Chungnam Cracks Down on Paper Companies in Construction Industry... "Pre-Bid Stage Monitoring"

[Asia Economy (Hongseong) Reporter Jeong Il-woong] Chungnam Province has taken strong measures to eradicate the establishment of paper companies in the local construction industry.

The province announced on the 27th that it recently detected two companies that failed to meet the construction business registration standards and imposed business suspension orders, initiating a crackdown on paper companies.

The detected companies were caught during a pre-bid crackdown investigation conducted by the province starting this year. During the investigation, Company A failed to meet the capital requirement among the capital, technical personnel, and office inspection items, while Company B was deemed ineligible in all three categories.

The province imposed business suspension orders of 4 months and 5 months on Companies A and B, respectively.

In addition to these companies, the province plans to continue crackdowns, as it views the trick of establishing paper companies to participate in bids and increase winning rates as widespread in the construction industry.

Currently, the number of general construction companies registered in Chungnam increased from 524 in 2016 to 893 as of this month, a rise of 369 companies (70.4%). During the same period, the number of specialized construction companies increased from 3,428 to 4,536, an increase of 1,108 companies (32.3%).

As the number of registered companies increased, the average number of bids per construction project ordered by the province also rose from 274 in 2019 to 299 in 2020, and 397 last year, intensifying competition.

The problem is that companies establishing paper companies without construction capability can illicitly gain unfair profits through illegal subcontracting and produce substandard construction projects, which may secretly emerge. The pre-bid crackdown is conducted to address such issues.

The pre-bid crackdown involves reviewing whether the bidding companies participating in construction projects ordered by the province meet the construction business registration standards through document and on-site verification, targeting the top-ranked bidder after bid opening.

At this time, unfair companies such as paper companies that fail to meet the construction business registration standards are deprived of bidding opportunities and subjected to administrative sanctions such as business suspension according to relevant laws.

Hong Soon-kwang, head of the Construction Policy Division of the province, said, “We have expanded the investigation of construction business registration standards targeting companies newly transferred to the province, long-term delinquent companies, and companies suspected of poor performance reported by civil complaints.” He added, “The province will continue to strive to protect sound local construction businesses and foster a fair construction culture.”