The Busan Metropolitan Government is launching a subsidy program for guarantee fees to reduce the risk of unpaid subcontract payments at private construction sites.
The city announced it will implement the "Construction Subcontract Payment Guarantee Issuance Cost Support Program" starting May 18. The subcontract payment guarantee system is a mechanism where guarantee institutions fulfill payment obligations when prime contractors fail to pay construction fees, and is considered a key safety net for protecting subcontractors.
The program aims to expand the use of the guarantee system in privately-commissioned construction projects to prevent damages to local small and medium-sized construction firms and increase their subcontracting success rates. The city will provide support for guarantee issuance fees to prime contractors on private construction projects that have signed subcontracts with Busan-based construction companies.
Eligible applicants are prime contractors that have signed new subcontracts with Busan-based firms since January 1 of this year, regardless of their headquarters' location. Subcontractors must be registered in Busan. The subsidy covers 50% of guarantee issuance fees, up to a maximum of 30 million won per company.
The city previously amended the "Busan Metropolitan City Ordinance on Promoting Regional Construction Industry Revitalization" in December last year to establish the legal basis for the program. In private construction projects, guarantee issuance costs have not been reflected in construction costs, and practices of exempting payment guarantee obligations through "direct payment agreements with project owners" have continued.
However, as the recent construction industry downturn has weakened the financial health of not only prime contractors but also project owners, concerns over unpaid subcontract payments have grown, and the need for cost support to establish the guarantee system has been consistently raised.
Additionally, the passage of amendments to the "Fair Transactions in Subcontracting Act" through the National Assembly in January, which significantly reduced exceptions to payment guarantee requirements, served as a backdrop for the policy. The amendments eliminated existing exceptions for "direct payment agreements" and "use of electronic payment systems," mandating payment guarantees for most subcontracting transactions except for small-scale projects of 10 million won or less.
The city plans to accept applications through in-person visits to City Hall or by mail starting from today, and will finalize support recipients after comprehensively reviewing document adequacy and regional contribution.
Mayor Park Hyung-joon said, "This program will institutionally block the risk of unpaid subcontract payments, providing practical help for the business stability of local small and medium-sized construction firms," adding, "We will continue to expand effective support policies centered on the field."
