KLRI : KOREA LEGISLATION RESEARCH INSTITUTE

Ⅰ. Background and Purpose

○Public contracts serve as a fundamental institutional base for national economic growth and the maintenance of market order; through these mechanisms, the soundness of the public procurement market and the revitalization of regional economies and corporate activities are significantly influenced.

-In South Korea, public procurement accounts for approximately 9% of GDP, playing a vital role in stimulating economic activity across various industrial sectors. Its impact extends to government fiscal policy, employment, technological innovation, and the provision of social services, and is thus far-reaching.

※In Korea, the rigidity and excessive regulation of bidder eligibility restrictions (particularly relating to the suspension and debarment of unethical vendors) have led to frequent disputes and complaints, distortions within the procurement market, and inefficiencies in the allocation of public resources.

○This study aims to propose rational improvement measures for the system of restricting bidder eligibility by analyzing the grounds and reasons for such restrictions as provided in national and local contract legislation.

-In addition, the research investigates and analyzes the current legislative framework governing public contracts, with the goal of identifying legal reform measures suited to the characteristics of public contracting.

Ⅱ. Main Content

▶Analysis of Trends in Foreign Legislation, Grounds for Bidder Eligibility Restrictions, and Dispute Procedures—With Comparative Insights

○In the United States, the study centers on the restrictions on bidder eligibility under the Federal Acquisition Regulation (FAR) and related federal statutes.

○For the European Union and Germany, analysis focuses on the 2014 EU Public Procurement Directive and the German Act against Restraints of Competition (GWB), which incorporates these directives. In the case of the United Kingdom, the 2003 Procurement Act are examined.

○Regarding Japan, the study reviews bidder eligibility restrictions as stipulated in the Cabinet Order on Budget, Settlement of Accounts, and Accounting, the Local Autonomy Act Enforcement Decree, and the Act on Promotion of Competitive Bidding, among other legislations governing public contracts.

▶ Principal Reform Proposals

○The following improvements are identified as necessary with respect to public contracts:

-In South Korea, the current dual legislative framework—consisting of the Act on Contracts to Which the State is a Party and the Act on Contracts to Which a local Government is a Party—serves as an obstacle to the sound development of the public procurement market and renders the legal system unnecessarily complex and difficult to navigate. Accordingly, measures to integrate the two systems should be considered.

-It may be necessary to establish new provisions on contract termination and rescission in the Act on Contracts to Which the State is a Party; introducing grounds for convenient (for-cause or at convenience) contract termination in both the Act on Contracts to Which the State is a Party and Act on Contracts to Which a local Government is a Party may also be required.

-Provisions allowing the withdrawal of the designation of an unethical (debarred) contractor—where the grounds for restriction have been remedied or the relevant damages have been restored—should be introduced in the Act on Contracts to Which the State is a Party and Act on Contracts to Which a local Government is a Party.

-Given that public contracts are intended to realize the public interest, there is a need to establish a specialized dispute resolution body and improve related procedures so that disputes can be resolved promptly and fairly, unlike in general administrative or civil cases.

○Regarding improvements to bidder eligibility restrictions, the following reforms may be considered:

-The grounds for restricting bidder eligibility under the Act on Contracts to Which the State is a Party and Act on Contracts to Which a local Government is a Party should be classified as mandatory (e.g., serious crimes) and discretionary (e.g., material breach of contract); mandatory grounds should be applied uniformly by all public institutions.

-As the grounds, periods, and procedures for exclusion from bidding under the Act on Contracts to Which the State is a Party and Act on Contracts to Which a local Government is a Party are currently fragmented and overly segmented, a consistent system should be established at both central and local government levels.

-The delegation provisions in subordinate administrative regulations (such as contract rules) under the Act on Contracts to Which the State is a Party and Act on Contracts to Which a local Government is a Party should be further detailed, and the principles of public contracts—such as fairness, proportionality, and transparency—should be explicitly reflected and reinforced.

-Where the Act on Contracts to Which the State is a Party and Act on Contracts to Which a local Government is a Party provide only for mandatory bidder eligibility restrictions, the newly introduced surcharge (pecuniary penalty) system should be removed if the system is revised to differentiate between types of ineligibility grounds.

Ⅲ. Expected Effects

▶ Contribution to the Improvement of Relevant Legislation

○The proposed revisions for public contracts and bidder eligibility restrictions under the Act on Contracts to Which the State is a Party and Act on Contracts to Which a local Government is a Party can be utilized to amend these laws.

-May serve as the basis for amendments to the Act on Contracts to Which the State is a Party, Act on Contracts to Which a local Government is a Party, and the Act on the Management of Public Institutions.

-Can be used to propose amendments to subordinate regulations, including those under the Act on Contracts to Which the State is a Party, Act on Contracts to Which a local Government is a Party, and the Act on the Management of Public Institutions.

▶ Utilization as a Foundation for Related Government Policy and Research

○ Can be utilized in the formulation of plans relating to public contracts and government procurement.

-The proposed improvements may inform the development and implementation of plans by the government and related entities.

-Can be referenced in policy research and used as source data for further studies.