Hyundai Engineering and the Seoul Housing and Communities Corporation (SH) will suspend Seoul's first mid-rise modular housing project in three years due to increased construction costs. Hyundai Engineering and SH have been negotiating for nearly a year regarding a construction cost increase that has risen over 30 billion won due to the prolonged duration of the project, ultimately resulting in the project's cancellation.
According to the construction industry on the 10th, Hyundai Engineering and SH are in the process of terminating the agreement to construct the 'Gari Bong Old Market Site Redevelopment Public Housing Project with private participation' that was signed in 2021.
Previously, SH selected Hyundai Engineering as the private contractor for the 'Gari Bong Old Market Site Redevelopment Public Housing Project' in Guro District, Seoul, in July 2021. The project involves constructing 174 units of happy dwellings over a total floor area of 18,029 square meters, with three underground floors and twelve above-ground floors. It was also noted as Seoul's first mid-rise modular housing initiative.
This project was expected to proceed rapidly since the modular construction method can shorten the construction period by 20% to 50% compared to traditional methods. The modular method involves prefabricating key structures, such as columns, beams, and slabs, along with finishing works and restrooms, in a factory, then transporting and assembling them on site to complete the building.
However, the project faced delays in the approval process as the Seoul City government revised the design several times to reflect quality innovations in their rental housing improvements strategy. It took 2 years and 5 months from when Hyundai Engineering and SH signed the agreement until the project plan was approved.
The reason Hyundai Engineering and SH are terminating this project agreement is due to project costs. Hyundai Engineering requested an increase in project costs to account for rising prices due to delays in the approval process and changes in Seoul City's policies. As the approval process prolonged, the costs of construction materials skyrocketed, prompting Hyundai Engineering to ask for an increase of 32.3 billion won, which is a 50% rise from the original project cost of 66.7 billion won. However, SH did not accept Hyundai Engineering's request. The two parties could not narrow the gap regarding appropriate construction costs and ultimately agreed to terminate the agreement.
The reason Hyundai Engineering and SH are terminating this project agreement is due to project costs. Hyundai Engineering requested an increase in project costs to account for rising prices due to delays in the approval process and changes in Seoul City's policies. As the approval process prolonged, the costs of construction materials skyrocketed, prompting Hyundai Engineering to ask for an increase of 32.3 billion won, which is a 50% rise from the original project cost of 66.7 billion won. However, SH did not accept Hyundai Engineering's request. The two parties could not narrow the gap regarding appropriate construction costs and ultimately agreed to terminate the agreement.
Before terminating the agreement, Hyundai Engineering and SH decided to apply for mediation from the Korea Commercial Arbitration Board to settle the project costs incurred. Since settling project costs through litigation could typically take 3 to 5 years, they opted for mediation. In mediation, it usually takes about 6 months to a year for results to emerge, which has led many construction companies to choose mediation in construction cost disputes recently.
A representative from Hyundai Engineering stated, "The termination of the agreement is not yet finalized, and we have received a document from SH requesting mediation through the Korea Commercial Arbitration Board, to which we are responding."
A representative from SH mentioned, "(The mediation target is) the expenses that SH must bear due to the termination or cancellation of the agreement, namely, the amount actually invested by the private contractor consortium up until the cancellation or termination of this agreement based on the project agreement," and added, "We plan to apply for mediation to the Korea Commercial Arbitration Board and intend to abide by the arbitration ruling."
Due to this termination of the agreement, the redevelopment project for the Gari Bong Old Market Site is expected to be further delayed, and this fallout will likely impact the local residents. A representative from SH explained, "We will examine alternative projects to utilize the project site efficiently in consultation with the relevant agency, the Guro District Office."