Hello, this is Attorney Park Jong-han from Cheongchul Law Firm.

In construction subcontracting contracts, it is common to have an agreement on delay damages. However, when a construction subcontracting contract is rescinded, the rescission of the contract means that the effects of the validly formed contract are retroactively extinguished, resulting in a state as if the contract had never existed from the beginning. Therefore, it might be a concern whether the agreement on delay damages is also retroactively extinguished.

Thus, when a construction subcontracting contract is rescinded, it is necessary to examine whether the validity of the agreement on delay damages is also lost in accordance with the rescission of the contract or whether the validity of the agreement on delay damages continues despite the rescission of the contract.

[Question] - Applicability of the agreement on delay damages upon rescission of the construction subcontracting contract

[Answer] - Even if the construction subcontracting contract is rescinded, the agreement on delay damages continues to apply, but the timing and duration of the delay damages are limited from the point when the contractual party could have rescinded the contract to the point when the ordering agency could have commissioned another contractor to complete the work.

The construction contract for building new buildings is a contract aimed at the completion of work known as the completion of the building, and the agreement on delay damages is a predetermined amount of damages for the delay in completing such work. Therefore, unless there are special circumstances, the contractor is obliged to pay delay damages if they do not complete the work and deliver it to the client within the agreed period.

However, in the aforementioned case, the timing of delay damages is to be limited, in the absence of special circumstances, to the agreed completion date or the end date. This cannot be said to continue indefinitely until the contractor or client completes the building; rather, it should be limited to the point when the contractor could have rescinded the contract due to the contractor's suspension of work or other reasons for rescission (not necessarily the point of actual rescission) until the point when the client could have commissioned another contractor to complete the same building. Additionally, if the work is delayed for reasons for which the contractor is not responsible, that period should be deducted from the total. If the amount of calculated delay damages is deemed excessively high, the court may reasonably reduce it under Article 398, Paragraph 2 of the Civil Act (refer to Supreme Court ruling 1989. 7. 25, cases 88DaKa6273, 88DaKa6280).

In other words, even if the construction subcontracting contract is rescinded, the delay damages agreement continues to apply, but the timing and duration of the delay damages are limited from the point when the contractual party could have rescinded the contract up to the point when the ordering agency could have commissioned another contractor to complete the work.

This has briefly examined the applicability of the agreement on delay damages upon the rescission of the construction subcontracting contract. In disputes related to national contracts and public procurement, the relevant laws are very complex and often amended, so it is necessary to have knowledge and experience in this regard. It is essential to be well-versed not only in court rulings but also in the administrative agency's interpretations and cases of disposition. Therefore, I recommend seeking assistance from Attorney Park Jong-han, who has expertise in national contract laws and experience in resolving various disputes related to national contracts and procurement.

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