Ministry of Land, Infrastructure and Transport "Establishing Construction Cost Adjustment Standards Based on Reconstruction and Redevelopment Construction Costs"

Ministry of Land, Infrastructure and Transport Creates 'Standard Construction Contract for Maintenance Projects'
To Be Used When Maintenance Associations and Contractors Sign Construction Contracts

The Ministry of Land, Infrastructure and Transport (hereinafter referred to as MOLIT) announced on the 23rd that it has clarified the basis for calculating construction costs in reconstruction and redevelopment projects and established standards for adjusting construction costs due to design changes and price fluctuations. MOLIT has created a "Standard Construction Contract for Maintenance Projects" for maintenance associations and construction companies to use when signing construction contracts.

MOLIT plans to distribute this contract to local governments and related associations for use. The "Standard Construction Contract for Maintenance Projects" is a follow-up measure to the housing supply expansion plan announced on the 10th. It was prepared to minimize disputes over construction costs between associations and construction companies and to support the swift progress of projects.

MOLIT explained, "Currently, many maintenance projects conclude contracts based only on the total construction cost without detailed breakdowns. When construction companies request additional costs due to design changes, associations find it difficult to assess the appropriateness of the amounts, which has been a source of disputes." For example, problems arose such as "total amount contract → association requests A-grade materials → construction company demands an increase citing that the original total cost was based on B-grade materials → difficulty in judging the appropriateness of the increase," leading to conflicts between construction companies and associations.

MOLIT stated, "While selecting construction companies based on the total proposed construction cost, we require the construction company to submit a detailed cost breakdown before signing the contract after selection," adding, "By attaching this to the contract, the basis for construction costs is clarified."

However, "The association must provide the basic design drawings for the construction company to submit the detailed breakdown. If the association finds it difficult to provide the drawings, the construction company must submit a quality specification sheet when bidding, and the contract will be based on this," MOLIT added. The quality specification sheet is a document specifying clear specifications for finishing materials and equipment proposed by the construction company to the association at the time of bidding.

The issue of ambiguous standards for adjusting construction costs due to design changes, which previously required only "simple consultation" in maintenance project contracts, has also been addressed. Previously, contracts stated only that "in case of design changes, Party A and Party B shall mutually consult to adjust the construction amount." MOLIT included detailed standards for adjusting construction costs depending on the reasons for design changes and newly added materials to facilitate smooth cost adjustments. Methods for calculating unit prices based on whether additional materials due to design changes are existing or new items were also presented.

Seoul City approved the architectural plan for the reconstruction project of Sanggye Jugong Complex 5 at the 15th Architecture Committee meeting. The photo shows Sanggye Jugong Complex 5 in Nowon-gu, Seoul, on the 31st. Photo by Jinhyung Kang aymsdream@

The method of adjusting construction costs in maintenance projects by applying the Consumer Price Index (CPI) fluctuation rate has also been changed. MOLIT explained, "Until now, many maintenance projects have applied the CPI fluctuation rate to the original construction cost to adjust for price changes. However, the CPI reflects prices of items frequently consumed by the public, such as food and clothing, and does not sufficiently reflect construction costs," adding, "We have made the price adjustment method more realistic by using the index adjustment rate method according to the National Contract Act to reflect price fluctuations in construction costs."

In particular, the problem that price fluctuations could not be reflected after construction commencement has been improved. Even after construction starts, if the price of certain materials surges, some price adjustments can be reflected.

In cases where excavation work requires a large increase and the geological conditions differ from the initial geological survey report, allowing the construction company to request an increase, the regulation requires verification of supporting documents by the supervising inspector before approving the increase, preventing excessive increase demands.

Park Yong-seon, Director of the Housing Maintenance Division at MOLIT, said, "With the establishment of the 'Standard Construction Contract for Maintenance Projects,' it is expected that disputes caused by ambiguous or somewhat one-sided contract terms will decrease." He added, "For projects where disputes actually occur, we will closely manage them with local governments and promote measures to grant the dispute mediation committee the effect of judicial reconciliation for swift dispute resolution (requiring legal amendments)."

The Standard Construction Contract for Maintenance Projects can be found on the MOLIT website (Policy Materials → Policy Information → 2024 Standard Construction Contract for Maintenance Projects).