With the enforcement of the amendments to Articles 2 and 3 of the Trade Union and Labor Relations Adjustment Act, known as the "yellow envelope law, a new labor law aimed at strengthening the bargaining rights of subcontract workers," now about two months away, the construction industry is on edge. If labor-management relations worsen, the burden from schedule delays could grow. Some builders are even saying that labor disputes, including strikes, should be included as grounds for extending project financing (PF) guaranteed completion deadlines.
According to the construction industry on Jan. 7, builders are submitting various proposals through associations to the government so they can reduce trial and error from the Mar. 10 enforcement of the yellow envelope law, a new labor law aimed at strengthening the bargaining rights of subcontract workers.
The yellow envelope law, a new labor law aimed at strengthening the bargaining rights of subcontract workers, broadens the scope of employers to strengthen the responsibility of prime contractors for subcontracted workers and limits the scope of damages against unions or workers. The scope of employers includes not only parties who have directly signed labor contracts, but also those "in a position to exercise substantial and specific control or decision-making over workers' working conditions." When this law takes effect, subcontractor unions or workers will be able to demand direct bargaining or go on strike to the extent that the prime contractor's substantial control is recognized.
Builders worry that, once the law takes effect, problems could arise because many partner firms participate in construction processes. Bargaining by each firm is practically impossible, and if individual groups bargain or strike indiscriminately, the financial expense burden from schedule delays could increase.
A construction company official said, "Once the yellow envelope law, a new labor law aimed at strengthening the bargaining rights of subcontract workers, takes effect, there will be more unknowns," adding, "It will likely involve about one to two years of trial and error." The official added, "Problems stemming from labor-management relations can directly hit project execution," and said, "In particular, for guaranteed completion, it would be good if we could capture these (potential risk) elements when contracting with the syndicate, but lenders tend to be conservative, so it's unclear what they will allow." Another construction company official said, "For housing, the fact that we might fail to meet the promised move-in date with residents could also be a problem."
Some builders are also proposing that labor disputes, including strikes, be included as grounds to extend guaranteed completion. Guaranteed completion is a PF contract under which, if construction is not finished within the set period, the builder assumes all resulting debt. Under last year's PF normalization measures by the government, the grounds for extending guaranteed completion were expanded from force majeure, insurrection, and war to also include raw material supply-demand imbalances, enactment or revision of laws, epidemics, typhoons, floods, heat waves, cold waves, and earthquakes.
An executive at a construction company said, "Construction sites are structured so that the prime contractor, numerous subcontractors, and partner firms divide roles, and they are already affected by various unions across processes such as tower cranes and ready-mixed concrete," adding, "Nationwide union strikes are situations that cannot be prepared for or predicted on site, yet we are exposed to the risk of bearing all the responsibility." The executive said, "So that we can respond to risk rationally, we are continually asking (the government) to review extending the grounds for guaranteed completion to include exculpation for the period of construction suspension caused by actual strikes related to unions."
Despite the industry's proposals, the government says it is realistically difficult to include construction period increases caused by labor disputes, including strikes, as grounds to extend guaranteed completion. That is because improving the grounds for extending guaranteed completion requires discussions not only with the Ministry of Land, Infrastructure and Transport (MOLIT) but also with the financial authorities and the lending syndicate of financial institutions.
A Ministry of Land, Infrastructure and Transport (MOLIT) official said, "The National Contract Act's penalty for delay provision sets out unavoidable exceptions when public projects are delayed," adding, "When the National Contract Act does not recognize (construction period increases due to strikes) as an exception, we cannot tell private financial institutions to recognize it as a ground to extend guaranteed completion." The official added, "If (builders) face many problems, we need to discuss improvement measures, and if institutionalization becomes possible in that process, it would expand by first recognizing it as an exception in public procurement."