HDC fined by government for late payments to subcontractors

Hyundai Development Company (HDC) has been fined KRW 635 million for paying its sub-contractors late.

Korea's anti-trust agency, the Fair Trade Commission (FTC) imposed the penalty against HDC for delaying KRW 19.6 billion of payments to 158 subcontractors between July 2014 and April 2016. For the time period, HDC postponed payment to contractors for as long as 180 days. It also failed to pay them overdue interest of KRW 337 million won.

Under Korean law, a principal contractor is required to pay interest to its subcontractors if it fails to pay them within 60 days after the delivery of goods, or 15 days after receipt of payment from the project owner.

Hyundai Development Company was previously part of the Hyundai conglomerate. It changed its name to HDC Group last year. The group controls various businesses but is mostly active in development and construction.

Late payments creep up on sub-contractors who usually need the job, and are bullied by the larger contractor.

In the wake of Carillion's collapse, stories have been coming out of how they squeezed their sub-contractors and used them for financing. Oldham-based contractor Johnson Bros Ltd lost £176,000 in unpaid invoices issued to Carillion.

Owner Neil Skinner recounted his experience with Carillion: "A few years ago Carillion were reasonably okay at paying our invoices, but even this was based on the fact that we could threaten to stop working in the middle of a job if we didn’t get paid for the work we had done up to that point."

He said Carillion would pay up under threat but only because they knew any delay would look bad for their performance index. Even so, payments still often went over sixty days, with a lot of chasing, and once work on a particular job was finished, their payments stopped.

“Carillion finally resorted to using all the familiar late payment tactics from finding fault with an invoice, referral to their accounts office in India, statement queries, disputed invoices paid, and so on," Skinner said.

They finally imposed a 15% non-negotiable discount on Johnson Bros' work.

According to Skinner, large companies know late payment can destroy small businesses but they rely on this tactic to be seen to be profitable themselves.

Carillion went bankrupt owing Johnson Bros over 15% of its average turnover.