Seoul City to Prevent Construction Cost Conflicts...Mandatory Verification and Increase Reporting System

Seoul City announced on the 27th that it will implement a 'Comprehensive Construction Contract Management Plan' to prevent conflicts between associations and contractors caused by increased construction costs in advance.

This comes in response to the recent rapid rise in interest rates, material costs, and labor costs, which has led to frequent disputes between associations and contractors during the construction cost adjustment process.

The city's management plan focuses on ▲ revising the association bylaws for redevelopment projects ▲ revising the standard construction contract for redevelopment projects ▲ encouraging prior consultation for projects expected to have cost increases ▲ operating a reporting system for occurrences of construction cost increase reasons.

First, the city plans to induce the 'revision of association bylaws' through administrative guidance so that verification of construction costs for contract changes and approval of changes to the management disposition plan begins at least one year before the scheduled move-in date.

Although the final 'approval of the management disposition plan (change)' for construction cost changes, including cost verification, takes about six months, most procedures start close to the completion date, making it difficult to finalize changes by the move-in time, which has been a source of conflict.

The city also revised the 'standard construction contract for redevelopment projects,' which forms the basis of the contract between associations and contractors, to require construction cost verification by redevelopment support organizations such as the Korea Real Estate Board and Seoul Housing & Communities Corporation when there is a reason for cost increase, and to ensure that the verification results are reflected.

To prevent construction cost increases from escalating into disputes, a 'reporting system for occurrences of construction cost increase reasons' will also be operated.

Under this reporting system, when a contractor requests a cost increase contract from the association and simultaneously reports it to the competent local government authority with permitting power, the local government will grasp the situation and actively mediate by encouraging prior agreement.

If either party delays or avoids negotiations without justifiable reasons during this process, the city and district joint fact-finding investigation will supervise to ensure smooth negotiations.

Furthermore, the city will conduct a full survey of redevelopment projects where contractors have already been selected and induce prior consultations related to construction cost increases, such as cost verification, for projects expected to have disputes due to cost increases. If necessary, redevelopment project coordinators composed of experts will be dispatched.

For construction sites where work is halted due to construction cost disputes, a quality inspection team will be dispatched under Article 48-3 of the Housing Act, and if deficiencies in site management are found, administrative measures will be taken against the contractor.

The city also plans to propose legal amendments to prevent contractors from refusing or obstructing move-ins without justifiable reasons. Specifically, it plans to impose penalty points on contractors who exceed lawful rights, and based on accumulated penalty points, impose strong penalties such as fines and restrictions on bidding for redevelopment projects.

Han Byung-yong, Director of the Seoul Housing Policy Office, said, "Since the damage caused by conflicts between associations and contractors ultimately affects citizens, we will actively engage in construction contract management and dispute mediation going forward."