Samsung C&T's construction division (Samsung C&T) is facing complaints from some members of the Yeouido Daekyo Apartment reconstruction association that it violated the bidding guidelines proposed by the association. Samsung C&T is widely expected to sign a private contract after submitting a sole bid for the Daekyo Apartment reconstruction.
On the 13th, according to the maintenance and redevelopment industry, some members of the Yeouido Daekyo Apartment reconstruction association claim that the bases for the project cost interest rate suggested by Samsung C&T, the relocation loan and additional relocation loan rates, and the criteria for applying construction cost inflation differ from the bidding guidelines presented by the association.
Construction companies participating in bids to select a contractor for a maintenance and redevelopment project must propose their plans in line with the guidelines set by the association. If a proposal departs from the association's bidding guidelines, the association may, at its discretion, confiscate the bid bond or strip the bidder of eligibility.
Through its bidding guidelines, the Yeouido Daekyo reconstruction association required the contractor to set all interest rate conditions for the project as "negotiable certificate of deposit (CD) + spread," with the spread to be presented as a fixed rate. The judgment was that a fixed rate would be more advantageous to the association than a floating rate to maintain project stability. However, members say Samsung C&T's project proposal, submitted for the bid, listed the "lowest loan rate at the time of financing," effectively offering a floating rate.
A review of the association's bidding guidelines shows it also required the contractor to present the same criteria for the project cost interest rate and the bid bond interest rate. However, some members assert that Samsung C&T presented different rates for the bid bond and the project cost. According to Samsung C&T's proposal, the bid bond carried CD+0%, while the main project cost would be offered at "the lowest financing rate available from financial institutions at the time of borrowing."
The association also required in the bidding guidelines that the additional relocation loan rate be the same as the basic relocation loan rate. In other words, Samsung C&T should set the same rate as the first-tier bank relocation loan when raising funds for the additional relocation loan. However, Samsung C&T explained that the basic relocation loan would be a direct loan through a group mortgage executed by a financial institution selected by the association, while the additional relocation loan would be provided under a credit facility, leaving room to apply a different rate. Some members pointed out, "If the conditions are different, doesn't that mean a different rate will be applied?"
Members also criticized Samsung C&T for not following the association's guidelines on criteria for adjusting construction costs due to price fluctuations. The bidding guidelines allow construction costs to be raised by applying the lower of the consumer price index and the construction cost index until the actual start of construction. Samsung C&T, however, proposed applying the arithmetic average of the two indices. Some members say that if the arithmetic average is applied instead of the lower index, the subsequent increase in construction costs will be much larger.
Member A of the Daekyo Apartment association said, "Samsung C&T submitted a sole bid without competition and is on the verge of a private contract soon," but added, "It is a problem that key financial terms and the criteria for applying the construction cost inflation rate, which have a major impact on the reconstruction project, were adjusted in favor of Samsung C&T contrary to the association's guidelines." The member added, "Within the association, some say we should let it pass quietly since Samsung C&T, the No. 1 builder, will be selected as the contractor, while others argue it must be corrected because it could significantly increase members' cost shares going forward."
The Yeouido Daekyo Apartment reconstruction association said regarding the controversy over Samsung C&T's alleged violations of bidding guidelines, "We understand there is no content constituting a guideline violation."
Samsung C&T also said there is no reason for a guideline violation in the project proposal it submitted while participating in the bid to select the contractor for the Yeouido Daekyo Apartment project. A Samsung C&T official said, "We submitted the optimal project proposal we could present to the association," and "We proposed it within the bounds of the bidding guidelines set by the association."
The Daekyo Apartment reconstruction association plans to hold a general meeting on the 15th to put to a vote a motion to sign a private contract with Samsung C&T, which is currently the preferred negotiation partner.
An industry official in the maintenance and redevelopment sector said, "If Samsung C&T is selected as the final contractor through the association's general meeting this month, even if the proposal differs from the bidding guidelines, there will be no legal issue afterward once it is approved at the meeting because a private contract is then formed," adding, "We have to watch the outcome of the meeting to see whether members will prioritize speed by signing a private contract with Samsung C&T, or pursue a new bid to find a contractor that meets the association's terms even if it takes longer."
Samsung C&T submitted a sole bid in two rounds of bidding for the Yeouido Daekyo Apartment contractor held in September and was selected as the preferred negotiation partner.
The Yeouido Daekyo Apartment reconstruction aims to rebuild 576 homes at 41 Yeouido-dong, Yeongdeungpo-gu, Seoul, into a new complex of four buildings with 912 homes, from five floors underground to 49 floors above ground. The expected construction cost is 11.2 million won per 3.3 square meters, totaling an estimated 772.1 billion won.