[단독]Construction company subcontracting abuse… 10% of construction cost as ‘retention deposit’ to be paid after completion

2024-04-19 02:59:32

Investigation of four companies including the Fair Trade Commission and Daewoo Engineering & Construction
Violation of ‘payment within 60 days’ rule
Intensifying liquidity crisis for small and medium-sized construction companies

Daewoo Engineering & Construction, which is suspected of ‘abuse of power’ by not paying subcontracting payments on time while claiming to hold on to reserves, is being investigated by the Fair Trade Commission. Three other mid-sized construction companies are also being investigated on the same charges. In a situation where the real estate market is frozen, it is pointed out that illegal reserve funds, which have become an industry practice, are deepening the liquidity crisis for small and medium-sized construction companies.

According to related industries on the 18th, the Fair Trade Commission is known to have conducted on-site inspections of four construction companies, including Daewoo Engineering & Construction, since the beginning of this month. The Fair Trade Commission is said to have also secured details of subcontract payments from some construction companies.

The Fair Trade Commission is looking into allegations that these construction companies delayed payment by setting some of the subcontract payments as ‘reserve money’. Retention money is a type of deposit held by a construction company for the purpose of completing construction or fulfilling defect repair obligations. A portion of the promised construction fee is taken out and paid after completion of construction or after the defect repair period has ended.

For example, when building an apartment, even after the earthworks to prepare the land have been completed, only up to 90% of the construction fee is paid to the subcontractor who performed the earthworks. The 10% set as a reserve is given after the apartment is completely built. In the construction industry, when concluding a subcontract, a special contract with this content is usually included, or a reserve deposit is deducted as a custom without any special promise. The size of the reserve is usually about 5-10% of the total construction cost.

However, this clearly constitutes a violation of the subcontracting law. This is because the Subcontracting Act stipulates that the contractor must pay the subcontract price to the subcontractor within 60 days from the date of delivery of the object. If payment is made after the statutory due date, late interest must be paid, and if detected, sanctions such as fines may be imposed. However, setting illegal reserves is becoming a common practice in the industry.

In particular, in a situation where construction companies are being pushed into a liquidity crisis due to the recent real estate recession and project financing (PF) risks, it is pointed out that the practice of illegal reserve funds is causing further damage to small and medium-sized construction companies. Accordingly, the Fair Trade Commission also announced in this year’s work plan that it will intensively inspect unfair practices in reserve funds. Accordingly, there is speculation that the Fair Trade Commission may initiate additional investigations into construction companies other than the four. An official from the Fair Trade Commission said, “We cannot comment on specific cases,” but added, “We will take strict action against violations of the law.”

Regarding the Fair Trade Commission’s on-site investigation, Daewoo Engineering & Construction said, “It is something that is regularly investigated by the industry,” and “We plan to faithfully participate in the Fair Trade Commission’s investigation.”

Sejong = Reporter Song Hye-mi [email protected]
Reporter Oh Seung-jun [email protected]

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2024-04-19 02:59:32