When JINDOO I.S, a medium-sized IT service provider making $82.2 million (100 billion KRW) in annual sales, submitted an application for a turnaround to the court due to financial pressure, it has created significant aftereffect on the entire industry. There is also a greater chance that small software (SW) companies that have been participating in an integrated maintenance project that JINDOO has been charge of will face financial difficulties as they will not be able to receive payments from JINDOO. South Korea’s SW industry is voicing their opinion towards reexamining the structure of public integrated maintenance projects taking the situation that JINDOO is in as an opportunity.
◊SW industry feels unstable about comprehensive maintenance project
Public integrated maintenance project sends orders for various SW maintenance projects within a system all together. It relieves burden for public officials who are responsible for IT and have to manually send out tens of SW maintenance projects on average and it raises level of convenience on managing projects as it only requires single integrated management business.
However, the situation regarding JINDOO I.S has brought up issues of integrated maintenance project.
Application for a turnaround does not end with one’s difficulties. JINDOO I.S provides its integrated maintenance service to 20 major public offices such as Ministry of National Defense, Ministry of Justice, and the National Police Agency and its participation in this project involves 640 domestic and foreign SW companies. Due to the project’s nature, many SW providers sign contracts with single IT service provider that wins a contract for the project. Even if there is a situation where JINDOO I.S cannot make payments depending on decisions made by the court, SW companies cannot ask for payments from public offices because the original contractor is JINDOO I.S.
As a result, resulting impact from reoccurrence of situations like the one involving JINDOO I.S will be significant on South Korean industries. “Although the amount of payment can be in thousands, absence of payments may lead to bankruptcy for small SW companies.” said CEO of a SW company. “We need to reexamine irrationality of integrated maintenance project.”
Public integrated maintenance project also causes an issue of how profits should be divided amongst companies.
South Korea’s SW industry has been complaining about low payments from the responsible integrated business that only collects tolls for not doing much.
On the other hand, integrated businesses criticized the SW industry for its comment when they operate and manage entire projects and analyze requests from ordering bodies. “Integrated businesses basically collect tolls from SW companies and they still implement practice for contracts where maintenance costs are allocated.” said a representative for the SW industry. “As a result, small SW companies are beginning to lose their profitability and they are constantly uneasy about a possibility of integrated businesses going bankrupt.”

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◊SW industry askes for higher responsibility on the public sector and integrated businesses
Maintenance projects make up a great portion of the public SW market. While they were responsible for 32.4% of the entire public SW projects in 2014, the percentage gradually increased to 41.3% in 2018. Because significant number of maintenance projects are placed as integrated maintenance projects, maintenance projects’ influence on the public SW market will grow.
The industry also points out that integrated maintenance project goes against the policy that assists SW companies to receive fair prices.
Integrated maintenance project is generally decided based on price rather than technical skill. Most of projects are awarded at a low price. Integrated businesses typically pay foreign SW companies such as Oracle that have the highest maintenance rate first. From the remaining balance, they set and pay amounts for maintenance services provided by South Korean SW companies. Ultimately, South Korean SW companies that are subcontractors for integrated businesses receive payments based on low maintenance rates and lose their profitability.
The industry believes that there should be more responsibilities on ordering bodies and integrated businesses in order to resolve concerns for the industry.
“Although the private sector also signs maintenance contracts for various SW, it typically signs a private contract with individual business and takes responsibility when a problem arises.” said CEO of a small SW company. “The public sector also needs to prepare responsible contract guidelines or supplemental measures so that tens of small SW companies are swayed by single integrated business.”
Staff Reporter Kim, Jiseon | river@etnews.com & Staff Reporter Oh, Dain | ohdain@etnews.com