As construction material costs rise, disputes over construction costs at reconstruction and redevelopment sites have increased, leading project implementers to sharply ramp up requests for cost verification by verification agencies.
According to data submitted by An Tae-jun of the Democratic Party of Korea, a member of the Land Infrastructure and Transport Committee, from the Korea Real Estate Board (REB) on the 12th, requests for verification of construction cost increases under the construction cost verification system nearly tripled from 13 in 2020 to 36 in 2024, and this year there were 38 cases through July, already surpassing last year's total.
The construction cost verification system requires a project implementer to commission the Korea Real Estate Board (REB), the verification agency, to review the appropriateness when raising construction costs by more than a certain percentage. Once the results come out, the association and the contractor negotiate the price.
Under the "Standards for handling contract work for maintenance projects," applications can be made when: ▲ at least one-fifth of association members request it ▲ construction costs are increased by 10% or more before project implementation approval ▲ construction costs are increased by 5% or more after project implementation approval ▲ there is an attempt to increase construction costs by 3% or more after construction cost verification.
The requested amounts for verification rose from 1.5684 trillion won in 2020 to 4.8009 trillion won last year, and stood at 5.682 trillion won as of the end of July this year.
The increase in requests to verification agencies is analyzed as stemming from the recent sharp rise in construction material prices, which has fueled more conflicts over construction costs between project operators and builders.
The construction cost index, which shows price changes for materials, equipment, and labor, jumped from 100 in 2020 (base year) to 119.8 in 2022 and 127.1 in 2023, and reached 131 in July this year.
The share of the "recognized amount of necessary increase," which the REB acknowledged as needing an increase, also rose sharply over five years. In 2020, only 70.5% (1.1054 trillion won) of the total requested amount was recognized, but this year 79.8% (4.534 trillion won) of requested amounts was recognized.
Of the 171 construction cost verification requests received by the REB over the past five years, more than half (101 cases, 59%) were "requests for a 10% or more increase in construction costs." The next most common were "requests for a 5% or more increase in construction costs," with 43 cases (25.1%).
This year, through July, "10% or more increases in construction costs" accounted for 24 cases, or 63.1% of all requests for construction cost increases.
An said, "There are very many construction sites where conflicts are breaking out between associations and contractors due to rising construction costs," adding, "The government should proactively devise effective mediation and arbitration measures for construction cost disputes so that schedules for dwellings supply are not disrupted."