GS E&C fined for abusing subcontractors

By Nam Hyun-woo

Korea’s antitrust watchdog on Wednesday slapped a 1.59 billion won ($1.42 million) fine on GS Engineering & Construction (E&C) for its unfair practices against a subcontractor.

According to the Fair Trade Commission (FTC), it imposed the administrative fine and issued a corrective order to the construction giant for postponing a payment worth 7.1 billion won to a subcontracted construction firm, whose identity was withheld.

In March 2011, GS E&C subcontracted construction of a floodgate at a dam on Yeongsan River, South Jeolla Province, to the firm.

During the construction, the subcontractor requested payments for installation of additional facilities ordered by GS E&C, but GS E&C refused to pay them.

In its refusal, GS E&C said the subcontractor is responsible for the cost of additional facilities not included in the initial blueprint, because the subcontractor participated in designing the floodgate.

In designing the floodgate, GS E&C subcontracted a design firm and it again subcontracted some of the designing process to the construction firm.

According to Subcontracting Act, the principal contractor should pay the subcontract consideration no later than 60 days from the date of the finish of the construction. If the principal contractor pays the subcontractor after 60 days, it must pay 15.5 percent interest per annum.

With the FTC looking into the case, GS E&C paid the full amount of consideration and interest on July 13, a day before the FTC’s review. The watchdog, however, imposed the heavy penalty, citing the significance of the delayed period and the amount withheld.

The FTC said, “The penalty came after the recognition of GS E&C imputing the full responsibility of design to the construction firm under the pretext of responsible construction. The decision is expected to contribute to preventing similar cases from taking place.”

With the inauguration of the new Moon administration, the FTC has been aggressively investigating unfair practices of large businesses and franchises.