[Exclusive] 394.9 billion won in deliveries even after eligibility was revoked... Distribution agency leaves 'workaround' through stays of execution unchecked

[Financial News] Companies whose direct production confirmations were revoked for reasons including violations of the direct production obligation have delivered goods worth 394.9 billion won to public institutions over the past five years by using court-ordered stays of execution as a 'workaround.' This happened because the Korea SMEs and Startups Distribution Agency, which imposed the revocations, did not separately respond to the companies' applications for stays of execution.
According to data submitted by the Korea SMEs and Startups Distribution Agency and the Public Procurement Service (PPS) to Lim Moon-young, a member of the National Assembly's Trade, Industry, Energy, SMEs, and Startups Committee from the Democratic Party of Korea, 104 of the 332 companies whose direct production confirmations were revoked between 2022 and September this year, or 31.3%, obtained stays of execution. During the periods in which the courts suspended the revocations of their direct production confirmations, these companies recorded 8,988 public procurement deliveries worth 394.9 billion won.
A direct production confirmation is a qualification that small and medium-sized enterprises need to supply products competing with those of other companies to public institutions. If a company produces a product through subcontracting or purchases and delivers another company's finished product, all of its direct production confirmations are revoked. It is also barred from reapplying for six months. However, if a court grants the company's application to stay the revocation of its direct production confirmation, the revocation is suspended and the company can continue participating in the public procurement market under its existing qualification.
Some 365.9 billion won, or 92.7% of the actual delivery value, came from companies whose direct production confirmations were revoked for violating the direct production obligation, including subcontracted production and the delivery of other companies' finished products. This means companies that violated their obligations during the actual delivery process continued to participate in the procurement market, in addition to those that obtained direct production confirmations through false or fraudulent means.
The stays of execution also lasted a long time. Of the 104 companies that obtained stays, 78 had the effects of their revocations suspended for more than six months, while 44 remained under suspension for more than a year. Meanwhile, the agency won 64 of the 78 merits cases in which rulings had been issued, a win rate of 82.1%, with the legality of the revocations upheld.
The key issue is whether the agency responded adequately at the stay-of-execution stage. The Korea SMEs and Startups Distribution Agency, which was entrusted by the Ministry of SMEs and Startups with handling direct production confirmations and their revocations, serves as the defendant in related lawsuits. It can argue during hearings on stays of execution that granting the stay would harm the public welfare, or immediately appeal a decision to grant one. However, according to an audit report by the Ministry of SMEs and Startups, the agency had not separately responded to stay-of-execution decisions.
Significant gaps remain even in the measures introduced after the audit's criticism. When the agency established its response plan in June, it limited the cases subject to proactive action to those in which companies had obtained direct production confirmations through false or fraudulent means. Such cases accounted for only 31 of the 332 revocations. Subcontracted production and the delivery of other companies' finished products, which together accounted for 83% of all revocations, were excluded. None of the seven stays granted after the measures were introduced involved cases subject to proactive action.
Lim Moon-young emphasized, "When a company whose qualification was revoked for delivering products it did not produce itself obtains a stay and reenters the procurement market, the delivery opportunities available to small and medium-sized enterprises that followed the rules are reduced accordingly. From the stay-of-execution stage, the agency must actively explain the severity of the violation and its impact on the public procurement market, and it should make full use of available legal measures, including immediate appeals, in cases involving serious violations."
[email protected] Kim Hyeong-gu Reporter