Form 1) for requesting technical data under the “Guidelines for Inspection of Request for and Misuse of Technical Data” (Fair Trade Commission Regulation No. 115).
※ Appendix 4: Standard Format for a Written Request for Technical Data

In addition to the standard form, the principal contractor may request the provision of technical data via a separate written contract such as a special agreement. However, such separate contractual document must invariably include the items set forth in subparagraph 2(b) above.

A written document may also be issued through the provision of electronic records as follows:

- Issuing via transmission over a telecommunication line and recording the content in the file of an electronic data device used by the subcontractor (e.g., email)

- Providing it for the subcontractor’s perusal through a telecommunication line and recording it in the file of an electronic data device the subcontractor uses (e.g., web-based access)

- Delivering electronic records such as floppy disks or CD-ROMs to the subcontractor, among other means

If the written document is issued in a rational manner compatible with actual subcontract transaction practices as exemplified below, the obligation to issue the written document may be considered fulfilled even if it differs from the items to be stated and the issuance timing set forth above.

- If there are any items in the request for technical data that are difficult for the principal contractor and subcontractor to confirm in advance, the principal contractor may omit those items from the written document only when there is a legitimate reason.
* Nonetheless, in such case, the principal contractor must specify why those items could not be determined including the expected date they would be established and, upon finalizing them, must issue a written document detailing those items without delay.

- Where frequent requests for technical data are unavoidable due to the nature of the industry or transaction realities, the parties may document basic items such as the name and scope of technical data, purpose of request, confidentiality obligations, ownership of rights, and price in a written document bearing the signatures or name and seal of both parties, and subsequently specify additional details such as date requested, delivery date, and delivery method via individual requests.

Unless there is a cause attributable to the subcontractor, the principal contractor shall—when the subcontractor delivers, hands over, or otherwise provides the subject matter (excluding cases of entrusted service provision)—issue a certificate confirming receipt of said subject matter to the subcontractor.

Even before inspecting the relevant subject matter, the principal contractor must issue a receipt certificate to the subcontractor without delay (and if a domestic letter of credit has been opened in accordance with Article 7 of the Subcontracting Act, then immediately upon completing the inspection).

Upon receiving the subject matter from the subcontractor, the principal contractor shall perform such inspections as necessary to ascertain the extent of completion and scope of payment obligations, and then notify the subcontractor of the results in writing.

In principle, the principal contractor shall issue a written notification of inspection results within ten (10) days of the date of receiving the subject matter from the subcontractor.

- For manufacturing or repair entrustments, “the day the subject matter is received” includes the day partial completion is notified; for construction entrustments, it refers to the day the subcontractor informs the principal contractor of completion or partial completion of the work.

Nevertheless, if the principal contractor has legitimate reasons as exemplified below, it may take more than ten (10) days to notify the inspection results.

- When the volume of goods to be inspected is excessive, making it difficult to conclude the inspection within ten (10) days

- When an extended period is required for inspection, and only after that period can the determination of acceptance or rejection be ascertained

- When there is a clear agreement between the principal contractor and the subcontractor regarding an extension of the inspection period, etc.

If the principal contractor, without just cause, fails to issue a written notification of inspection results to the subcontractor within ten (10) days of date the subject matter is received, the subject matter is deemed to have passed inspection.

If, after the entrustment of manufacturing or similar services, the contract amount is increased or reduced due to design modification, fluctuations in market prices, or other changes in economic conditions, the principal contractor shall notify the subcontractor of the reasons and content of such increase or decrease as received from the ordering party.

- However, this does not apply if the ordering party directly informs the subcontractor of the reasons and content.

The principal contractor shall issue the notification document above to the subcontractor within fifteen (15) days of the date of receiving the contract amount increase or decrease from the ordering party.

The principal contractor shall issue to the subcontractor a written document bearing the signature (including an accredited electronic signature under Article 2(3) of the Digital Signature Act) or the name and seal of the company or its representative.

A written document may also be issued through the provision of electronic records as follows:

- Issuing via transmission over a telecommunication line and recording the content in the file of an electronic data device used by the subcontractor (e.g., email)

- Providing it for the subcontractor’s perusal through a telecommunication line and recording it in the file of an electronic data device the subcontractor uses (e.g., web-based access)

- Delivering electronic records such as floppy disks or CD-ROMs to the subcontractor, among other means

Any written document required to be preserved must be kept in its original condition as of the time of its issuance, submission for review, or other use. The same requirement applies to documents created, transmitted, or stored in electronic form via computers or other information-processing devices.

Both principal contractor and subcontractor must preserve the aforementioned documents for three (3) years from the day the subcontract transaction between the parties concludes. In this context, “the day the subcontract transaction ends” means the following dates:

For manufacturing entrustment, repair entrustment, or service entrustment involving the creation of intellectual or informational products: The day the subcontractor delivers or hands over the entrusted subject matter to the principal contractor

For service entrustment involving the provision of services: The day the subcontractor completes provision of the service entrusted by the principal contractor

For construction entrustment: The day the entrusted construction is completed

When the subcontract agreement is terminated mid-contract or the transaction is suspended: The day on which such termination or suspension occurs

The principal contractor is deemed to have introduced and implemented these measures if, for the past year, it has continually satisfied all of the following conditions:

1. The content of these measures is reflected in the rules related to subcontracted tasks (bylaws, work guidelines, etc.)

2. The principal contractor has adopted standard forms (or equivalent document templates) when issuing written documents such as contracts to the subcontractor

3. The principal contractor keeps a register or a ledger for managing the issuance and preservation of documents required to be issued or preserved for the subcontractor