Korea to cap sole-source contracts with single vendors at local government level

Local governments will soon face limits on how many sole-source contracts they can award to the same vendor and how much those contracts can total.

Controls on accounting systems will also be tightened to prevent civil servants from diverting public funds by altering vendor bank account information without authorization.

The Ministry of Interior and Safety announced the reforms Thursday, responding to recent allegations that some local assembly members steered preferential sole-source contracts to favored vendors and to a series of embezzlement cases involving local government accountants.

To stop public contracts from being funneled to specific companies, the ministry has introduced annual caps on single-vendor, single-estimate sole-source contracts.

Basic local governments will no longer be able to award more than five contracts per year or more than 200 million won ($141,000) in total to the same vendor. Sejong and Jeju Island will be subject to the basic local government standard. Metropolitan governments will be capped at seven contracts or 300 million won per year.

For ordinary businesses, the cap applies to single-estimate sole-source contracts valued at 20 million won or less. Contracts with youth-startup, women-owned and disability-owned enterprises are covered up to 50 million won.

However, when unavoidable circumstances arise — such as a shortage of local vendors — exceptions may be granted after review by a contract deliberation committee.

Each local government may set its own internal limits within the maximum thresholds the ministry establishes.

Deliberation committee decisions granting exceptions must be posted on the local government's website and reported to the supervising authority on a quarterly basis.

Supervising authorities will verify the accuracy of those reports and may order audits or other measures when warranted.

Disclosure requirements for sole-source contracts will also be strengthened.

Local governments currently publish sole-source contract information — including vendor name, representative and address — on their websites, but some have omitted required fields or provided details insufficient to identify the vendor.

The ministry plans to clearly define all mandatory disclosure items and add business registration numbers to the list of required disclosures.

A local assembly act the government is working to enact this year will include provisions to block local assembly members from exploiting loopholes in sole-source contracting rules.

An ethics advisory committee composed of civilian members will be empowered to review the relationship between a local assembly member's declared concurrent positions and any profit-making activities, and to recommend that the member take a leave of absence from those positions or be barred from assignment to related standing committees.

Following the model of the National Assembly Act, local assembly members will also be required to register and disclose their private-interest stakeholders.

When a local government enters into a sole-source contract with a party connected to a local assembly member's private interests, the member must file a prior declaration with the ethics advisory committee. If the committee finds the contract inappropriate, it may recommend that the local government reconsider.

The ministry will also step up oversight of public fund management at local governments, tightening controls after a string of embezzlement cases involving local government accountants.

The ministry asked all local governments nationwide on Aug. 4 to conduct a comprehensive review of their public fund management.

The review will focus first on eup, myeon and dong offices and public service agencies — where internal controls tend to be weakest — followed by city, county and district offices. Auditors will look for mismatches between vendor names and account holder names, transactions involving accounts held in the name of the responsible civil servant, and improper use of general deposit accounts.

Based on the findings, the ministry will institutionalize regular checks on irregular transactions and establish a permanent public fund monitoring system.

Use of "e-Hojo+Bill," an electronic billing system introduced in 2024, will be made mandatory for all local governments.

The system allows vendors to register their own bank account information and submit payment requests directly, preventing accounting staff from entering or altering vendor account details on their own.

The ministry plans to revise its directive on local government accounting management by September to provide the legal basis for mandatory use of the system.

Account verification functions will also be strengthened so that payments cannot proceed if the account holder on the actual payment account does not match the one registered in the expenditure system.

The ministry will introduce system-level controls to prevent contract payments — such as construction fees that must be paid directly to the contracting party — from being transferred into general deposit accounts held in the local government's name. Irregular transaction data will also be linked to "Cheongbaek-e," a real-time monitoring system, for use in financial audits.

"Through these measures, we will build a tight public fund management framework that detects irregular transactions early and blocks unauthorized account changes and abnormal expenditures at the system level," Vice Minister Kim Min-jae said. "We will do our utmost to ensure that taxpayers' hard-earned money is managed more safely and transparently."