Strict punishment needed for abusive subcontracting practices

Despite widespread unfair practices by construction companies, including the failure to pay subcontractors properly, the punitive measures that the authorities have taken seem to have been only a slap on the wrist. The Fair Trade Commission (FTC) issued sanctions against construction companies for subcontracting law violations from 2018 to July this year in 997 cases. Still, only 47 of these cases led to criminal complaints or fines imposed by prosecutors, with 19 cases ending up in warnings. Abusive subcontracting cases, such as undercutting unit prices, have been identified as a leading cause of shoddy construction projects, including the missing rebar scandal at the Korea Land and Housing Corporation (LH).

One major construction company faced FTC sanctions six times for reasons like non-payment of delay charges, but all instances resulted in mere warnings. The continued leniency of sanctions beyond common sense norms allows construction companies to repeat their abusive behaviors without fear of punishment. GS Construction, responsible for the Incheon Geomdan Apartment parking lot collapse accident, had six payment disputes related to construction fees even after receiving fines two years ago. Two of the construction companies involved in the rebar omission at apartments also had a history of FTC sanctions for subcontracting law violations.

Abusive subcontracting practices remain a persistent issue in the construction industry. In the past year, 60.5% of subcontracting dispute resolution cases were related to the construction sector. Late payment of construction fees and arbitrary deductions from these fees are common practices. Some companies set aside a portion of the payment, ranging from 5% to as much as 20%, as earmarking funds for rectifications, effectively withholding payment. They demand unfair contracts that shirk the responsibility for cost increases potentially stemming from design changes or inflation. They would only cough up the money when investigated by the FTC, ending up with mere warnings on the ground of voluntary corrections cited by the commission.

Such abusive practices cause shoddy construction on the ground. Delayed payments in an environment where material costs are prepaid and labor costs are paid daily, can only result in poor construction quality. To cut costs, they resort to unreasonable subcontracting, drastically shorten the official construction period, and employ low-skilled foreign laborers with lower wages.

Recently, the FTC decided to amend related regulations to allow fines of up to 50% for repeated violations of subcontracting laws. However, some argue that the measure is ineffective as the situation leading to fines is not very frequent in the first place. This is why such abusive cases keep occurring, even though the FTC has announced anti-subcontracting abuse measures nine times in the past five years. More strict measures should be taken to harshly punish unfair practices that disrupt market disorder and threaten public safety.