[Sejong = E-Daily Reporter Kang Shin-woo] #Samsung Heavy Industries has pulled out a 11.3 billion won "win-win card" in response to relatively minor allegations of violating the Subcontracting Act. The company opted for a consent decree rather than a legal battle regarding allegations of delayed issuance of contracts to partner companies.

Industry analysts view this as a move to demonstrate the company’s commitment to rectifying past unfair contract management practices and as a strategic step to mitigate legal and reputational risks amid its expansion into global markets, such as the Korea-U.S. Shipbuilding Cooperation (MASGA).

According to government sources on the 10th, the Fair Trade Commission (FTC) has decided to initiate proceedings regarding Samsung Heavy Industries’ application for a consent decree related to allegations of violating the Subcontracting Act. A consent decree is a system whereby, if a business accused of violating the law voluntarily proposes measures for redressing damages or improving trading practices, the FTC suspends its judgment on the violation—after gathering opinions from stakeholders—and closes the case.

This case stems from allegations that Samsung Heavy Industries outsourced shipbuilding work to in-house partner companies but issued contracts only after the subcontractors had already begun work. This is known as the “delayed issuance” of written contracts. The company has been entering into basic annual subcontracting agreements for shipbuilding work with partner companies that maintain offices within the shipyard, and then negotiating subcontracting fees and concluding individual contracts once the scope of work is determined. In this process, contracts were issued after work had already commenced.

The initial complaint filed with the Fair Trade Commission (FTC) included not only the delayed issuance of written contracts but also unfair determination of subcontracting fees, termination of subcontracting agreements due to the FTC complaint, and non-payment of subcontracting fees for modified or additional work. However, the FTC concluded its review process and ruled there was no grounds for charges regarding the remaining allegations, excluding the delayed issuance of written contracts. Although the complainant refiled the complaint, the FTC’s Review Committee for Re-filed Cases decided not to initiate a review.

Although the delayed issuance of written documents is subject to corrective orders and fines under the Subcontracting Act, industry observers assess that since the remaining allegations in this case are limited to the delayed issuance of contracts, the level of sanctions may be limited to a corrective order or a fine in the tens of millions of won. However, rather than contesting the legal ruling in a full trial, Samsung Heavy Industries reportedly applied to the Fair Trade Commission last December to initiate a consent decree procedure, citing the need to improve business relations with subcontractors and promote mutual growth and cooperation.

The measures proposed by Samsung Heavy Industries are broadly divided into improving transaction practices and supporting partner companies. First, the company plans to improve its contract management system and fully adopt standard subcontracting agreements. It will also conduct training for employees and partner companies and establish a permanent consultative body between the prime contractor and subcontractors.

The scale of the mutual growth measures is also significant. Samsung Heavy Industries has decided to increase its mutual support fund by 3.05 billion won annually and to establish a new 5.25 billion won fund for holiday travel and vacation expenses. Additionally, the company will invest 2 billion won in the Skilled Technician Hope Mutual Aid Program, which allows workers to receive 8 million won after contributing 1.6 million won, and will increase the Joint Employee Welfare Fund—which supports children’s education expenses and other benefits—by 1 billion won from the existing 2 billion won. The total scale of the mutual growth measures amounts to approximately 11.3 billion won.

In addition, it is reported that the company paid a total of 29 billion won in performance bonuses to 6,900 employees at 88 subcontractors in January of this year. The company plans to continue paying performance bonuses to employees of partner companies and is also considering incorporating this into the mutual growth plan. When the performance bonus payments are added to the existing 11.3 billion won mutual growth plan, the scale of support for partner companies effectively increases.

The reason Samsung Heavy Industries chose to accept the consent decree so proactively appears to be based on a decision to use this opportunity to overhaul past contract management practices. An industry insider stated, “From Samsung Heavy Industries’ perspective, rather than treating this incident as a mere sanction, it was necessary to overhaul the contract management system, including past instances of delayed issuance of written documents,” adding, “It seems the company decided to resolve the matter comprehensively at the corporate level rather than contesting whether there was a legal violation.”

Furthermore, the global business environment is also seen as a contributing factor. Samsung Heavy Industries is participating in the “MASGA” project, a South Korea-U.S. shipbuilding cooperation initiative. With the shipbuilding industry emerging as a core area of South Korea-U.S. industrial cooperation, any lingering risk of legal violations could act as a burden during overseas projects, government cooperation initiatives, or client evaluations.

An official from the Fair Trade Commission (FTC) stated, “This decision merely marks the start of the process; the consent decree has not yet been finalized.” The official added, “The FTC plans to work with Samsung Heavy Industries to develop specific corrective measures and draft a provisional consent decree. Following consultations with stakeholders and relevant agencies, the final proposal will be submitted to the Commission.”