The government will support the activation of construction projects by raising unit prices for public construction projects that cause delays in groundbreaking and applying special exceptions that reflect prices in private investment projects.

(Seoul=News1) Lee Jae-myung reports that, on Dec. 5, in the afternoon, repair work is ongoing due to a broken water supply pipe at the intersection of Seodaemun Station in Seoul. A Seoul City official states, “No vehicle controls are in place, but the lanes are narrowed due to construction zones,” adding, “By 4 PM, the paving should be completed, and vehicle traffic is expected to flow smoothly.” /Courtesy of News1

The Ministry of Land, Infrastructure and Transport announced the 'construction industry revitalization plan' containing this information during a meeting of related ministers aimed at strengthening industrial competitiveness at the Government Seoul Building on the 23rd.

According to the construction industry revitalization plan, the government will refine the cost estimation standards (standard unit prices and market prices), which can adjust public construction costs, by categorizing them into 22 specific items and 9 common items based on construction conditions (location, site characteristics, etc.) to realistically reflect public construction costs. For example, if the structure changes by floor in an apartment building, a new formwork surcharge standard will be created and applied differently according to location and conditions.

The general management fee, which has remained the same for over 30 years since 1989, will also be increased by 1-2 percentage points for small to medium-sized construction projects. The general management rate is the ratio used to determine general management expenses, which are necessarily incurred for the maintenance activities of companies such as headquarters staff salaries, transportation, and communication costs, multiplied by direct construction costs like material costs, labor costs, and expenses.

The plan to increase the bid rate by analyzing the execution rate, which is the executed amount compared to the completion amount at the time of completion. /Courtesy of Ministry of Land, Infrastructure and Transport

The low bid rates, currently in the 80% range due to low bidding practices, will also be raised by 1.3-3.3 percentage points to ensure that construction companies are guaranteed direct construction costs.

In periods of soaring construction costs, the criteria for reflecting inflation before the bidding phase will be modified to ensure the smooth inclusion of price increases in construction costs. Currently, the lower index between the construction cost index and nominal GDP divided by real GDP is utilized. In the future, the GDP deflator will fundamentally be applied. If the difference in growth rates between the two indices exceeds 4 percentage points, the average value will be reflected.

If a turnkey project where the construction company performs both design and construction is conducted through a negotiation contract, the inflation during the approximately one-year design period will also be smoothly reflected.

For private investment projects, which are currently facing repeated failures to receive bids, a 'price exception' will also be applied to additionally reflect inflation during periods of soaring construction costs. The Ministry of Land, Infrastructure and Transport reports that reflecting this in the 11 private investment projects worth 12 trillion won could generate an investment effect of up to 500 billion won.

Plans are also in place to discover new projects for upgrading and operating the Pyeongtaek-Siheung Expressway and the Second Yongin-Seoul Expressway, which are currently operated by private investment corporations. In the past, upgrades and operation-type projects were only possible when the operating period expired, but in the future, this will also become possible for routes currently in operation.

To expand private investment, efforts will be made to support quick starts, minimize construction halts, and improve investment conditions. For normal operating sites, the project financing (PF) guarantee will be increased from 3.5 billion won to 40 trillion won, an increase of 5 trillion won. If a completion guarantee can be issued, support for groundbreaking will be provided not only for trust-managed establishments but also for non-trust establishments.

The syndicated loans that lend capital for the public auction of failing establishments will be expanded to 2 trillion won within the first quarter of next year, with plans for further expansion to a maximum of 5 trillion won.

It will be mandatory to dispatch a construction cost dispute resolution team composed of experts to large-scale repair establishments, and the establishment of a city dispute committee at local governments will also be proposed to enhance mediation functions.

To improve investment conditions, measures will be developed to purchase corporate bonds or commercial paper (CP) and support the issuance of corporate bonds by medium-sized construction companies by the first quarter of next year. For small and medium-sized construction companies, a temporary discount of up to 20% on guarantee fees for local construction sites will apply next year.

Regarding the liability completion obligations that construction companies bear in PF projects, there are plans to establish a task force involving the Ministry of Land, Infrastructure and Transport, the Financial Services Commission, and the industry to prepare a rationalization plan by the first quarter of next year.

For the implementers, regulatory relaxations will also be carried out, including measures to reduce commission burdens and to shorten the restrictions on pre-sales due to business suspensions by up to 50% in cases of less than six months.

Kim Sang-moon, Director of the Construction Policy Bureau at the Ministry of Land, Infrastructure and Transport, noted, 'We will promptly implement detailed tasks so that they can be immediately felt in the construction market and strengthen management through periodic inspections,' adding that 'the rationalization plan for the cost correction standards among the construction cost realization tasks will be applied immediately from January next year, with revisions to related regulations planned for the first quarter of next year for the remaining tasks.'