KT is expected to have disputes over construction costs with companies in the construction industry, such as Hyundai Engineering & Construction and Lotte Engineering & Construction, next year. This is because it rejected a court's mediation recommendation in its dispute with Ssangyong Engineering & Construction, signaling a major conflict with the construction sector.
According to the construction industry on the 20th, Hyundai Engineering & Construction plans to complete the remodeling work of KT's Gwanghwamun West office building in the first half of next year. The original completion date was March of next year, but it has been delayed due to design changes. Hyundai Engineering & Construction is currently working on the project under a contract with KT worth 180 billion won, but an additional 30 billion won in construction costs has been injected based on the first half of last year. It is understood that KT and Hyundai Engineering & Construction are continuing discussions regarding this matter.
A representative from Hyundai Engineering & Construction said, “We are negotiating with KT regarding the increased construction costs,” and noted, “The completion date has been adjusted, so we plan to continue negotiations until then.”
In the construction industry, the likelihood of KT paying the increased construction costs to Hyundai Engineering & Construction without any issues is considered low. This is because KT recently rejected two court mediation recommendations in its dispute over construction costs with Ssangyong Engineering & Construction. KT cites the ‘Exemption from Price Changes Clause’ as its basis. The Exemption from Price Changes Clause refers to a provision stating that when the client enters into a contract with the contractor, the 'increase in prices will not be reflected in the increased construction costs.'
KT may also engage in disputes over increased construction costs with Lotte Engineering & Construction next year. Lotte Engineering & Construction is working on the construction of the Jayang 1 Reorganization Promotion Zone in Gwangjin-gu, Seoul, which includes KT's site, and is set to complete in January. Lotte Engineering & Construction has demanded an increase of 100 billion won in construction costs, but KT, the client, has not accepted this. The reorganization of the Jayang 1 area is a redevelopment project of the 50,5178 square meters around the former telephone exchange site owned by KT, with the total project cost exceeding 1 trillion won. Lotte Engineering & Construction is also seeking discussions with KT regarding the increased construction costs.
A representative from a major construction company said, “KT is entering into contracts with multiple construction companies to develop the telephone exchange sites spread across the country,” and added, “From KT's perspective, once they concede the 'Exemption from Price Changes Clause', they will have to continuously pay additional construction costs in the future, so they are unlikely to back down easily.”
KT's subsidiary, KT Estate, is also likely to face a prolonged dispute over the ‘Confirmation of Non-existence of Debt’ lawsuit against Hanshin Construction filed in June. After Hanshin Construction, the contractor for the officetel development project in Busan's Choryang, demanded an additional 16 billion won (including VAT) in construction costs, KT refused this request based on the Exemption from Price Changes Clause and filed a lawsuit.
However, there is an opinion in the legal community that if the legal dispute between KT and the construction companies proceeds to the final trial, the likelihood of a favorable ruling for KT is low. Article 22, Paragraph 5 of the Basic Construction Industry Act stipulates, 'If the contents of the construction contract are significantly unfair to one party, that part shall be null and void,' indicating that the outcome of the litigation depends on whether there has been a significant change in circumstances. If it is recognized that the cause of the rise in construction costs was due to unavoidable factors, the construction company may be recognized as having been unjustly disadvantaged.
A KT representative said, “We are focusing on ensuring that the sites scheduled to be completed next year proceed without any issues according to the timeline,” and added, “It is difficult to mention the possibility of additional conflicts.”
Meanwhile, Ssangyong Construction won the contract for KT's Pangyo new office building in 2020 for 96.7 billion won and completed the project in April of last year. Ssangyong Construction demanded an additional 17.1 billion won in construction costs due to increased material costs, labor costs, and logistics costs resulting from COVID-19 and the Russia-Ukraine war, but KT refused and filed a 'Confirmation of Non-existence of Debt' lawsuit in May to confirm that it has no obligation to pay additional costs. Ssangyong Construction then filed a counterclaim for the additional construction payment.