A RFQ will be sent out to at least two companies whose manufacturing capability is certified by Hyundai Rotem through site inspection and document review. The lowest bidder to the RFQ will be selected.

※ RFQ: Request For Quotation

※ Applying Competitive Bidding: Competitive Bidding can be applied when a product or item is well standardized in terms of quality and performance. It would be applied to the most instances, except for Strategic Purchase and/or Bidding with Multiple Criteria Consideration.

Hyundai Rotem will hold a meeting with potential bidders to explain requirements and specifications. After receiving quotations and proposals from the bidders, Evaluating Committee will decide a Supplier based on its price, quality, delivery schedule, technology, development ability, cost reduction, management ability and etc.

※ Applying Bidding with Multiple Criteria Consideration: Parts that are directly related to the performance of end-product, and of which quality varies greatly depending on the manufacturer’s design and development abilities

When Competitive Bidding or Bidding with Multiple Criteria Considerationis inapplicable for a product or item, a specialized company can be selected through a method other than competitive bidding or Bidding with Multiple Criteria Consideration.

※ Applying Strategic Purchase

1) When the product is designated by the customer or government agency

2) When the product or item is monopolized by a single company.

3) When the product has a specialized function, or a company, who has previous business experience with Hyundai Rotem, has a JIG or die (mold).

4) Due to the infrequent development, low product prices or small order quantity, Competitive Bidding or Bidding with Multiple Criteria Consideration would harm the Supplier’s business operation.

5) When Hyundai Rotem has a long-term supply contract with the Supplier for specific reasons, such as localization of the product and etc.

6) When it is necessary per other procurement policies.

In order to ensure transparent and fair purchasing, Pre-Purchase Strategy for cost reduction and company selection shall be prepared and approved by executive management.

[Applicable Items: Major long-lead parts/materials or Part/materials that require pre-purchase strategy, etc.]

The Technical Sales Team leader will prepare and register contents of CBS, including target product price, and send it to Design and Procurement Team.

The Design Team leader may attach design requirements and specifications, drawings and other data to the CBS code, received from the Technical Sales (marketing/PM) Team, and send it to the Procurement Team. Leader of Design Team can also recommend a qualified Supplier.

The person in charge of the Procurement Team selects his or her item according to the job assignment, or relevant part leader may assign items to them.

Except for advanced strategic purchase items, when target budget is finalized, a pre-purchase plan, such as Competitive Bidding, Bidding with Multiple Criteria Consideration and Strategic Purchase, shall be established and approved,
During the individual purchases, if pre-purchase plan cannot be complied due to specification changes or otherwise inevitable changes, purchase for the item should be processed after consulting with or report to relevant superiors.

※ e-POPS (Powerful & Open Procurement System) :srm.rotem.co.kr

① In principle, “A” and “B” should conclude the contract before any work is performed under the contract. At the latest, the contract must be properly executed before any work is performed for delivery of the product/item.

② When a Supplier has frequent transactions, the basic contract can be concluded first, and Purchase Orders (including electronic Purchase Order) for individual items can be considered as a contract.

③ The contract with Supplier shall include contract amount, payment method, contract price adjustment for law material cost variation and procedures for contract price adjustment. The contract must incorporatethe ENFORCEMENT DECREE OF THE FAIR TRANSACTIONS IN SUBCONTRACTING ACT.

④ In the event that the change in contract quantity is clearly anticipated due to minor and frequent additional work, an adjustment agreement must be executed immediately upon completion of the delivery.

⑤ If additional requests are made within a significantly shorter period than the normal permitted period, the major terms and conditions must be agreed in advance in writing.

① To determine the Unit Price, contract quantity, specification, delivery date, payment method, product quality, material price, labor cost, market trend and etc. will be considered, and then proper overhead cost and profit will be added through reasonable calculation method. The calculated unit price will be agreed between both parties.
However, in the case of total price bidding, the bidding price (or additional VE price) shall be the unit price.

② Unless otherwise agreed, the unit price of ① shall include all costs such as packing costs, freight, unloading costs, insurance premiums to the point of delivery designated by ‘A’.

③ If there is a sudden change in the pripce or the rate of the item, which is included in the price set forth in paragraph 1, during the term of the contract, or if any of the following conditions arise for the remaining contract quantity after 60 or more days have passed after the contract execution, either party can request for an adjustment of the contract amount. “A” shall initiate the settlement discussion within 10 days from the date of the request and “B” shall adjust the contract amount by mutual agreement within 30 days. However, if both parties acknowledges that it is difficult to implement the contract without adjusting the contract amount (i.e., sudden rise of the raw material price), the contract amount may be adjusted within 60 days from the contract execution date (or the adjustment date if the contract amount is adjusted after the contract conclusion).

④ “A” or” B” shall request for adjustment to the Subcontract Dispute Mediation Council if any of the following applies.

⑤ If the unit price determination is delayed due to special reasons, the temporary unit price will be agreed and applied. In this case, the difference between the temporary unit price and the final unit price shall be adjusted retroactively when the unit price is finalized.

⑥ “A” should periodically examine the standardized rate in the calculation of the cost to propose suitable rate for the actual circumstances. However, considering the labor cost of the same industry, Hyundai Rotem sets the rate according to the characteristics of the company such as working conditions, supplier size and technology level and etc.

① Delivery date means the date on which ‘B’ shall deliver ordered item to the place designated by ‘A’, according to the individual contract.
This shall be determined according to the agreement between ‘A’ and ‘B’ for each individual contract.

② If the delivery date, agreed at the time of contract conclusion, is changed subsequently, the change must be clearly specified. If the delivery date is shorter than usual, (in the case of emergency order and etc.) it shall be mutually agreed.

③ If “A” unreasonably delays or rejects to accept the delivered products, without any fault on “B”, “A” shall compensate any damages suffered by “B” due to such delay or rejection.

① For the inspection of the delivered products, “A” and “B” shall agree and establish an objective, fair and appropriate inspection standards and methods.

② Upon the delivery, “A” shall immediately issue a receipt even if the delivered product is not yet inspected. The inspection shall be promptly conducted in accordance with the prescribed standard and procedures.

③ Unless there is a justifiable reason, ‘A’ shall notify the results of the inspection within 10 days from the date of delivery by the supplier.

④ Before or during the inspection period, “A” shall manage the delivered products with care of a good manager before or during the inspection period.

① If a supplier is consigned to manufacture or perform otherwise, it shall be paid on the payment due date, as early as possible, within 60 days from the date that product is delivered (the date of take-over for construction and tax invoice date (at least once a month), as agreed by the parties, for the transaction with frequent delivery).

② In the case a supplier is consigned to manufacture or perform otherwise, Hyundai Rotem shall pay the Supplier within 15 days of the date it received completion payment from client for manufacture, repair, construction or serviceor on the payment due date (if payment due date is earlier than 15 days).

③ If milestone payments are received upon progress of manufacture, repair, construction or service, Hyundai Rotem shall pay the Supplier within 15 days or on the payment due date (if payment due date is earlier than 15 days) for the according to the portion of the work performed by the Supplier.

④ Payment to the Supplier shall have greater cash ratio than Hyundai Rotem received from the client in relation to the consigned work such as manufacture of the product.

⑤ If the client pays Hyundai Rotem with promissory note, Hyundai Rotem may pay the Supplier with promissory note. However, Hyundai Rotem’s promissory note shall have earlier expiration date than client’s promissory note.

⑥ If the Supplier is paid in promissory note, the note must be discountable at the financial institution established under the law. The discount amount for the period from the date of issuance of the note to the maturity date of the note (at the discount rate declared by the Fair Trade Commission) shall be paid on the day of issuing the check.

⑦ In the case of issuing a note within 60 days from the receipt of delivery, the discounted amount shall be paid within 60 days from the receipt of delivery for the period from the day exceeding 60 days to the maturity date.

⑧ If the payment is made by alternative payment means, commission fee (including interest on loans) for the period between the subcontract payment due date and payment date (credit approval date for corporate credit cards, credit transfer date for foreign currency receivables, purchase date for purchasing credits) shall be paid.

⑨ If the payment is made by alternative payment means within 60 days from the receipt of delivery materials, the commission fee for the period between the receipt date and subcontract payment due date shall be paid to the subcontractor within 60 days of the delivery date.

⑩ If the payment is made after 60 days from the delivery receipt date, the interest shall be paid at the interest rate determined and notified by the Fair Trade Commission for the excess period.

① Defective goods shall be returned according to the procedures to decide the cause of the defects, types of causes, proportion of liability and, etc. as agreed between the parties. Handling shortages, rejects and overdue items.

① The reason for termination of the contract shall be determined by agreement between the parties, and shall be distinguished between where the final notice is not necessary and where final notice is required. However, If there is any reason for termination, it shall be notified in writing, without delay.

② The contract can be terminated without a final notice in the following cases

③ A final notice is required to terminate the contract in the following cases. However, the other party must be given one month to comply with the final notice. If the other party failed to comply, the contract can be terminated.

① Issuing a written document that does not contain matters that are difficult to confirm at the time of commission without justifiable reason

② Refusing to amend the previous document that did not contain certain matters, when the parties later agreed and confirmed.

③ Not confirming or denying in writing within 15 days of request for confirmation from the other party regarding orally consigned contents such as work contents entrusted by supplier, subcontract payment, consigned date and etc.

④ Not signing on a written consent or denial when replying for orally consigned contents

⑤ Not retaining relevant document for three years of retention period as required by the statutes and Hyundai Rotem’s internal policies.

⑥ Retaining documents that was falsified or contains incorrect information for three years.

⑦ Not retaining records related to deciding subcontract payment such as bidding statement, bidding award reporta, quotation and etc.

⑧ Not issuing additional contracts or work instructions, even though the scope of additional work is distinguishable and the amount is significant.

① Unilaterally decreasing subcontract payment at a fixed rate without justifiable cause

② Making unilateral deduction from the subcontract payment whether it was cooperation request or not.

③ Determining the price in unlawful discrimination against a particular supplier or determining the price by unilaterally lowering the unit price without consent from the other party

④ Determining payment by inducing supplier’s mistake, or deceiving the supplier by presenting another supplier’s

⑤ For Competitive Bidding process, contract amount shall not be lower than the lowest bid without justifiable cause.

⑥ Unilaterally decreasing unit price without justifiable cause, such as decreased low material price and etc.

⑦ Determining lower price for a specific supplier than other suppliers in unlawful discrimination, when there is no difference in payment terms, transaction quantity, or difficulty of operation, etc.

⑧ Applying unit price for large order quantity, when the actual order quantity is small.

⑨ When the work was consigned without fixed contract amount, determining price, which is lower than typical price, without supplier’s consent.

⑩ Decreasing contract amount by showing another supplier’s quote, which was prepared based on the Supplier’s relevant technical information that was provided per Hyundai Rotem’s request.

Requesting to decrease orally agreed unit price or cancelling development after production equipment or other production preparation was completed.

① Interfering with Supplier’s HR related matter, including forcing the Supplier to hire someone against Supplier’s will or having the Supplier to obtain approval from person in charge of procurement for hiring and firing its employees.

② Restricting the transaction between the Supplier and its suppliers by imposing contract conditions that is irrelevant to the purpose of the contract, including quality control and satisfying delivery schedule and etc., between the Supplier and Hyundai Rotem.

③ Limiting the manufacturing capacity or product list, or prohibiting the Supplier from trading with the competitor of Hyundai Rotem or its affiliates

④ Requiring the Supplier to provide technical data for the product without justifiable reason

① Not paying or paying less than the percentage or content that Hyundai Rotem received from its customer for design change or changes in economic circumstances

② In case Hyundai Rotem’s customer adjusted contract amount for design change or changes in economic circumstances, not increasing or decreasing the Supplier contract amount within 30 days or adjusting the contract amount after 30 days

③ Not paying delay charge, check discount, commission fee regarding the exceeding period when payment in cash or check or other supplementary payment method is not paid within 15 days from receiving additional amount due to change in design or economic conditions and etc.

④ Not notifying the supplier of the cause and contents of increase or decrease in amount within 15 days from the date such increase or decrease in contract amount is received, due to change in design or economic conditions and etc.
(Except when partyHyundai Rotem’s customer notified the Supplier directly)

① Not proceeding with actual consultation procedures such as holding a meeting, exchanging opinions, or suggesting a unit price adjustment after notifying to commence negotiations or not responding to consultation request

② The person in charge of adjusting the unit price does not engage to the consultation even though 30 days have elapsed after the consultation request

③ Repeatedly offering prices that the other party cannot accept, without objective grounds such as market research to adjust unit price, calculation of cost and etc.

① Refusing to accept the delivered products, when it is difficult to determine whether it conforms to the consigned work or not, due to unclear consignment deion.

② Refusing to accept items that are already consigned to the Supplier for reasons such as claims from customer, ordering party or foreign importer, poor sales and etc.

③ Refusing to accept late delivery, even though it was impossible to deliver within due date, because of late supply of raw materials that was supposed to be provided by Hyundai Rotem

④ Applying an inspection standard higher than usual, when the inspection standards were not established.

⑤ Even if the standards are estalished, refusing to accept because the standard is unclear or by applying higher standard than the established one.

⑥ Even though there was a request for acceptance from the Supplier, refusing to accept goods without justifiable reasons, such as shortage of storage space

⑦ Refusing to accept the already ordered without groundsgoods, because the bankruptcy of the Supplier or other reason makes the stable supply improbable.

⑧ Refusing to accept other works, when a supplier was consigned for many works and only one of them was defective, or when Hyundai Rotem’s customer cancels or stops the order.

① Returning delivered goods due to cancellation of order from customer or change of economic situation

② Returning delivered goods for unfair inspection result based on unclear standard and method

③ Returning the defective product when the defects resulted from defective raw material provided by Hyundai Rotem.

④ Returning for late delivery when Hyundai Rotem’s supply of raw material was late.

⑤ Returning already accepted items because of claims from, client, customer or foreign importers, or because of weak sales and etc.

⑥ Returning the items that passed a third party inspection, when the third party was contracted for the inspection.

⑦ Returning late delivery when the delay was previously waived.

① Decreasing payment for cancelled order by customer or changes in economic circumstances, or through request for cooperation, when a condition to decrease payment was not specified at the time of the consignment.

② Retroactively applying re-negotiated price to the work performed prior to the agreement.

③ Reducing payment excessively for paying in cash or prior to the payment due date.

④ Unilaterally reducing payment for a immaterial mistake the of supplier, which does not have actual impact on the contract.

⑤ Having supplier to buy or use Hyundai Rotem’s material or equipment that are necessary for manufacturing, repairing or constructing, and making excessive deduction than usual price or charge.

⑥ Reducing price due to the fact that the price index or raw material price at the time of payment is lower than the time of delivery and etc.

⑦ Reduction of payment due to unreasonable reasons such as operational deficit or reduced product price

⑧ Reducing indirect labor costs, general administrative expenses, profits, and value added tax, in deviation from the original contract

⑨ Making bethe supplier responsible for workers’ compensation, unemployment compensations and other expenses that Hyundai Rotem is responsible under the relevant laws and regualtions.

⑩ Reducing payment due to failure to keep the delivery schedule, when Hyundai Rotem delayed in providing necessary materials or equipment to the supplier or requiring to meet unrealistic delivery schedule.

⑪ Reduction of already determined subcontracting amount due to continuous ordering, or contracting with the total amount and then reducing the payment for details of manufacturing or construction performance.

⑫ Reducing the payment of the contract because Hyundai Rotem contracted with customer at low-price.

⑬ Reducing the payment through contract amendment, when there was no actual changes in the consigned work or other conditions.

⑭ RReducing the payment by transferring the foreign exchange loss to the supplier, in deviation from the original contract conditions

Mandating the supplier to trade exclusively with Hyundai Rotem or companies designated by Hyundai Rotem.

① Requiring economic benefits such as subsidies, incentives, and grants on for starting business with the supplier or making large orders

② Requiring economic benefits such as donations, incentives, and grants for unreasonable reasons, such as deteriorating profit or operational conditions

③ Requiring economic benefits such as donations, incentives, and grants when there is no obligation for the supplier to be responsible

Transferring costs, that is incurred because of Hyundai Rotem’s wage increase or delays in internal approval process to the supplier.

Making payment-in-kind to the supplier against its will, in deviation from the original contract.

Restricting the supplier from participating to the bids, suspending transactions or otherwise penalizing the supplier because the supplier filed complaint to the Fair Trade Commission as a violation of the Subcontract Act.

① Trying to circumvent the application of subcontracting law

② When the Fair Trade Commission ordered corrective measures and payment to the supplier, recouping such payment or deducting it from contract payment.

③ Paying the trading company bill discount charge, delayed interest and etc., then unilaterally decreasing the unit price by the corresponding amount.

① Forcibly selling or making the supplier to use products or services of Hyundai Rotem, its affiliates or a company designated by Hyundai Rotem without justifiable reason.

② Repeatedly requesting to purchase when the supplier stated or is evident that it has no intention to buy.

① Having the supplier to purchase or use product or services of Hyundai Rotem, its affiliates or a company designated by it, then requesting for advanced payment for the entire contract amount or in part.

② Having the supplier to purchase or use product or services of Hyundai Rotem, its affiliates or a company designated by it, then asking for higher price then it purchased from others or forcing unfavorable contract conditions than to others.

① Forcing the supplier to provide technical data to Hyundai Rotem or any third party designated by it without justifiable reason.

② Use of technical data obtained from a the supplier for its own use or for a third party

① Mandating contract conditions that unreasonably infringe or restrict the interests of suppliers

② Mandating contract conditions that make suppliers responsible for the costs incurred by the supplier to perform Hyundai Rotem’s request other than specified in the contract.

③ Mandating contract conditions that make suppliers to pay expenses related to responding to civil complaints and industrial accidents that should have been born by Hyundai Rotem

④ Mandating contract conditions that make suppliers responsible for the costs incurred by the supplier to perform Hyundai Rotem’s request other than specified in the RFQ.

Purchasing products from a supplier, who manufactured the products according to the Company’s specifications (Product Spec., PTS, drawing, manufacturing procedures and etc.) This includes when the Company approves the drawing or manufacturing procedures proposed by a supplier.
※ PTS(Procurement Technical Specification)

Purchasing products that are not manufactured according to the Company’s specification, but generally available in the market either directly from the manufacturer, wholesaler or retailer.

This refers to the purchase of facilities materials, repair materials and consumables, and materials for its installation.

This refers to the installation by subcontractor’s labor and equipment according to the Company’s specification and procedures.

It is a supplier of the outsourced product manufactured by the purchase specification of the company, and it is subjected under the outsourcing guidance and priority management of technology, management and quality.

A supplier who supplies items in the above 3.1.2

A subcontractor who supplies items in the above 3.1.3, who can have temporary or continuing cooperative relationship.

A company that is contracted to provide services to perform at the Company’s facility using the Company’s equipment for a certain period of time.

A company who design, manufacture and install the equipment and conducts trial run as contracted by the Company.

(1) When the Company needs to procure from new supplier (strategic purchase, for example), it should be registered without provisional registration.
※ Provisional registration shall be made when requesting quotation from the partner company at the time of bidding.

(2) A new supplier has to be qualified for the below requirements, procurement team may conduct a site inspection with other relevant teams. When registering a supplier with “B” classification, it must be reported to the Chief of Procurement Team first. If a supplier is not qualified, it shall be reported to the Chief of Procurement Team before approve the registration. [However, Market Product/ consumables(gloves/welding rod/others)/distributors/raw materials/foreign companies are excluded]

-. New Registration Standard

(3) The new registration of a supplier should be done in company registration menu of VAATZ, with the related documents (Table 2) such as status table of suppliers (Form 2), and the registration should be completed through the approval of the team leader. (However, new registration of a foreign company should be completed by filling out registration request form and submitting it to the financial team.)

(4) For companies registered as a partner, there should be no restriction or discrimination on bidding opportunities for posting transactions without justifiable reason."

(Table 1) Attached Data by Category (Registration Form by Company)

■ Attachment :

(1) When the supplier’s transaction is suspended by financial authority, or when its operation is suspended or cancelled by government authority

(2) If the party is deemed unable to fulfill the contract, due to serious business reasons such as bankruptcy, forced execution by a third party, insolvency, application of company reorganization procedure, etc.

(3) If the party acknowledges that it is difficult fulfill the basic or separate contract due to dissolution, transfer of business or merger to another company, etc.

(1) If the party breaches any material content of this contract or separate contract, If the company, who are supposed to provide necessary materials to the party, delayed the fulfillment of matters necessary for the production of ordered parts without justifiable reasons and caused the supplier’s work to be interrupted

(2) If the supplier rejects production of ordered parts without proper reasons or is deemed difficult to deliver within due date for delivery because of delayed start

(3) If there is a significant reason to believe that the contract cannot be implemented in a satisfactory manner due to lack of technology, production and quality control capability of the supplier

The Committee shall review the transactions that amounts to 2% of the total subcontract amounts for the previous business year (when the total subcontract amount is less than 1 trillion Korean Won), or 1% of the total subcontract amounts for the previous business year(when the total subcontract amount is more than 1 trillion Korean Won).
(Same standard as Fair Trade Commission)

- Compliance with the company registration/cancellation/change procedure (RMS-B204)

- Compliance with business selection and bidding procedures (RMS-B207)

→ Pricing (Compliance with competition/review bidding procedures)

A. Occurrence of Written Issuance Obligation (Article 3 of Subcontracting Act)

B. Written Deion

C. Timing for Written Document Issuance

D. Methods for Written Document Issuance

E. Exceptions

F. Presumption of Subcontracts

A. Occurrence of Written Issuance Obligation (Article 11 of Subcontracting Act)

B. Written Deion

C. Timing for Written Documents Issuance

D. Method for Written Documents Issuance

E. Exceptions

A. Occurrence of Written Issuance Obligation (Article 12(3) of Subcontracting Act)

B. Contents of Written Documents

C. Timing for Written Documents Issuance

D. Method for Written Documents Issuance

E. Exceptions

A. Receipt Certificate of subject item, etc. (Article 8 of Subcontracting Act)

B. Issuance of Inspection Result for subject item, etc. (Article 9 of Subcontracting Act)

C. Issuance of Statement of Change in Contract Amount due to Design Change, etc.(Article 16 of Subcontracting Act)

D. Method for Written Documents Issuance

○ The document to be preserved must be preserved in its original state at the time it was used for consultation, issuance, etc. The same applies for information processed in electronic form by devices with information processing capabilities.

○ ’A’ and ‘B’ shall preserve documents for three years from the end of the subcontract transaction between the parties. Here, the term ‘subcontracting transaction’ means the following date.

- The Korean Fair Competition Federation, established pursuant to Article 32 of the 『Civil Act』

- The Korean Fair Trade Commission under Article 48-2 of the『Monopoly Regulation and Fair Trade Act』

- Korean Productivity Center in accordance with Article 32 of the『Industrial Development Act』

- Construction contractors in accordance with Article 50 of the『Framework Act on the Construction Industry』

- According to the Article 3, Paragraph 1, Item 4,『Small and Medium-sized Enterprises Cooperative Act』

- Other organizations recognized by the Fair Trade Commission