Prosecutors Clear Three Construction Companies of Charges in Hannam 3 District Redevelopment Project's 'Excessive Bidding War' Case

'Support for Relocation Expenses' Included in Bid Proposal
"Violation of Ministry of Land, Infrastructure and Transport Notice but No Penalty Provisions"

[Asia Economy Reporter Kim Bong-gi] Three major construction companies that Seoul City requested an investigation into for engaging in an overheated bidding war during the contractor selection process for the Hannam 3 District redevelopment project in Yongsan-gu, Seoul, have been cleared of charges by the prosecution.

The Criminal Division 6 of the Seoul Northern District Prosecutors' Office (Chief Prosecutor Lee Tae-il) announced on the 21st that after investigating Hyundai Engineering & Construction, GS Engineering & Construction, and Daelim Industrial on charges of violating the Urban and Residential Environment Improvement Act and bid rigging, they found no grounds for prosecution.

Earlier, Seoul City and the Ministry of Land, Infrastructure and Transport, which conducted a special inspection of the contractor bidding process for Hannam 3 District, reported to the prosecution that the construction companies promised direct or indirect financial benefits to the union, such as interest-free support for project and relocation costs, through their bid proposals, and obstructed the bidding by promising practically unfeasible terms like guaranteed sale prices.

Seoul City judged this as a violation of Article 30, Paragraph 1 of the "Standards for Handling Maintenance Project Contracts" (Ministry of Land, Infrastructure and Transport Notice), which prohibits proposing financial benefits unrelated to construction, such as moving and relocation expenses, in bid proposals. However, the prosecution concluded that there are no criminal penalties for this.

A prosecution official explained, "What the Urban Maintenance Act prohibits is providing benefits to contracting parties separately from contract conclusion to induce contract formation, which is punishable as bribery. Publicly offering benefits to union members in bid proposals is not bribery but part of the contract content, so there is no penalty provision."

The prosecution also found no charges regarding the allegation that promising unfeasible terms such as "guaranteed sale prices" in the bid proposals obstructed the bidding process.

The prosecution stated, "Bid rigging requires obstructing the fairness of bidding through deception or coercion. Even if some items listed in the bid proposals cannot be fulfilled, this is merely a civil breach of contract issue and does not constitute deception or coercion under bid rigging laws."

The prosecution also judged that the allegations of false or exaggerated advertising in the bid proposals could not be considered advertising under relevant laws.

A prosecution official added, "This non-prosecution decision was promptly made based on the content of the bid proposals following Seoul City's investigation request, determining that there was no violation of the Urban Maintenance Act. This does not mean that no illegal acts occurred throughout the bidding process."

Previously, in November last year, Seoul City and the Ministry of Land, Infrastructure and Transport confirmed multiple illegalities during the contractor bidding process for Hannam 3 District, requested prosecution investigations into the three construction companies, and demanded corrective actions such as halting the bidding from the union. The union has decided to proceed with a re-bidding process.

The Hannam 3 District redevelopment project covers an area of 386,395.5 square meters around 686 Hannam-dong. The project plans to build a total of 5,816 housing units, including 4,940 for sale and 876 rental units.