The government has eased real estate project financing (PF) regulations and moved to provide financial support to the construction industry, but the specialty contractors sector said orders are not leading to actual groundbreakings and construction output. The industry cited the subcontracting structure that reduces construction costs as projects pass through general contractors, low benchmarks for calculating construction costs, and increased safety management expenses as major burdens.
On the 1st, Korea Specialty contractors association President Yun Hak-su said at a press briefing held at the association's Sejong Center that "the government is rolling out various measures to revive the construction economy, but it is hard to feel this in indicators or at actual groundbreaking sites," adding, "member companies are experiencing great difficulties."
In fact, according to the Ministry of Data and Statistics (MODS), construction output (construction progress) actually carried out at construction sites in July fell 1.1% from the previous month. Through real estate finance measures released on the 13th of last month, the government decided to defer for two years the PF equity ratio regulation for residential business sites and to induce the financial sector to supply project funds.
Yun argued that the current subcontracting system operates in a way that reduces specialty contractors' construction costs. Yun said, "A general contractor subcontracts a project it has won to another general contractor, and then passes it on again to a specialty contractor, and margins are shaved off at each step."
The current Framework Act on the Construction Industry, in principle, prohibits re-subcontracting. However, as an exception, when a general contractor that has received a general construction subcontract obtains the ordering party's written consent, it is allowed to reassign to a specialty contractor portions of the work that fall under specialty construction during the project.
Yun said, "For example, if a general contractor takes 30% off a project won for 1 million won and subcontracts it for 700,000 won, it is difficult to ensure safety and quality and still meet the construction schedule with that amount," adding, "low-price subcontracting ultimately raises concerns about quality degradation." Yun then urged system improvements, saying, "Subcontracting to accumulate bidding qualifications or construction track records can increase paper companies."
The association also opposed expanding the application of the standard market unit price that the government is reviewing. The standard market unit price is calculated based on contract, bidding and construction prices of projects already carried out. It is mainly used when estimating the projected price of projects worth 10 billion won or more. The industry sees the standard market unit price as typically about 10% lower than the standard unit cost.
An association official said, "Projects worth 10 billion won or more benefit from economies of scale, but small-scale projects involve many on-site conditions and variables, so relatively more expense is incurred," adding, "if the standard market unit price is also applied to small-scale projects where the qualified evaluation winning rate applies, construction costs could be reduced further." The official added, "Emphasizing safety and quality while actually reducing construction costs is a contradiction."
Yun also argued that industrial safety and health management expenses need to be further aligned with reality. Yun said, "In the past, a single piece of equipment worked alone, but now many sites assign a safety guide to each piece of equipment," adding, "to protect safety on-site, increased safety personnel and equipment expenses must be sufficiently reflected in construction costs."
Yun took office as Korea Specialty contractors association president in 2021 and is serving as the 12th and 13th president.