(1) In cases of entrustment with construction, a prime contractor shall provide a subcontractor with a guarantee for payment of the construction consideration in accordance with the following classifications within 30 days from the date the subcontract is concluded (the period of guarantee shall be by the due date of a bill in cases of payment with a bill, and shall be by the date of repayment of the subcontract price to the subcontractor in cases of payment by the means of payment in place of a bill), while a subcontractor shall provide a guarantee for performance of a relevant contract by paying an amount equivalent to 10/100 of the contract value; provided, in a case where it is deemed that no guarantee is necessary or a guarantee is inappropriate in consideration of the financial structure of a prime contractor or the scale, etc. of construction, which is prescribed by Presidential Decree, this shall not apply: <Amended on May 28, 2014>
1. Where the period of construction is four months or less: Amount calculated by subtracting advance payments from a contract price;
2. Where the period of construction exceeds four months, and the interval of payments for the completed portion of work does not exceed two months: Amount calculated according to the following formula:┌─────────────────────────────────────┐│ Amount of Guarantee = Subcontract Price - Agreed Advance Payments ││ ─────────────────────────────── × 4 ││ Construction Period (Months) │└───────────────────────────────────────┘3. Where the period of construction exceeds four months, and the interval of payments for the completed portion of work exceeds two months: Amount calculated according to the following formula:┌────────────────────────────────────────┐│ Amount of Guarantee = Subcontract Price-Agreed Advance Payments ││ ────────────────× Consideration for the Work Completed to Date Payment Cycle (months)× 2 ││ Construction Period (Months) │└────────────────────────────────────────┘(2) Any of deemed reasons for which no guarantee is necessary or a guarantee is inappropriate referred to in the proviso of paragraph (1), with the exception of the subparagraphs, ceases to exist, a prime contractor shall provide a guarantee for payment of construction consideration referred to in paragraph (1) within 30 days from the date such reasons cease to exist; provided, where it is deemed that no guarantee is necessary, in consideration of the remaining period of a contract, actual completion rate of the entrusted business, amount of remaining payment, and other relevant matters, which is prescribed by Presidential Decree, this shall not apply. <Added on May 28, 2014>
(3) Where a prime contractor, who has concluded a long-term continuing contract (referring to a long-term continuing contract prescribed in Article 21 of the Act on Contracts to Which the State Is a Party or in Article 24 of the Act on Contracts to Which a Local Government Is a Party, which is concluded annually for part of the total amount of a successful bid within the budget of each fiscal year: hereafter in this Article referred to as "long-term continuing contract for construction") with any of the following persons for construction, entrusts the relevant construction by means of a long-term continuing contract for subcontracting construction, the prime contractor shall provide a subcontractor with a guarantee for payment of the consideration of construction pursuant to the main clause of paragraph (1), with the exception of the subparagraphs, within 30 days from the date the long-term continuing contract for subcontracting construction is concluded, and the subcontractor shall provide the prime contractor with a guarantee for performance of the relevant contract by paying an amount equivalent to 10/100 of the total construction cost promised at the time of concluding the first long-term continuing contract for subcontracting construction: <Added on Dec. 20, 2016>
1. The State or a local government;
2. A public institution or quasi-government agency prescribed in the Act on the Management of Public Institutions or a local government-invested public corporation or local government public corporation prescribed in the Local Public Enterprises Act.
(4) Upon completion of the performance of an annual contract of a long-term continuing contract for construction, the prime contractor who is provided with a guarantee for performance of contract by a subcontractor pursuant to paragraph (3) shall return the subcontractor the guarantee money, which corresponds to the annual long-term continuing contract for subcontracting construction, the performance of which is completed by the relevant subcontractor, within 30 days from the date the prime contractor is able to recover the contract deposit corresponding to such annual contract from any of the persons in the subparagraphs of that paragraph. In such cases, a guarantee for performance of contract corresponding to a portion performance completed shall be considered invalid. <Added on Dec. 20, 2016>
(5) The guarantee between a prime contractor and a subcontractor under paragraphs (1) through (3) shall be paid in cash (including by any bank check issued by offices of postal services or banks under the Banking Act) or by the delivery of a guarantee certificate issued by any of the following institutions: <Amended on May 17, 2010; May 28, 2014; Dec. 20, 2016>
1. Every mutual-aid association under the Framework Act on the Construction Industry;
2. Insurance companies under the Insurance Business Act;
3. The Korea Credit Guarantee Fund under the Credit Guarantee Fund Act;
4. Financial institutions under the Banking Act;
5. Other guarantee institutions prescribed by Presidential Decree.
(6) If a subcontractor files a claim with an institution referred to in paragraph (5) for the payment guaranteed pursuant to paragraph (1), along with documents required in the terms and conditions of the relevant guarantee, the institution shall pay it to the subcontractor within 30 days; provided, if there is a difference in opinions on whether the requirements for the payment guaranteed are satisfied or there is any other event or cause beyond control specified by Presidential Decree, the guarantor shall notify the subcontractor thereof and may defer the payment guaranteed for a period specified by Presidential Decree: <Added on Aug. 13, 2013; May 28, 2014; Dec. 20, 2016>
1. Where the prime contractor is unable to pay the subcontract price due to the suspension of current account transactions or financial transactions;
2. Where it is impossible to pay the subcontract price due to the prime contractor's insolvency, bankruptcy, closure of business, application for commencement of company rehabilitation procedures, etc.;
3. Where the prime contractor is unable to pay the subcontract price due to the revocation or cancellation of his or her license, registration, etc. for the relevant business or suspension of business, etc.;
4. If a prime contractor has failed to pay the subcontract price payable under Article 13 to a subcontractor twice or more;
5. If a prime contractor is unable to pay the subcontract price due to a cause or event specified by Presidential Decree as similar to incapability of payment referred to in subparagraph 1 through 4.
(7) Where a prime contractor delivers guarantee certificates in accordance with paragraph (5), the prime contractor may combine the guarantees for payment of all the construction works entrusted during the period of construction or the guarantees for payment for all the construction works entrusted in one fiscal year into one guarantee certificate for delivery. <Amended on Aug. 13, 2013; May 28, 2014; Dec. 20, 2016>
(8) In addition to matters prescribed in paragraphs (1) through (7), matters necessary for guarantees for performance of subcontract and guarantees for payment of subcontract price shall be prescribed by Presidential Decree. <Amended on Aug. 13, 2013; May 28, 2014; Dec. 20, 2016>
(9) If a prime contractor fails to guarantee the payment of the construction consideration under the main clause, with the exception of the subparagraphs, of paragraph (1), the main clause of paragraph (2), or the provisions, with the exception of the subparagraphs, of paragraph (3), the subcontractor need not guarantee the performance of the contract. <Amended on Aug. 13, 2013; May 28, 2014; Dec. 20, 2016>
(10) A prime contractor may not exercise his or her right to require a subcontractor's guarantee for performance of contract in accordance with paragraph (1) or (3) unless the relevant prime contractor provides a guarantee for payment of the construction consideration referred to in paragraphs (1) through (3); provided, this shall not apply where a guarantee for payment of the construction consideration is not provided in accordance with the proviso of paragraph (1), with the exception of the subparagraphs, or the proviso of paragraph (2). <Added on May 28, 2014; Dec. 20, 2016>[This Article Wholly Amended on Apr. 1, 2009]