KFTC Issues Corrective Order to Sehwa Academy for Unpaid Subcontracting Fee...Clarifies Ordering Party's Direct Payment Obligation

26.4 Million Won Remains Unpaid After Three-Party Agreement

KFTC Issues Recurrence Prevention Order

The Korea Fair Trade Commission (KFTC) has issued a corrective order to the educational foundation Sehwa Academy, which failed to pay the remaining subcontracting fee by citing construction defects despite having agreed to pay the subcontracting fee directly. Sehwa Academy operates Sehwa High School, located in Pohang. This measure clarifies that even if an ordering party is not a direct party to a subcontract, it is obligated to comply with the Subcontracting Act and pay the subcontracting fee if a three-party direct payment agreement exists.

On June 2, the KFTC announced its decision to issue a corrective order (recurrence prevention order) to Sehwa Academy for failing to pay the remaining 26.4 million won to subcontractor Company B, despite having reached a direct payment agreement during the process of commissioning the “Sehwa High School Slope Reinforcement Project.” No payment order was imposed, considering that the main contractor, Company A, is currently engaged in a lawsuit against Sehwa Academy for the full contract payment.

Sehwa Academy entered into a construction contract with Company A in 2021, and Company A subcontracted the earthwork portion to Company B. Subsequently, Sehwa Academy, Company A, and Company B entered into a three-party direct payment agreement, under which the ordering party would pay Company B directly, and payments were made accordingly. However, at the final payment stage, Sehwa Academy refused to pay the remaining balance, citing defects in the construction.

However, the KFTC investigation found that the defects used by Sehwa Academy as grounds for non-payment were actually caused by a completely different subcontractor responsible for landscaping (greening) work, not by Company B, which handled the earthworks. During a meeting attended by the supervisor and other parties, it was already confirmed that the remaining unpaid amount to Company B was 26.4 million won.

The KFTC stated, “This action is significant in that it clarifies the obligation of the ordering party, even if not a direct party to the subcontract, to comply with the Subcontracting Act and pay the subcontracting fee when a direct payment agreement exists.” The commission added, “We will continue to closely monitor any acts that disrupt the order of subcontracting transactions, such as violations of the ordering party’s direct payment obligations, and will impose strict sanctions upon detecting any violations of the law.”

This content was produced with the assistance of AI translation services.