With the Subcontract Act amendment approaching, many companies are being compelled to review their business partners and strengthen their internal management systems.
The upcoming amendment, effective January 2026, is expected to have a broad impact on business operations, including the introduction of application criteria based on employee headcount, strengthened requirements for consultation regarding outsourcing terms, and restrictions on payment methods.
In particular, accurately determining which business partners fall under the scope of the law and organizing and managing their information requires significant resources and specialized expertise.
In this article, we outline the key points of the amendment and introduce practical measures companies should take, as well as methods to reduce the operational burden.
Why Is the Subcontract Act Being Reviewed Now?
The Act against Delay in Payment of Subcontract Proceeds, Etc. (Subcontract Act) has been in operation for many years to rectify the "power imbalance" in business relationships between small and medium-sized enterprises and large corporations.
It has been decided that the Subcontract Act will undergo significant amendments effective January 1, 2026. The purpose of these amendments is to address long-standing structural issues and establish a more transparent business environment that reflects current realities.
The background to these changes includes the following social shifts:
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Difficulty in passing on rising costs to prices
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Increasing multi-layered structure of supply chains
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Growth in diverse forms of outsourcing (e.g., manufacturing, service provision, and logistics operations)
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Decline in the working population and the need for greater transaction efficiency
As the reality of business has expanded beyond what the term "subcontracting" can cover, a review of the law has become essential.
Overview of Amendments and 5 Key Points to Note
The following is a summary of the key points to understand regarding these amendments.
1. Terminology Changes: From "Subcontractor" to "Consignor/Consignee"
Traditional terms such as "Parent Operator" and "Subcontractor" will be replaced by
"Consignor" and "SME Consignee."
This shift reflects a move away from terminology based on power dynamics in transactions,
emphasizing a commitment to equal and fair partnerships.
2. Expansion of Scope: Based on "Capital + Number of Employees"
While the application criteria were previously based primarily on capital,
the "number of employees" will now also serve as a standard for assessment.
For example:
As a result, while more companies will fall under legal protection, the complexity of management and assessment for applicable companies will increase.
3. Stricter Consultation Obligations: Unilateral Pricing Is Prohibited
If a contractor requests a "consultation" regarding pricing or contract terms,
the commissioning party is obligated to respond in good faith and provide a reasonable explanation.
For example:
Ignoring or dismissing such requests is in itself illegal.
4. Restrictions on Payment Methods: Unfavorable Promissory Notes and Factoring Are Prohibited in Principle
Instead of cash transfers, the following payment methods were widely used:
If these methods result in disadvantages for the contractor, such as inability to collect full payment or delayed payment deadlines, they are prohibited.
5. Expansion of Target Industries: Transportation Industry Now Clearly Regulated
Transactions that were previously ambiguous, such as consignment from a shipping consignor to a prime carrier, are now clearly included in the scope.
Payment delays and unfair consignment practices in the logistics industry are now subject to corrective measures.
Challenges Faced by Companies
With the amendment of the Subcontract Act, companies will face the following challenges:
Challenge 1: Increased Complexity in Determining Target Companies
With the introduction of new criteria including the number of employees, accurate applicability assessment based on both capital and number of employees is required.
For example, even if a company's headquarters does not fall under the scope, its branches or subsidiaries might qualify as small-to-medium contractors, necessitating assessments on a per-transaction basis.
Relying on individual expertise or ad-hoc research is insufficient, increasing the risk of violations due to misidentification, such as inappropriate pricing or failure to engage in required consultations.
Challenge 2: Inadequate Mechanisms for Identifying and Managing Target Entities
Even if target companies are correctly identified, many companies lack a centralized system for internal management and updates.
For instance, even if the legal department is aware of the assessment, this information may not be sufficiently communicated to sales teams, leading to cases where incorrect contract terms are presented based on field-level decisions.
When relying on Excel or individual-dependent management methods, omissions and oversights are likely to occur, which can lead to risks of legal non-compliance; therefore, caution is required.
Solution: How uSonar Can Help
uSonar Co., Ltd., which develops services centered on a corporate database,
provides the following services to address these challenges.
1. Data Preparation: Batch Identification of Subcontract Act-Applicable Companies
The LBC (Corporate Database) provided by uSonar covers information on over 12.5 million corporate locations nationwide and maintains high-precision corporate attributes essential for determining Subcontract Act applicability, such as capital, number of employees, and head office/branch classifications.
By utilizing this data, it becomes possible to objectively and consistently determine which companies are subject to the Subcontract Act and whether they fall under the category of consignor or consignee, without relying on individual expertise.
Furthermore, by integrating this with business card and client information scattered throughout the company, you can achieve normalization and data consolidation at the corporate level, building a "data foundation capable of assessment" necessary for regulatory compliance.
2. Automatic Data Maintenance
Regulatory compliance is not a one-time task; a continuous management system is essential. Corporate information changes daily due to fluctuations in employee numbers, capital changes, company name changes, and M&A activities.
uSonar responds to these changes and provides a mechanism to keep data in a constantly updated state through periodic automatic updates.
In addition, we support API integration with external tools such as CRM and Salesforce, enabling departments to reference the same information. This allows you to build a sustainable data management system while reducing the risks of update omissions and duplicate management.
3. Support Including Compliance Management
While not directly related to the amendments to the Subcontract Act, the credit status and potential risk information of counterparty companies are critical factors when reviewing business partners or renegotiating contracts.
uSonar provides an integrated solution featuring proprietary credit scores, detection of negative news, anti-social force flags, and corporate group information, enabling immediate risk checks even at the initial stages of business negotiations.
This contributes not only to regulatory compliance but also to building relationships with sound business partners and reducing reputation risk.
What You Can Do with uSonar
| Phase |
What You Can Do with uSonar |
| Preparation Before Amendment |
Extraction of Target Companies, List Creation, and System Development |
| Operations After Amendment |
Screening of New Business Partners and Management of Renegotiation Records |
| Continuous Operation |
Automated List Updates, Credit Risk Monitoring, and Centralized Internal Management via SFA Integration |
Summary
The amendment to the Subcontract Act, effective January 2026, requires companies to strengthen their practical responses, such as identifying target companies and managing contractual terms.
With the revision of application criteria, including employee headcount, and the formalization of consultation obligations, rapid and accurate business partner management will become more essential than ever.
As a means to support these efforts, uSonar's corporate database, LBC, enables the batch identification and management of target companies, contributing to the reduction of manual tasks and the standardization of regulatory compliance.
By taking this legal amendment as an opportunity to review and improve your business partner management systems, you can reduce operational burdens and build a sustainable compliance framework.
For more details, please feel free to check the following page or contact us for a consultation.
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