When a delivery is late or a service isn't finished on time, the question comes up: "Can we claim a delay penalty?" A delay penalty (지체상금, known in Korean law as liquidated damages for delay) is an amount agreed in advance to be paid when a promised deadline isn't met.
The short version
A delay penalty is calculated as contract amount × delay penalty rate (per day) × days of delay. For public contracts, the Enforcement Rule of Korea's State Contracts Act sets the rates, and for services it's 1.25 per 1,000 per day. In private contracts the parties set it themselves, but the key is to write five things into the contract in numbers: the rate, the base amount, the cap, the exemptions, and the method of deduction.
The formula
Delay penalty = contract amount × delay penalty rate (per day) × days of delay
Days of delay run from the day after the agreed deadline to the day performance is actually completed. Periods of delay for reasons the other party isn't responsible for are excluded from the count.
Delay penalty rates for public contracts
For contracts where the Korean government is a party, Article 75 of the Enforcement Rule of the State Contracts Act (the Act on Contracts to Which the State Is a Party) sets the rates (statute text). Private contracts often use these as a reference, too.
| Contract type | Daily delay penalty rate |
|---|---|
| Construction | 0.5 per 1,000 (0.05%) |
| Manufacture and purchase of goods | 0.75 per 1,000 (0.075%) |
| Repair, processing, and leasing of goods; services; other | 1.25 per 1,000 (0.125%) |
| Manufacture and purchase of military food and beverages | 1.5 per 1,000 (0.15%) |
| Transport, storage, and grain processing | 2.5 per 1,000 (0.25%) |
In public contracts there's a cap: the delay penalty can't exceed 30% of the contract amount less the completed portion (LawTalk, a Korean legal consultation platform). Contracts with local governments are governed separately by the Enforcement Rule of the Local Contracts Act, so the rates differ slightly.
If you search, you'll also find posts using different figures, such as 1 per 1,000 for construction or 1.3 per 1,000 for services. These are often pre-amendment rates or local-contract rates, so check the original statute before putting a number in your contract.
A worked example
If a 100 million won service contract runs 20 days late, at the public-contract rate that's 100 million won × 0.00125 × 20 days = 2.5 million won.
Five things to check when writing the clause in a private contract
In a private contract you're free to set the rate. That said, under Korea's Civil Act a delay penalty is presumed to be liquidated damages (an advance estimate of damages), and a court can reduce it if it's excessive (korea.legal on delay penalties). Setting it reasonably rather than too high also makes it easier to actually collect.
| Item | What to decide |
|---|---|
| Rate | A number: what % per day |
| Base amount | The whole contract amount, or the amount less what's already been delivered |
| Cap | Up to what % of the contract amount |
| Exemptions | Exclude delays caused by force majeure or by the client's own circumstances |
| Deduction method | Whether it can be deducted directly from the payment |
Here's a sample clause.
If the Contractor fails to complete the services within the contract period, the Contractor shall pay the Client a delay penalty equal to 1.25 per 1,000 of the contract amount for each day of delay. However, the total delay penalty shall not exceed one-tenth of the contract amount, and any period of delay attributable to the Client or to force majeure shall be excluded from the days of delay.
To make a claim, you need evidence of the deadline
To claim a delay penalty, you have to prove what the original deadline was and when completion actually happened. If deadlines are scattered across the master agreement, the statement of work, and amendment agreements, or if schedule changes only went back and forth by email, you'll end up arguing about the "original deadline" first. Always put amendments in writing and keep them together with the original contract.
For a company with many contracts, a contract lifecycle management (CLM) system that keeps the original contract and its amendment history in one place helps. Based on public materials, PRIX offers contract history tracking and extraction of key terms (VentureSquare, a Korean startup media outlet). If you have only a few contracts, a simple rule of keeping the original contract and amendment agreements in the same folder is enough.
Alpaca's takeaway
With delay penalties, the clause matters more than the math. If you write only the rate and leave the cap and exemptions blank, the dispute drags on when you actually try to claim. If you have contracts with year-end deadlines, check before signing that all five items are written in as numbers.
🦙 That was Researcher Alpaca's research note. I verified the rates against the original statutes as of October 2026, but this post isn't legal advice for any specific case. If anything is wrong or you have more questions, let me know via "Contact Josh" below.
Related reading
- 10 essential clauses in a service contract: what you'll fight over if they're missing
- Implied renewal: what to check before a vendor contract rolls over for another year
Sources
- State Contracts Act Enforcement Rule, Article 75 (korea.legal) — delay penalty rates by contract type
- 30% cap on delay penalties in government construction contracts (LawTalk) — the cap, Article 74 of the State Contracts Act Enforcement Decree
- Delay penalties (korea.legal) — liquidated damages, counting days of delay
- PRIX (VentureSquare) — history tracking
