Hello, this is Attorney Park Jong-han from Cheongchul Law Firm.

In the case of a typical joint execution type consortium, the members collectively bear the responsibility for fulfilling contractual obligations to the client. Therefore, if one of the members goes bankrupt and withdraws, there may be a question of how far the joint liability extends in such cases.

In particular, for large-scale projects, clients often pay advance payments to the consortium, and in such cases, even if the advance payment has already been received, whether the other members are jointly responsible for the return of that advance payment when a member is unable to perform due to bankruptcy becomes an issue.

Therefore, when some members of a joint execution type consortium can no longer perform due to bankruptcy, it is necessary to look into whether the responsibility for the return of the advance payment is borne jointly by the consortium or separately by each member.

[Question]

Do each member of the consortium bear the responsibility for the return of advance payments to the client collectively with other members?

[Answer]

The Contract Guidelines of the Ministry of Economy and Finance (2024. 9. 13. Ministry of Economy and Finance Contract Guidelines No. 715) states in Article 11, Paragraph 1: "Contracting officials must have the consortium representative submit an application that is distinctly recorded by each member when making advance payments, fees, etc. However, if the consortium representative cannot submit the application due to unavoidable reasons such as bankruptcy, all other members of the consortium can submit it with their joint signatures." Furthermore, in Paragraph 2, it states: "If an application is made under Paragraph 1, the amount applied must be paid to each member of the consortium. However, in the case of a joint contract under the main contractor management method, the payment must be made to the consortium representative, excluding the exception of Paragraph 1."

Thus, in the case of a joint execution type consortium in national contracts, the consortium representative applies for the advance payment, but the client pays the applied advance payment, fees, etc. to each member. However, the above contract guidelines do not specify about returning advance payments received by the members.

In such cases, even if it is stipulated that the members of the consortium are jointly responsible for fulfilling contractual obligations to the client, there are no explicit provisions regarding the obligations of other members concerning the duty to return advance payments, and in regard to advance payments, separate regulations must be established limiting the return obligations to documents that must be submitted by the contractor as sufficient collateral, such as the guarantee certificates from insurance companies or payment guarantees from construction mutual aid associations. Therefore, it seems appropriate to view that the scope of joint liability of each member of the consortium does not extend to the duty to return advance payments, as members of the consortium must not be held liable for the return obligations of advance payments of other members unless there are special circumstances (refer to Supreme Court ruling 2004. 11. 26. case number 2002da68362).

Thus, the duty to return advance payments already received by the members of the consortium is primarily borne by each member.

In this way, we briefly examined whether each member of the consortium bears the responsibility for the return of advance payments to the client collectively. In disputes related to national contracts and public procurement, the relevant laws are extremely complex and frequently amended, requiring knowledge and experience. It is also necessary to be well-versed in the court's rulings as well as administrative interpretations and case examples. Therefore, it is recommended to seek the assistance of Attorney Park Jong-han, who possesses expertise in national contract laws and experience in resolving various national contract and procurement disputes.

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