Article 1 (Purpose)
The purpose of these guidelines is to set forth the matters to be complied with in the course of entering contractual agreements between Hanwha Corporation (hereinafter, the "Company") and its small- and medium-sized partner companies (hereinafter, the "Partners") by helping to fairly reflect the interest of the Partners and prevent the Company from abusing its bargaining power and undermining the principle of freedom of contract, thereby establishing a fair and reasonable basis for transactions.
Article 2 (Contract Formation and Criteria for Contract Type Selection)
- 1. The Company shall award procurement contracts through either limited-tender or nomination processes. Notwithstanding the foregoing, the Company may award procurement contracts through negotiation if necessary.
- 2. Bids shall be submitted in a sealed envelope. If it is practically impossible to submit sealed bids, bids may be submitted via fax or email.
- 3. Except for the cases described in Paragraph 4 below, the Company shall use limited tenders or nomination in awarding procurement contracts.
- 4. The Company may use negotiated procurement in any of the following cases. In such cases, it shall clearly state the reasons for the use of such negotiated procurement method and obtain the prior approval of the head of the respective department.
- ① A sudden rise in commodity prices or an equivalent condition which prevents the Company from pursuing a competitive bidding process;
- ② Procurement works where it is difficult to determine which party is responsible for future defects of the facilities built under a construction projector where facilities are installed, assembled, or maintained and repaired by their manufacturer or supplier;
- ③ Construction projects which require a patented construction method or a new technology or manufacturing processor purchase orders for products or materials which are patented and registered as an industrial property or design;
- ④ Where the client has designated a supplier for the required procurement or only one manufacturer or supplier exists for the required procurement;
- ⑤ Where there is a company whose technological cooperation or price-competitive bid has made significant contribution to the Company's winning of the respective contract;
- ⑥ Where competitive bidding is difficult because the nature or purpose of the respective contract requires the technique, service, or equipment or tool of a particular person or requires work in a special region, a special structure, or a special level of quality, performance, or efficiency; or
- ⑦ Where there is no bidder or successful bidder or the successful bidder does not sign the respective procurement contract.
Article 3 (Establishment of Partner Relationship Management System)
- 1. The Company shall establish a partner relationship management system and disclose information related to transactions with its Partners in an effort to ensure transparency and stability in its transactions.
- 2. The Company shall organize regular internal and external consultation sessions with its Partners to promote win-win cooperation with them.
Article 4 (Consultative Body for Partner Support)
The Company shall operate the Win-Win Cooperation Council, which manages general matters regarding its partner support including technological support, financial support, education and training support, and a suggestion system.
Article 5 (Requirements for Valid Contract Formation)
The Company shall comply with the following prime contractor obligations and restrictions stipulated in the Fair Subcontract Transactions Act.
- 1. Document Issuance
- ① The Company and the Partner shall execute and sign a written agreement prior to the start of the respective manufacturing or construction work.
- ② The Company and the Partner shall execute a master agreement in writing for recurring subcontracting transactions, and they may sign a separate agreement for individual transactions if necessary. Notwithstanding the foregoing, in the case of recurring transactions, a written order form may replace a written agreement.
- ③ In the case where a request is made for additional work or service after the lapse of a period considerably shorter than that usually expected, the Company and the Partner shall make a prior written agreement on the major details of such request.
- 2. Subcontractor rate determination through reasonable rate calculation
- ① The subcontractor rate shall be determined through negotiation according to a reasonable rate calculation which considers the quantities, quality, specifications, delivery date, payment method, or cost of raw materials and labor (or trends in such costs) of the subcontracting work and adds adequate maintenance and profit margins.
- ② In the case where a cause for a change to the original subcontracting rate occurs during the period of the respective subcontract, either the Company or the Partner may make a request for a rate change to the other, and such a request shall be decided through mutual consultation within 30 days (extendable for another 30 days) from the date of the request.
- ③ In the case where the requested rate change is delayed due to an unavoidable reason, the Company and the Partner shall apply a tentative subcontracting rate set through negotiation. Where a final rate is determined, the Company shall pay the difference to the Partner.
- 3. Clear delivery date
- ① The Company shall set a reasonable delivery date according to the usual industry standard after sufficient consultation with the Partner.
- ② In the case of any change to the delivery date originally set in the contract, such a change shall be clarified in writing. In the case where a subcontract project requires a shorter delivery date than usual due to a rush order or etc., the Company shall reach an agreement through consultation with the Partner.
- ③ In the case of the Company's unreasonable delay in, or refusal of, receiving orders not attributable to the Partner, the Company shall compensate the Partner for losses incurred due to such delay or refusal.
- 4. Objective inspection standards and criteria
- ① The Company shall establish objective, fair, and reasonable standards and criteria for the inspection of goods manufactured or supplied by its partner companies (including facilities or structures constructed by partner companies) through consultation with the Partner.
- ② The Company shall issue a certificate of receipt upon receiving goods or services from the Partner and promptly carry out inspection on such goods or services according to the standards, criteria, and procedures pre-determined through consultation with the Partner.
- ③ The Company shall give notice of inspection results within 10 days after delivery unless there is a justifiable reason not to do so.
- ④ The Company shall take good care of the goods delivered by the Partner in good faith until or during inspection.
- 5. Reasonable payment schedule
- ① The Company shall make a payment on the earliest possible date set within the time frame of 60 days from the date of invoice.
- ② In the case where the Company has been entrusted with manufacturing work from a project owner and has received an initiation fee or a completion fee from the project owner, the Company shall make a payment for any portion of such work performed by the Partner within 15 days from the receipt of such a fee (or the pre-determined payment date if the date comes earlier than the 15th date after receipt of such a fee).
- ③ In the case where the Company has received a payment in cash from a project owner in relation to manufacturing or other work entrusted by the project owner, the Company shall pay no less than the amount of cash for any portion of such work performed by the Partner.
- ④ In the case where a project owner makes a payment in electronic bonds in relation to manufacturing or other work entrusted by the project owner, the Company shall make a payment in the electronic bonds issued by the project owner within the valid period of such bonds.
- ⑤ In the case where the Company fails to make a payment for subcontract work within 60 days from the date of invoice issued by the Partner or the electronic bonds mentioned in the preceding paragraph reach maturity after 60 days from the date of such an invoice, the Company shall pay the late payment interest stipulated in the relevant laws, regulations, or guidelines as well as an electronic bond clearing commission.
- 6. Reasonable return of products found defective after delivery
- ① For products found to be defective after delivery, the Company and the Partner shall decide which of them is responsible to identify the cause of such defects, the type of the cause of such defects, and their respective proportion of liability and have the defective products returned through mutual consent.
- 7. Contract termination and cancellation
- ① The Company may terminate or cancel a subcontract without any further notice in the following cases:
- A. Where the Partner has its bank account blocked by a financial institution or has its business suspended or canceled by the relevant authority; or
- B. Where both the Company and the Partner deem it practically impossible to perform the subcontract work due to a resolution made for the dissolution, business transfer, or merger of either of them or a disaster.
- ② In the following cases, the Company may terminate or cancel a subcontract within, at most, one month unless the Partner performs its subcontractual obligations within the one-month period.
- A. Where the Partner makes a material breach of such subcontract;
- B. Where the Partner refuses to perform, or delays performing, its subcontractual obligations without a justifiable reason and such a refusal or delay makes it difficult or impossible for the Company to meet its delivery deadline; or
- C. Where it is deemed that the Partner is not capable of fulfilling its subcontractual obligations for significant reasons, such as the Partner's lack of technology or production and quality management capacity.
Article 6 (Prohibitions Concerning Contract Formation)
At the time of the formation of a contract with the Partner, the Company shall not violate the following prohibitions:
- 1. Failure to issue a written contract letter
- ① Where the Company fails to issue a separate contract letter and separate work instructions for an additional task even if the scope of such a task has been defined and its amount is considerable; or
- ② Where the Company fails to issue a revised contract letter or an adjusted contract pricing statement for an additional work added to, or a change made to, the original volume of a construction work.
- 2. Unfair subcontract pricing
- ① Where the Company sets a subcontract price by indiscriminately reducing the unit price without any justifiable reasons;
- ② Where the Company sets a subcontract price by unilaterally deducting a certain amount from the Partner's remuneration;
- ③ Where the Company sets a subcontract price by discriminating against the Partner without any justifiable reasons or unilaterally setting such a lower price without its prior consent;
- ④ Where the Company sets a subcontract price by causing the Partner to misunderstand the terms and conditions of the transaction, such as order quantity, etc., or by deceiving the Partner in such a way as to show it the quotation of another partner company or a false quotation;
- ⑤ Where the Company sets a subcontract price lower than the combined amount of direct construction work without any justifiable reasons when the Company forms a private subcontract with the Partner through a one-way bid;
- ⑥ Where the Company sets a subcontract price lower than the lowest tender price without any justifiable reasons when it forms a subcontract with the Partner through competitive bidding;
- ⑦ Where the Company sets a subcontract price by indiscriminately reducing the unit price without any objective and justifiable reasons such as a drop in raw material prices or labor cost;
- ⑧ Where the Company sets a lower subcontract price by discriminating against the Partner even if the Partner has the same qualifications as other partner companies in terms of payment conditions, production volume, and work difficulty;
- ⑨ Where the Company sets a lower subcontract price based on the Partner's quotation offered upon the Company's quotation request for an order volume considerably larger than its actual volume;
- ⑩ Where the Company entrusts the Partner to perform manufacturing or other works without setting a subcontract price and sets the price lower than usual prices without its prior consent;
- ⑪ Where the Company receives technical materials related to the requested deliverable from the Partner, shares it with another partner company, and sets the subcontract price lower citing the quotation of such other partner company;
- ⑫ Where the Company sets a lower subcontract price to satisfy its subcontract budget which has been set remarkably lower than the amount of the prime contract;
- ⑬ Where the Company sets a subcontract price remarkably lower than usual prices under the pretext of its export, special markdown events, promotional gifts, or samples.
- 3. Oral request for proposals or product development
- ① Where the Company cancels its request for product development after the Partner completes installing related facilities and equipment or completes its preparation for manufacturing or demands the Partner to lower the unit price offered by the Partner upon its oral quotation request.
- 4. Unreasonable intervention in the management of the Partner
- ① Where the Company intervenes in the personnel management of the Partner by requiring the Partner to obtain its instruction or approval for the Partner's appointment and dismissal of its directors, officers, and employees or by compelling the Partner to hire a certain person against its will;
- ② Where the Company intervenes in the Partner's re-subcontract formation and limits its autonomy in selecting its re-subcontractor and setting terms and conditions regardless of the purpose of its subcontract under the pretext of maintaining quality of deliverables and meeting the delivery deadline;
- ③ Where the Company coerces the Partner to mobilize all its on-site personnel against its will even if the Partner is performing its construction work as normally:
- ④ Where the Company puts a limit on the list of items that the Partner can manufacture or prevents it from engaging in transactions with its competitors or the competitors of its affiliated companies; or
- ⑤ Where the Company demands that the Partner share its technical materials related to a deliverable
- 5. Fee for an additional construction project not reflected
- ① Where the Company does not allow the Partner to make a request for the fee for an additional work assigned after the completion of the construction work;
- ② Where the Company passes the burden of building a supervisor's office and funding the operation of such an office on to the Partner or does not allow it to make a due change to the original contract after an increase in labor cost or fluctuations in prices; or
- ③ Where the Company does not include a construction suspension period due to specific construction circumstances, weather conditions, or rainy seasons to the construction period and thus does not allow the formation of an additional contract for such reasons.
- 6. Exclusive dealing
- ① Where the Company does not allow the Partner to work for a specific client (unless the Company and the Partner reach an agreement to exclusive dealing as they engage in a joint technology development project).
- 7. Unilateral passing of civil complaints to the Partner
- ① Where the Partner is held responsible for any financial cost and administrative burden incurred from civil complaints filed in relation to the subcontract construction work; and where the project owner resolves civil complaints which remain pending and therefore can trigger future disputes and deducts all costs incurred from such a process from the subcontract price.
Article 7 (Fulfillment of Subcontractual Obligations Pursuant to the Subcontract Terms and Related Laws)
For the fulfillment of their subcontractual obligations, the Company and the Partner shall comply with the following:
- 1. Compliance with Civil Law and other related laws
- ① The Company shall comply with the principle of good faith, the Fair Subcontract Transactions Act, the Monopoly Regulation and Fair Trade Act, and other related laws and regulations. In the case of disputes with the Partner, the Company shall resolve such disputes in writing.
- 2. Sufficient consultation and supporting documentation for price cuts
- ① In the case where the Company demands price cuts in exchange for a drop in commodity prices or an increased volume of orders, the Company shall provide the Partner with reasonable documentation that supports such price cuts.
- 3. Adjustment of the subcontract price as a result of a change in the subcontract
- ① In the case where the Partner has incurred additional costs due to a change to the subcontract terms including an addition of more specification requirements by the Company, the Company shall pay such costs to the Partner
Article 8 (Prohibitions Concerning the Performance of Subcontractual Obligations)
During the performance of their subcontractual obligations, the Company and the Partner shall not violate the following
- 1. Unfair refusal to accept deliverables
- ① Where the Company refuses to accept deliverables, even in the case in which its terms are ambiguous to determine whether such deliverables are supplied or produced in a manner originally requested;
- ② Where the Company blames a claim by the project owner, a foreign importer, or a customer or sluggish sales on the Partner and refuses to accept requested deliverables;
- ③ Where the Company refuses to accept deliverables for their delayed delivery even if the Partner was not in a position to deliver deliverables or complete a construction work on time due to the project owner's delay in the supply of raw materials or construction materials to the Partner;
- ④ Where the Company has not established any inspection standards for deliverables and applies inspection standards stricter than usual;
- ⑤ Where the Company refuses to accept deliverables by citing its ambiguous inspection standards or applying inspection standards stricter than those already agreed upon between the Company and the Partner;
- ⑥ Where the Company refuses to accept ordered deliverables due to its own decision that a stable supply of deliverables is not possible due to the bankruptcy, etc., of the Partner; or
- ⑦ Where the Company has ordered several types of deliverables and refuses to accept certain types of deliverables due to defects found on other types of deliverables, or where the Company refuses to accept deliverables because of the project owner's cancellation or suspension of the order.
- 2. Unfair return of deliverables
- ① Where the Company returns deliverables on the pretext of the project owner's cancellation of order or changes in economic conditions;
- ② Where the Company unfairly determines that deliverables are not in compliance with its ambiguous inspection standards and procedures and returns them;
- ③ Where the Company returns deliverables when they are found to be defective during its inspection because of defective raw materials supplied by the project owner;
- ④ Where the Company returns deliverables due to a delay in their delivery, even if such delay was caused by a delayed supply of raw materials to the Partner;
- ⑤ Where the Company returns already received deliverables by reason of the project owner's cancellation of order or changes in economic conditions;
- ⑥ Where the Company returns deliverables which have passed the inspection of a third party designated by the Company; or
- ⑦ Where the Company returns already received deliverables on the grounds of their delayed supply or construction even if there is objective evidence that the Company had accepted such a delay.
- 3. Unfair price reduction
- ① Where the Company reduces the subcontract price on unreasonable grounds, such as a request for cooperation, cancellation of order by another party to the transaction, a change in economic circumstances, etc., after having given entrustment to the Partner without specifying conditions for a possible reduction in the subcontract price;
- ② Where the Company has reached an agreement for a price reduction with the Partner and reduces the subcontract price by applying the terms of the agreement unilaterally and retroactively to a portion that was entrusted before the agreement was reached;
- ③ Where the Company reduces the subcontract price excessively on the grounds that the subcontract price is paid in cash or paid in advance;
- ④ Where the Company reduces the subcontract price unilaterally due to an insignificant fault of the Partner that does not cause any substantial loss to the Company;
- ⑤ Where the Company has had the Partner purchase from it the goods or other materials which are necessary for the manufacturing, repair, construction, or service performance or use its equipment and reduces the subcontract price by deducting an amount greater than the proper purchase or lease amount from the subcontract price;
- ⑥ Where the Company reduces the subcontract price on the grounds that the prices of commodities or raw materials have fallen at the time of payment;
- ⑦ Where the Company reduces the subcontract price for unreasonable reasons such as its operating loss or its markdown;
- ⑧ Where the Company deducts indirect labor costs, general administrative expenses, profit margins, and value added taxes from the subcontract price although such a deduction has not been included in the subcontract terms and conditions;
- ⑨ Where the Company imposes on the Partner a subcontractor employment insurance premium, industrial safety and health management expenses, and other expenses which should be borne by the Company as a prime contractor under the Act on the Collection of Insurance Premiums, etc., for Employment Insurance and Industrial Accident Compensation Insurance, the Occupational Safety and Health Act, and other related laws;
- ⑩ Where the Company reduces the subcontract price for a delay in the Partner's delivery of deliverables due to the Company's delay in the supply of raw materials and equipment or its limited timeframe for delivery;
- ⑪ Where the Company reduces the already fixed subcontract price by reason of future orders, or where it has entered into the subcontract for the total price and reduces the price on the grounds of the elements of the subcontract work;
- ⑫ Where the Company reduces the already fixed subcontract price for its purchase of raw materials at a lower price than expected;
- ⑬ Where the Company reduces the subcontract price by way of making changes to the subcontract, not the work entrusted and the terms and conditions of such entrustment; or
- ⑭ Where the Company reduces the subcontract price by passing foreign exchange losses and other losses on to the Partner and such passing on of losses is not included in the subcontract terms and conditions.
- 4. Unfair requests for economic profits
- ① Where the Company demands the Partner to pay a certain amount of sponsorship, assistance, support, or other economic profits in consideration of the initiation of the contract or a large volume order;
- ② Where the Company demands the Partner to pay a certain amount of sponsorship, assistance, support, or other economic profits on the pretext of its profit or management deterioration; or
- ③ Where the Company demands the Partner to pay a certain amount of sponsorship, assistance, support, or other economic profits although the Partner has no legal obligation to pay.
- 5. Unfair passing on of costs attributable to the Company to the Partner
- ① Where the Company passes on to the Partner costs incurred as a result of its wage increase or a delay in its internal approval process.
- 6. Unreasonable payment in kind
- ① Where the Company demands that it pay the subcontract price with goods contrary to the intention of the Partner.
- 7. Retaliatory measures
- ① Where the Company limits opportunities for the Partner to win an order, suspends a transaction with the Partner, or gives the Partner other disadvantages for the Partner's reporting to the Fair Trade Commission regarding the Company's violation of the Fair Subcontract Transactions Act.
- 8. Law evasion
- ① Where the Company performs any act to evade the actual application of the Fair Subcontract Transactions Act in relation with a subcontract transaction;
- ② Where the Company has made a payment to the Partner according to a corrective measure imposed by the Fair Trade Commission and thereafter collects the amount from the Partner or deducts the amount from the subcontract price; or
- ③ Where the Company has paid discount charges on notes or late payment interest to the Partner and thereafter deducts the paid amount from a unit price.
- 9. Compelling purchase of goods
- ① Where the Company compels the Partner to purchase or use certain goods, equipment, or services except for justifiable reasons such as the maintenance and improvement of the quality of deliverables.
- 10. Unfair requests for the settlement of purchase prices
- ① Where the Company has had the Partner purchase goods and other materials or use equipment necessary for the delivery of deliverables and has the Partner pay all or part of the purchase price or rent prior to the date of payment of the subcontract price; or
- ② Where the Company has had the Partner purchase goods and other materials or use equipment necessary for the delivery of deliverables and has the Partner pay the purchase price or rent on conditions that are remarkably unfavorable compared with those on which the Company purchases or uses the goods, materials, or equipment or it supplies such goods, materials, or equipment to a third party.
These guidelines shall take effect from October 1, 2009.