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Mayor Park Heong-joon Announces Support for Issuance Costs of Subcontract Payment Guarantees to Prevent Nonpayment Risks

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Busan Metropolitan City (Mayor Park Heong-joon) announced that it will implement the “Support Program for Issuance Costs of Subcontract Payment Guarantee Certificates in Construction Projects” starting today (18th).

The subcontract payment guarantee system is a mechanism whereby a guarantee institution fulfills payment obligations on behalf of the prime contractor if the contractor fails to pay subcontract fees, serving as a critical safeguard against damages caused by unpaid construction costs.

The city will provide support for the issuance fees of subcontract payment guarantee certificates to prime contractors of privately commissioned construction projects that have signed subcontract agreements with local construction companies.

Through this initiative, the city plans to establish the subcontract payment guarantee system in private construction sites, thereby protecting local small and medium-sized construction companies and increasing the share of local subcontract awards.

Eligible recipients are prime contractors that have newly signed subcontract agreements with Busan-based construction companies at private construction sites within the city on or after January 1, 2026.

There is no restriction on the registered location of the prime contractor, while subcontractors must be companies registered in Busan.

The support amount is 50% of the issuance fee for subcontract payment guarantee certificates, up to a maximum of KRW 30 million per company.

Reflecting feedback from construction sites, the city revised the “Ordinance on the Promotion of the Local Construction Industry in Busan Metropolitan City” in December last year and established the legal basis for implementing the project.

Unlike publicly commissioned projects, in private construction projects, the cost of issuing subcontract payment guarantee certificates has not been reflected in construction costs. In practice, exemption from the obligation to issue guarantee certificates has often been granted through exceptions permitted under the Framework Act on the Construction Industry and the Fair Transactions in Subcontracting Act, such as “agreements for direct payment by the client.”

Recently, as cases of deteriorating financial soundness among not only prime contractors but also clients have increased due to the downturn in the construction market, the local construction industry has continuously called for support for issuance fees to ensure the establishment of the subcontract payment guarantee system in the private sector.

Applications for support can be submitted starting today (18th) by visiting City Hall or by mail, and the city will comprehensively review the appropriateness of submitted documents and contributions to the local economy before finalizing the recipients.

Further details can be found in the official notices section on the city’s website (busan.go.kr/nbgosi).

Meanwhile, following the passage of the amendment to the Fair Transactions in Subcontracting Act by the National Assembly on January 29, the Fair Trade Commission has removed widely recognized exceptions to subcontract payment guarantees, including “agreements for direct payment by the client” and “use of electronic payment systems,” and has mandated payment guarantees for all construction subcontract transactions except for small-scale projects under KRW 10 million.

Mayor Park Heong-joon stated, “Through this support program, the risk of nonpayment of subcontract fees will be institutionally prevented, which is expected to provide substantial help in stabilizing the management of local small and medium-sized construction companies,” adding, “We will continue to expand effective, field-oriented support policies to revitalize the local construction industry.”