What should the contractor pay attention to when signing a subcontract?

Subcontracting, which is the act of a contractor (primary contractor) handing over work to a subcontractor (subcontractor) in order to undertake construction or manufacturing, is a form that frequently appears in the construction and manufacturing industries. The main contractor can reduce costs and be free from labor-management relations issues, and the subcontractor has the advantage of being provided with work and achieving growth through strengthening expertise.

However, there are also many problems that arise surrounding subcontracts. A representative example is conflict between business owners. In most cases, disputes begin when the contractor presents unfair demands or conditions to the subcontractor. It is not only suppliers who suffer losses due to disputes. This is because the moment a legal battle begins, the original contractor cannot avoid financial and time losses.

Therefore, it is important for not only the subcontractor but also the original contractor to be accurately aware of the matters to be aware of when signing a contract. This is to prevent risks in advance so that you do not get caught up in a lawsuit due to an inappropriate contract and have to pay a fine or face legal punishment.

When entering into a subcontract, the main contractor must pay attention to four major categories: First, unfair contract conditions that infringe or limit the interests of the subcontractor should not be established. For example, it is considered an unfair special contract to require additional costs for matters not stated in writing or to pass on to the subcontractor the costs related to civil complaints or industrial accidents that should be borne by the contractor.

Second, the subcontract price should not be unilaterally set lower than the general transaction price. In addition, if there is a contract with two or more suppliers, reducing the price uniformly or discriminatoryly without considering the management situation of each company is also prohibited. In addition, when concluding a subcontract through a private contract, the amount should not be set at an amount lower than the direct construction cost (material cost, labor cost, expenses, etc.) of the principal contractor, and in competitive bidding, the amount should not be set lower than the minimum bid price.

The third thing to be aware of is that reduction of subcontract payment is prohibited in principle. It is illegal to unilaterally reduce the price set at the time of contract or to retroactively apply the agreement to products ordered before the price agreement was established. If a reduction is necessary, it must be based on a justifiable reason, and consultation with the supplier must take precedence. If you ignore this and reduce the price, you may become embroiled in a legal dispute.

Lastly, the contractor cannot request technical data from the subcontractor. This is because the subcontractor's technical data is an important asset in a subcontract. Therefore, requests to provide this to the person or a third party are, in principle, prohibited. However, this is only possible as an exception if the contractor can prove a justifiable reason, and the relevant information must be stated in writing and delivered to the subcontractor.

The thing to keep in mind here is that the document must contain specific details about the technical data requested. The purpose of issuing documents is to clearly recognize the specific scope of the technical data and the purpose of use by the contractor to prevent the subcontractor's technology from being unfairly leaked or stolen. If specific matters are not listed, it may be considered that documents have not been issued.
 

Small Business Team

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