The government is improving the system to specify the possibility of construction cost increases from the bidding phase for the selection of construction companies, as conflicts surrounding construction cost increases between construction companies and cooperatives have continued in the field of maintenance projects such as reconstruction and redevelopment.
However, there are reactions noting that, given the construction cost conflicts arising from changes in external environments such as the novel coronavirus infection (COVID-19), there are limitations to resolving these issues immediately.
According to the maintenance industry on the 13th, the Ministry of Land, Infrastructure and Transport has announced a partial revision of the "standards for processing maintenance project contracts" that includes specifying the "possibility of construction cost fluctuations" from the bidding stage for construction companies on the 11th.
The revised plan, which will be implemented starting in April, includes additional requirements regarding the financial status and construction capabilities of the construction company, project overview details such as design outline and unit configuration, criteria for construction cost fluctuations due to price changes, and specifications on the standards, performance, and materials of finished materials. This aims to specify the conditions for construction cost increases from the early stages of the project to prevent future construction cost conflicts.
Recently, the cooperative of 'Maple Jai' in Jamwon-dong, Seocho-gu, Seoul, and the construction company GS Engineering and Construction entered into litigation over construction cost increases. The conflict began when GS Engineering and Construction requested an additional construction cost of 485.9 billion won from the cooperative. The cooperative requested the Korea Real Estate Board to verify the construction cost for the specialized design increase of 228.8 billion won. When the cooperative stated that it could not accept the remaining price fluctuation increase of 257.1 billion won, GS Engineering and Construction filed a lawsuit for construction payment.
GS Engineering and Construction is also in conflict with the cooperative of 'Cheolsan Jai the Heritage' in Gwangmyeong over additional construction costs. It requested an additional construction cost of 103.2 billion won from the cooperative, reflecting price increases and increased financial costs.
Earlier, in 'Olympic Park Foreon' in Dunchon-dong, Gangdong-gu, Seoul, the conflict over additional construction costs between the cooperative and the construction consortium (Hyundai E&C, HDC Hyundai Development Company, Daewoo E&C, Lotte E&C) intensified, causing construction to stop for six months in 2022.
In the maintenance industry, it is assessed that the increase in construction costs due to unpredictable variables such as COVID-19 or wars occurring abroad is the cause of conflicts, and that the government's revision plan alone is insufficient to resolve the conflicts currently erupting everywhere.
A representative of a construction company said, "Most of the sites showing differences with the cooperatives regarding construction cost increase requests were places that signed contracts to select construction companies before the spread of COVID-19," adding, "When the cooperative receives management and disposal approval 2 to 3 years later and signs a main contract with the construction company, the cost of construction has increased on average by 30 to 40% compared to the time of selecting the construction company during the spread of COVID-19."
He noted that "cooperatives with many members in the metropolitan area have already created bidding guidelines and written contracts containing most of the contents of the revised standards for processing maintenance project contracts," but added, "While this revision may offer some guidance to small-scale cooperatives across the country, I believe it will not stop the ongoing construction cost conflicts between construction companies and cooperatives."
A representative of the maintenance industry explained, "Before the COVID-19 period, construction costs converged around 5 million won per 3.3 square meters, but now it has risen to between 8 million won and 9 million won. Since construction companies cannot bear all the increases in raw material prices and labor costs, they are requesting a certain portion of additional construction costs from cooperatives, while cooperatives are unable to accept this, saying that the burdens on member contributions have greatly increased, leading to conflicts."
There is also a response from cooperatives promoting maintenance projects nationwide that the revised plan will not significantly help resolve the widespread conflicts over construction costs, as the lack of legal enforceability may prevent agreements between cooperatives and construction companies on construction cost increases, leading to work stoppages or restrictions on occupancy.
B, the head of a cooperative promoting an apartment reconstruction project in the metropolitan area, said, "I believe this revised plan, aimed at preventing conflicts over construction costs, is not very meaningful in terms of effectiveness," and added, "It serves more as a guideline for providing more information to members, and unless it has legal enforceability like a court ruling, its contribution to resolving conflicts will be very limited."
There were also opinions that to minimize construction cost conflicts between construction companies and cooperatives, the timing for selecting construction companies should be postponed to shorten the period between signing construction contracts and actual commencement.
C, the head of a cooperative conducting maintenance projects in Seoul, also stated, "We should consider delaying the timing for selecting construction companies to the stage of obtaining project implementation approval rather than the initial stage of cooperative establishment approval to reduce conflicts," noting that when a construction company is chosen at the time of cooperative establishment approval, proper design drawings are not available, resulting in nearly 5 years until the start of work.
He added, "If the selection of construction companies is done after obtaining project implementation approval, the differences in construction costs between construction companies and cooperatives regarding price increases may significantly decrease."