KT, which has been in conflict with the construction company Ssangyong Engineering & Construction over the additional construction costs for the new Pangyo headquarters, is drawing attention in the construction industry after losing a lawsuit related to additional construction costs recently raised by a construction company.
According to the construction industry on the 6th, the 45th Civil Affairs Division of the Seoul Central District Court (Director General Kim Kyung-Soo) ruled partially in favor of the plaintiff in the lawsuit filed by GS Engineering and Construction against KT for construction payments on November 20 last year.
The court ordered KT to pay 7.67127 billion won and interest out of approximately 9.84378 billion won claimed by GS Engineering and Construction. The lawsuit costs were ordered to be borne 30% by GS Engineering and Construction and 70% by KT.
Previously, GS Engineering and Construction won a contract worth 113.3 billion won for the construction of a multi-purpose facility for KT’s new office in July 2016, and began construction aiming for completion in April 2019. However, after three rounds of design changes, the construction was completed only in July 2019, three months later than the planned completion date.
GS Engineering and Construction demanded KT to pay approximately 8.99911 billion won for additional construction costs due to design changes, indirect construction costs of 843.56 million won due to extended construction periods, and 1.1 million won for unpaid construction costs. KT refused to pay, claiming that the construction delays were the fault of the contractor, leading to a lawsuit battle that began in May 2020.
The court mostly cited GS Engineering and Construction's claim that additional construction costs arose during the process of changing the design at KT's request and that the construction period was prolonged.
The court stated, "The plaintiff (GS Engineering and Construction) submitted a factual report requesting approval, detailing the reasons for design changes and adjustment contract amounts, and it can be acknowledged that the construction was carried out following the defendant's (KT) approval of the design changes after review by the supervision team and fairness meetings. Therefore, unless there are special circumstances, the defendant has an obligation to pay the plaintiff additional construction costs due to design changes."
In the construction industry, reactions are emerging that this ruling positively reflects the trend that it is unfair for the contractor to bear all the increased construction costs.
A source from a medium-sized construction company said, "There are various factors leading to the overall increase in construction costs in society, and the atmosphere that the contractor should bear all the increases is spreading as unreasonable," and added, "The fact that the court sufficiently reflected the contractor's opinions in the ruling will work positively in other construction cost disputes, as seen in the results of this lawsuit between GS Engineering and Construction and KT."
However, this case involving GS Engineering and Construction is acknowledged for the cost increase related to design changes mutually agreed upon with KT, and there is a general consensus in the construction industry that it clearly differs from the nature of other ongoing construction cost disputes.
A source from a large construction company explained, "Design changes are made through mutual agreement between the implementing company and the contractor, so it is relatively easier for the contractor to be recognized for increased construction costs," but added that "the reasons for Ssangyong Engineering & Construction, Hyundai E&C, Lotte Engineering & Construction, and Hanshin Engineering & Construction engaging in litigation with KT are due to differing interpretations of the efficacy of the 'exclusion of price fluctuations clause', thus the difficulty is relatively higher."
KT filed a lawsuit for confirmation of 'non-existence of debt' against Ssangyong Engineering & Construction, which demanded 17.1 billion won for additional construction costs at the Pangyo headquarters last May, claiming that there is no obligation to pay additional construction costs according to the exclusion of price fluctuations clause. Ssangyong Engineering & Construction also filed a counter lawsuit for construction payment, with the first hearing scheduled for the 14th.
KT's subsidiary KT Estate also filed a lawsuit for confirmation of non-existence of debt last June against Hanshin Engineering & Construction, which was in charge of the development project of the Busan Choryang officetel, after it demanded 14 billion won in additional construction costs. There are also predictions that KT will be in conflict with Hyundai E&C and Lotte Engineering & Construction, the contractors for the KT Gwanghwamun headquarters and the new Gwangjin District Office in Seoul and Lotte Castle East Pole, over additional construction costs as they are approaching completion this year.
A KT official noted, "We respect the court's decision regarding the lawsuit with GS Engineering and Construction and have completed the payment of additional construction costs according to the ruling. This lawsuit involved the scale of additional construction costs due to design changes, arising from disagreements on settlement amounts between the contractor and the client during the settlement process after building completion."
They added, "The settlement of construction costs, including design changes concerning the KT Pangyo headquarters, has been completed, and Ssangyong Engineering & Construction is demanding an increase in construction costs due to price fluctuations, prompting ongoing litigation."
In the legal community, it is believed that the court's ruling on the additional construction costs dispute between KT and Ssangyong Engineering & Construction will have significant ripple effects on the overall construction industry. If a court ruling nullifies the exclusion of price fluctuations clause, it could increase the additional construction costs that contracting parties need to pay to contractors in the future. Conversely, if a ruling is made recognizing the exclusion of price fluctuations clause, contractors will not be able to share the burden of additional construction costs with clients.
Attorney Lee Jun-Young of the law firm Roadmap said, "The exclusion of price fluctuations clause, which does not reflect the increase in construction costs when contracting by the client and contractor, is, in principle, an unfair clause according to the Fair Trade Act, the Construction Industry Act, and the Subcontracting Act," but added, "When judged to be unfair, it is prohibited. However, in certain justified circumstances, it may be allowed."
He continued, "Even though there are lawsuits related to the same exclusion of price fluctuations clause, the results may vary depending on the characteristics of each contract and the circumstances at hand," adding that, "Because there are various types of contracts for estimating construction costs such as aggregate contracts, definitive contracts, unit price contracts, and limited aggregate contracts, how to interpret the exclusion of price fluctuations clause in each case will depend on the court's judgment."
그는 이어 “같은 물가변동 배제 특약 관련 소송이더라도 각 도급계약의 성격과 처한 상황에 따라 결과는 달라질 수 있다”며 “공사비를 산정하는 방식이 총액계약, 확정계약, 단가계약, 제한적 총액 계약 등 종류가 매우 다양하기 때문에 각 사례마다 물가변동 배제 특약을 어떻게 해석할지는 법원의 판단을 지켜봐야 한다”고 덧붙였다.