Hello, this is Attorney Baek Gi-hyung from Cheongchul Law Firm.

For what is commonly referred to as ‘public contracts’ involving a state or local government, or public institution, special laws apply differently than contracts between private parties. As a representative and simple example, according to the law on contracts involving the state as a party, the state must, in principle, select a contracting party through a ‘bidding process’, and must include the ‘general contract conditions’ predefined by the Ministry of Economy and Finance in the contract content.

Nevertheless, it is rare for the laws applicable to the relevant public contract to be comprehensively covered in the bidding announcement, and the companies participating in the public contracts often do not accurately know whether the relevant laws apply.

However, to find solutions to issues arising in the public procurement process, it is essential to start by accurately understanding what the specific laws applicable to the public contract are.

This time, I would like to outline what the representative individual laws applicable to public contracts are.

[Question]

What are the representative laws applicable to public contracts?

[Answer]

1. The Law on Contracts Involving the State

The State Contract Law is a fundamental law applicable to contracts where the state is a unilateral party. As the basic law for public procurement contracts, most disputes arise from state contracts, and interpretations of case law regarding this law are often applied to other laws as well.

2. The Law on Contracts Involving Local Governments

The Local Contract Law is a fundamental law applicable to contracts where local governments, such as the Seoul Metropolitan Government or Gangnam District, are unilateral parties. Its content is almost identical to that of the State Contract Law, and thus similar interpretations are often applied to the State Contract Law.

However, since there are some different provisions in the implementing regulations that specify the content of the Local Contract Law, it is important to be aware of this.

3. The Law on the Operation of Public Institutions

If a contract involves public enterprises, quasi-government agencies, or other public institutions, the Public Institutions Operation Law may apply. When this law applies, it is advisable to check the “Regulations on Contract Affairs of Public Enterprises and Quasi-Government Agencies” or “Operating Regulations on Contract Affairs of Other Public Institutions”.

At first glance, many provisions appear similar to those of the State Contract Law, and it is often directly applied, so it may seem that the same interpretation as the State Contract Law could apply; however, in practice, different judgments are often made based on the ‘private economic subjectivity’ and ‘entrepreneurial nature’ of public institutions, assuring ‘management autonomy’.

4. The National Property Act

Regarding the management and disposal of national property, the National Property Act takes precedence over the State Contract Law. In particular, the sale, lease, and usage permits related to national property are specifically defined in the National Property Act.

5. The Shared Property and Goods Management Act

For properties owned by local governments, the Shared Property Act takes precedence over the Local Contract Law, and its content is similar to that of the National Property Act, often applying interpretations of the National Property Act to the Shared Property Act.

6. The Basic Construction Industry Act

The Basic Construction Industry Act applies not only to public contracts but also to private contracts. As a significant part of public procurement consists of ‘government-contracted projects’, it is essential to review the Basic Construction Industry Act when it comes to construction contracts.

7. The Act on the Fairness of Subcontracting Transactions

The Subcontracting Act also applies to both public and private contracts. Public procurement contracts often involve subcontracting depending on the scale of the project, and since the Subcontracting Act applies not just to construction but also to manufacturing and services, it is important to always keep the Subcontracting Act in mind for public contracts above a certain size.

Article 34 of the Subcontracting Act states that in cases where the Subcontracting Act conflicts with the Basic Construction Industry Act, the Subcontracting Act will be followed.

8. The Procurement Business Act

For public contracts above a certain scale, the Public Procurement Service enters into contracts at the request of the demand agencies. Such ‘requested procurement contracts’ are categorized as ‘contracts for a third party’ and can involve more complex legal theories; therefore, it is essential to understand the provisions of the Procurement Business Act and the interpretations of Supreme Court rulings regarding it.

9. Regulations and Directives

Courts generally do not recognize the external binding force of regulations and directives accompanied by the State Contract Law, etc., but in practice, when entering and executing contracts, and in interpreting disputes, the state or public parties usually determine their attitudes and positions in accordance with these regulations and directives.

It should be noted that even if the contents of the contracts violate the specific provisions of these laws, it does not mean that the contract is always void.

Therefore, when issues or disputes arise surrounding actual public contracts, it is essential to analyze and review the contents and issues of the relevant laws from multiple angles to seek out what the most effective logic and solutions are.

Attorney Baek Gi-hyung has worked with the Defense Facilities Administration and the construction/real estate teams of large law firms, providing legal advice throughout the entire process of national contracts and construction projects, including large-scale construction projects, defense facility projects, and SOC construction projects, and has extensive experience and skills in resolving related litigation. If you need help regarding government construction projects, private construction projects, public procurement contracts, national property, local property, or public property, please feel free to contact us at any time.

Cheongchul Law Firm is made up of lawyers from major law firms in South Korea, including Kim & Chang, Lee & Ko, Bae, Kim & Lee, Sejong, and Yulchon, along with lawyers from in-house legal teams of large corporations, forming teams of professional lawyers related to each case rather than a single lawyer. Cheongchul provides comprehensive solutions for the entire business, focusing on ultimately achieving what clients desire, rather than solely resolving specific issues. If you need help achieving your goals, do not hesitate to contact Cheongchul.