Land ministry to handle serious illegal subcontracting cases directly, halve penalties for self-reporting

The Ministry of Land, Infrastructure and Transport will directly impose administrative penalties on serious illegal subcontracting violations at construction sites and cut those penalties by up to half for companies that voluntarily report the violations.

The Cabinet on Tuesday approved partial amendments to the enforcement decrees of the Construction Industry Basic Act and the Saemangeum Project Act containing these measures, the ministry said. The amended Construction Industry Basic Act decree takes effect four months after promulgation.

Under the previous system, penalties for detected illegal subcontracting were required to be imposed within six months, but enforcement authority rested entirely with local governments. Even when the ministry detected a violation, the process was frequently delayed by local authorities conducting their own reinvestigations before a final ruling could be issued.

Going forward, the ministry will directly impose administrative penalties in cases designated by ministerial notice, taking into account factors such as the detecting authority, the subcontracting amount, the type of work, the construction progress rate and the jurisdiction involved. Local governments will retain authority only over general cases not covered by those criteria.

The amendments also introduce a new provision reducing penalties for voluntary self-reporting. Illegal subcontracting at construction sites can lead to safety accidents and unpaid wages, making it important to convert such arrangements into lawful contracts quickly — yet until now there were few incentives to encourage self-reporting beyond on-site inspections.

Under the new rules, a company that voluntarily reports an illegal subcontracting arrangement within a period set by the minister and completes corrective action before a final penalty is issued may have its business suspension or surcharge reduced by up to one-half.

The amended Saemangeum Project Act decree, also approved Tuesday, takes effect immediately upon promulgation. The revision adds construction engineering service contracts under the Construction Technology Promotion Act to the list of contracts in which Saemangeum project operators may give preference to local firms. The change is expected to significantly expand opportunities for construction engineering companies with their principal offices in North Jeolla Province to participate in Saemangeum projects.

The amendments also improve how land developed in the Saemangeum zone is supplied. A new provision allows land to be supplied through negotiated contracts to parties selected through procedures and methods set by the Saemangeum Development Authority. This is expected to enable mixed-use development through project proposals or design competitions, allowing the government to more actively accommodate diverse corporate investment needs.

Meanwhile, the ministry conducted intensive on-site inspections of 75 sites suspected of illegal subcontracting last June, detecting violations at 18 sites involving 26 companies in 29 cases. It also resolved 11 cases of unpaid construction equipment rental fees totaling 125.8 million won ($93,500).