Fair Trade & Subcontracting Risk
Fair Trade and Subcontracting Compliance
What is fair trade?
- Written contracts, payment deadlines, and unfair price cuts are the three main issues
- Starting work on a verbal go-ahead is the most common risk
- Violations lead to fines and bidding bans
Training on fair trade and subcontracting risk ultimately redraws the boundaries of a salesperson’s discretion. When a client’s procurement team lead says, "Let's just get started, I'll send the paperwork next week," it matters whether you take that as a favor or as a warning sign. Once this standard is in place, decisions are based on written documents and deadlines, not client satisfaction. The goal of the training is to help salespeople tell for themselves what they must receive before work starts, and where negotiation ends and unilateral notice begins.
It starts with scope. The Subcontracting Act applies to manufacturing, repair, construction, and service subcontracting. Simple sales of goods and leases are outside it, and in those cases the abuse-of-bargaining-position provision of the Fair Trade Act applies instead. A written contract must be issued to the subcontractor before work begins, and payment is due, as a rule, within 60 days of receiving the deliverable; late payment accrues interest. Unfair price-setting, unfair price reductions, unfair returns, and demands for technical data are each prohibited under separate provisions.
Who counts as the prime contractor is also commonly misunderstood. It isn't only large corporations: even a small or midsize company becomes the prime contractor if its annual revenue exceeds that of its counterparty. In manufacturing, it is common for a company that is the junior party to a large corporation to be the senior party to its second-tier suppliers. Sanctions don't stop at fines either: accumulated penalty points can lead to a request to bar the company from public bidding, which shakes the order-winning base of any company with a large share of public-sector work.
The most common mistake in the field is thinking "the other side agreed, so it’s fine." Unfair price cuts are often ruled illegal even when the subcontractor signed an agreement, because the prime contractor must prove the agreement was voluntary and that fair compensation was given. A single well-meant messenger line from a sales rep, "Please accept a 5% adjustment just this once," can become investigation material as is, and misusing technical data or retaliating against a report carries liability for up to 3 times the damages.
Jaehyuk ParkA hands-on instructor teaching B2B technical sales and AI-powered sales strategy
Seungtae ParkA hands-on AX instructor who teaches AI business development and marketing automation by building it himselfThe legal basis is the Monopoly Regulation and Fair Trade Act and the Fair Transactions in Subcontracting Act. Enacted in 1984, the Subcontracting Act has regulated the power imbalance between prime contractors and subcontractors.
Consider a hypothetical case. Company A makes industrial automation equipment, with 140 employees and KRW 42 billion (≈ US$31,423,000) in annual revenue. It is a tier-1 supplier to Company B, a large corporation, and also a prime contractor that outsources machining and painting to 12 firms. In quarters with a surge in orders, the sales team got into the habit of starting work verbally first, and 17 jobs went ahead over 3 months without a purchase order.
- When the head of sales audited every active deal, 11 of 17 had no purchase order at all, and one partner CEO admitted, "I heard it over the phone and bought KRW 30 million (≈ US$22,400) worth of materials."
- The legal manager built a subcontracting checklist and made two items mandatory on the sales approval screen: a written contract issued before work starts and payment within 60 days of the receipt date.
- While re-aligning price lists with 12 suppliers, the purchasing manager retroactively settled the KRW 14 million (≈ US$10,500) from last year’s verbally announced 3% price cut and documented the reason for the adjustment.
- We gathered 7 sales reps for a 2-hour workshop and used two real cases to show why messenger lines like "Please adjust just this once" were used as evidence in enforcement rulings.
- Six months later, missing written contracts fell from 17 cases to 0, average payment time dropped from 74 days to 41 days, and Company B’s partner evaluation score for shared growth rose from a B to an A.