Korea Tightens Penalties for Illegal Construction Subcontracting

The maximum business suspension period for illegal subcontracting at construction sites will be extended to one year in South Korea. The minimum threshold for penalty surcharges will also be significantly raised from 4% to 24% of subcontract payments.

The Ministry of Land, Infrastructure and Transport announced Wednesday that it will open a legislative notice period for a partial amendment to the Enforcement Decree of the Framework Act on the Construction Industry from December 16 through January 26 next year.

The amendment includes strengthened penalties for illegal subcontracting. The current decree allows business suspensions of four to eight months when illegal subcontracting is detected. Under the new amendment, the suspension period will increase to a minimum of eight months and a maximum of one year, aligning the decree with the maximum level set by the parent Framework Act on the Construction Industry.

Penalty surcharges will also be significantly raised from 4-30% to 24-30% of total subcontract payments. Companies that receive administrative sanctions for illegal subcontracting are currently barred from participating in public construction subcontracts for one to eight months, but this period will be extended to eight months to two years.

The amendment also includes provisions to relax requirements for whistleblower rewards and expand the maximum payment to 10 million won. Under these changes, whistleblowers will be able to receive rewards even without submitting documentary evidence.

"We expect active reporting from construction workers and other internal parties, as well as stronger commitment from construction companies to eradicate illegal subcontracting," said Cho Suk-hyun, head of the Construction Site Compliance Monitoring Team at the Ministry of Land, Infrastructure and Transport. The full text of the amendment is available on the ministry's website.