Subcontract Price Payment Confirmation System (Subcontract System)

1. Subcontract Price Payment Confirmation System (Subcontract System) for the Support for Shared Growth and Fair Trade of Principal Contractors and Subcontractors Seoul Metropolitan Infrastructure Headquarters

2. Contents Background and Impulsion Introduction to the System <Attachment> System Expansion Scheme

3. Ⅰ.도입배경 및 추진현황 1. Background to System Introduction □All government agencies must manage the subcontract price payment regarding their public projects: Needing an efficient system ①Claim subcontract price ②Claim construction price Principal contractor Public Agency ③Pay the price Subcontractor ④Pay subcontract price (within 15 days) Manual confirmation ofsubcontract price payment ⑤Notify within 5 days of subcontract price (submit documents) ⑥Notify within 5 days ofreceipt of the price (submit the copy of bankbook) □ Emphasizing the need for shared growth and fair trade between large and small businesses: A social issue • The government worked out measures designed to induce fair payment of subcontract prices→Payment confirmation system, direct payment system, prime contractor method • On December 13, the government established the Commission for Shared Growth → announced shared growth evaluation indicators for 56 large corporations. □ Need a measure designed to enhance the convenience and fairness of confirming subcontract price payment • Need an automation system to smoothly operate the system : manual work → computerization • Need to secure the reliability of gathering all subcontract price payment details and confirming payment: in alliance with banks

4. Ⅰ.도입배경 및 추진현황 2. Goals of System Development Securing both the convenience and public interest of paying the subcontract price • Connect with e-settlement services including the function of paying subcontract prices • Gather and confirm all subcontract price payment details (including prepayment) : In connection with banks’ system Preparing a measure designed to fundamentally resolve problems related to subcontract price payment • Seoul Metropolitan Government provides a subcontract price settlement means for non-construction completion months: cashable settlement (replacement of bills) • Establish the system to guarantee the subcontract price payment: Manage the subcontract price separately Establishing a support system for both principal contractors and subcontractors • Delete the mandatory submission of evidential documents for confirming subcontract prices • Offer a direct-payment system improvement solution: Retaining subcontractor control power (ex.: reserving the price payment if the payment of worker wages is overdue)

5. Ⅰ.도입배경 및 추진현황 3. Impulsion Overview and Expansion Plan Apr‘11: Began system development Oct‘11: Completed the system development Feb’12 Educated users (principal contractors, supervisors) Mar‘12: Completed the pilot and test operation of the system • Applying to new projects worth over KRW 500M (including bid notification) • 2012: Expand the system across Seoul (including existing contracts) • Begin to build the system at government agencies including Korea Hydro & Nuclear Power Co. • Begin to introduce the system to private sector such as SK Telecom • Seoul Metropolitan Government plans to add the function of labor cost confirmation to the system

6. Ⅱ. 시스템 소개 1. Subcontract Price Payment Confirmation System Subcontractors Specialist Constructors Client Seoul Metropolitan Government Principal Contractors Total Constructors The Subcontract System is designed to automate the work of handling subcontract price payment, gathering and confirming payment details, and confirming the subcontract price between principal contractors and subcontractors. ①Original contract ②Subcontractor ⑤Claim construction price ③Claim subcontract price ④Instruct cashable settlement ⑨Subcontract price payment details ⑦Instruct money transfer Subcontract System ④ Pay subcontract price (Cashable settlement) ⑧Pay the contract price ⑧Pay/settle subcontract price (cashable settlement and repayment) ⑥Pay price(to designated account) Financial Institution Bank

7. Ⅱ.시스템 소개 2. Major Functions Transfer money for subcontract price payment(Internet banking) 1 Financial support for subcontract price settlement (provision of settlement means) 2 Streamline work procedure (deletion of submission of evidential documents, text message notice, etc.) 3 Improve on problems associated with the direct subcontract price payment system (enhancement of arbitration power) 4

8. Ⅱ.시스템 소개 2. Major Functions_ Price Transfer • Transfer the subcontractor price of Seoul Metropolitan Government’s paid contract price: Internet banking • Subcontractor’s shareis separately managed via the principal contractor’s designated account: The principal contractor has the right to order payment. Subcontractors Principal contractor Seoul Metropolitan Government * After education and pilot operation, the system operation proved to be normal.

9. Ⅱ.시스템 소개 2. Major Functions_ Financial Support • Seoul Metropolitan Government supports the fund for subcontract price settlement before paying the price: Provision of settlement means (cashable settlement) • Issuing cashable settlement certificates (with good conditions): Enable principal contractors even with low credit rating to use the means(settlement means replacing bills) Subcontractors Principal contractor • 00 constructor that signed an agreement with Seoul Metropolitan Government (credit rating /BB-, principal contractor) : Price payment based on cashable settlement: 5.56% (Mar 19, 2012)

10. Ⅱ.시스템 소개 2. Major Functions_ Streamlining of Work Procedure • Automating the price payment confirmation work via banks: Deleting the submission of copies of bankbooks, securing the reliability of documents • Can manage whether the subcontract price is timely paid: HQ can monitor whether the price was timely paid by field.

11. Ⅱ.시스템 소개 2. Major Functions_ Improvement of Direct Payment System • Recognizing the system use results as direct payment results • Retaining subcontractor price payment control power: Can promptly take corrective action on problems created (overdue wages, etc.) <Overdue Wages in Principal Contractors and Subcontractors > (Feb 2010 – Dec 2011, Unit: KRW 1,000) • Principal contractors protract price claim cycles => Subcontractors experience a lack of liquidity=> The possibility of creating overdue wages • (Under agreements with banks, Seoul Metropolitan Government provides cashable settlement means to bolster the settlement capabilities of principal contractors)

12. Ⅱ.시스템 소개 3. Expected Effects • Bolster subcontract price settlement (securing of settlement means) • Improve the direct payment system (hold subcontract price payment rights to enhance control power) • Delete the submission of evidential documents (official letters, copies of bankbooks) and automatically send a text message on payment details • Respond to the government’s policy (Can provide financial support for secondary / tertiary partner firms: Reflect results in the shared growth evaluation) Principal Contractors • Guarantee the receipt of subcontract price to enhance financial health • Delete the submission of evidential document (copies of bankbooks, tax payment certificate for direct payment, etc.) Subcontractors • Enhance the stability of recovering labor cost / equipment rents / material price (After expanding the development of system) • Can confirm the information on subcontractor price receipt in real time (Send a text message on payment details in real time) Workers Equipment & Material Suppliers • Prevent overdue wages and enhance construction work quality • Secure the transparency of price payment to guarantee subcontractor price payment • Support principal contractors and subcontractors, thus helping establisha fair trade culture Seoul Metropolitan Government

13. <Attachment> System Expansion Scheme • Pushing to further develop the system into a truly shared growth system for the public sector, as well as for large, medium and small businesses(May 2012 -) ☞ Add the labor cost payment confirmation function to prevent overdue wages for workers ☞ Add the price payment confirmation and payment support function for equipment and material suppliers ☞ Add the mutual-aid linked advance-payment guarantee management function for lowering advance payment guarantee fees for subcontractors ☞ Add the advance payment use details management function for principal contractors Client Seoul Metropolitan Government Principal Contractors Total Constructors Subcontractors Specialist Constructors Equipment / Material Suppliers Workers Support subcontract price settlement Support subcontract price & support equipment, material price settlement Confirm subcontract / equipment, material price Support labor, equipment and material price Subcontract System Support financial service Bank Guarantee Institutions