DSME fined $13.8 million for unfair treatment of subcontractors

The Korea Fair Trade Commission has fined Daewoo Shipbuilding and Marine Engineering (DSME) for unfair treatment of subcontractors by assigning low contract prices that were below labour cost.

The Korean shipbuilding major has been hit with a KRW 15.3 billion ($13.8 million) fine.

The fine relates to a period from 2015 to 2019 during which time DSME issued contracts to subcontractors on 16, 681 occasions after project construction started, a common practice in shipbuilding.

The contracts signed upon construction start, affecting around 186 subcontracting firms, included labour rates determined by DSME and which contractors had to accept as they were not negotiable, according to the commission.

As a result, the subcontractors were forced into a disadvantageous position in which they had to accept rates unilaterally determined by the shipyard for unspecified amounts amount of work prior to contract signing.

Furthermore, from 2016 to 2019, the shipyard hired 91 subcontractor companies for 1,471 projects involving modifications or repair of ongoing projects.

The modifications were predominantly carried out on shipowners’ request, and the projects involved lower production costs to the labour force as well as a reduced number of hours paid.

The commission said that in the 1,471 cases revised, the actual number of input hours was 249, 430 out of which only 68, 625 hours were recognized, resulting in a disparity of subcontracting costs worth KRW 1.2 billion ($ 1 million).

The fine also included a penalty for arbitrary cancellation of 111, 150 orders with 194 subcontractors by DSME from 2016 to 2019 without considering the impact on subcontractors.

In addition, the shipyard is facing a lawsuit for breaching fair trade laws according to the commission.