The National Assembly is reviewing a legal amendment to allow only specialty contractors to win construction projects worth 1 billion won or less. Starting next year, general contractors will be able to win all projects regardless of amount, raising concerns that specialty contractors could face a crisis, prompting the assembly to pursue the amendment.
Construction companies are largely divided into general contractors and specialty contractors. General contractors plan, manage, and coordinate entire projects such as apartments and bridges while building facilities. Specialty contractors are subcontractors that handle specific fields such as interior construction, earthwork, plastering, and waterproofing. Currently, general contractors are restricted from winning projects worth 430 million won or less, but that restriction will be lifted starting next year.
On the 26th, according to the National Assembly, on the 7th, 12 lawmakers including Moon Jae-seok of the Democratic Party of Korea introduced a "Partial Amendment to the Framework Act on the Construction Industry." The bill, now under discussion at the Land Infrastructure and Transport Committee, centers on erecting a safeguard so that only specialty contractors can win projects worth 1 billion won or less. An aide in Moon's office said, "Currently, a protection zone is set so that only specialty contractors can win projects worth 430 million won or less, but this system sunsets at the end of this year and full market opening is ahead," and added, "As the construction market has deteriorated due to COVID-19 and the war in Ukraine, more specialty contractors are struggling, and we prepared the amendment in light of this."
Earlier, in 2018 under the Moon Jae-in administration, general contractors and specialty contractors agreed to abolish compartmentalized sector regulations between the two and to allow mutual market entry. At the time, the Ministry of Land, Infrastructure and Transport said, "To innovate the construction industry, we will break down the compartmentalized sector regulations that have stood for 40 years," and announced a "road map to innovate the production structure of the construction industry" that included these measures. After that, starting with public projects in 2021 and extending to private projects in 2022, mutual entry became possible. However, small projects worth 430 million won or less can be won only by specialty contractors until the end of this year. If the assembly amends the law, the market opening planned for the end of this year will be scrapped.
Separately from the assembly, the government has also launched a study on market opening between sectors. The Ministry of Land, Infrastructure and Transport commissioned the Korea Research Institute for Human Settlements (KRIHS) to analyze the effects of market opening for specialty contractors and general contractors. An official at the Ministry of Land, Infrastructure and Transport (MOLIT) said, "We are analyzing the effects of mutual market opening," and added, "We are comprehensively reviewing whether removing the 430 million won protection zone would cause any problems." The administration is reexamining from square one the stance it announced eight years ago on market opening.
The positions of each sector diverge. Kim Young-seung, director of external cooperation support at the Korea Specialty contractors association, said, "The gap in orders between general contractors and specialty contractors is widening, and more specialty contractors are saying they are having a hard time," and added, "The protection zone's amount should be raised." In contrast, the Construction Association of Korea, which represents general contractors, says the demand is excessive. Choi Kyu-yoon, director of construction promotion at the Construction Association of Korea, said, "Mutual market opening was decided based on an agreement among the government, workers on both sides, and corporations that reform was needed as part of innovating the construction industry's production system, but to roll back that agreement to the starting point and to have specialty contractors take all small projects under 1 billion won again is an excessive demand."
Lee Eun-hyung, a research fellow at the Construction & Economy Research Institute of Korea, explained, "The government and the industry announced market opening, and it proceeded in stages, but due to bidding conditions and other factors, situations increased in which general contractors took on small-scale projects that specialty contractors had handled, leading to more complaints from specialty contractors and calls for system improvements."
According to the Ministry of Land, Infrastructure and Transport (MOLIT) Construction Industry Knowledge Information System (KISCON), as of the end of last year there were 84,916 construction companies, including 18,548 general contractors and 66,368 specialty contractors.