Busan Urban Corporation Reflects Rising Construction Costs in Public Housing Projects

First Ever Local Public Corporation Requests Pre-Consulting from Board of Audit and Inspection

Efforts to Resolve Conflicting Interests Between Public and Private Sectors

Busan Metropolitan Corporation (BMC) will be the first among local public corporations nationwide to apply for a pre-consultation with the Board of Audit and Inspection regarding an increase in project costs for public housing projects with private sector participation due to price fluctuations.

This is a follow-up measure to the decision made by the Ministry of Land, Infrastructure and Transport’s Public-Private Joint Construction Investment Project Adjustment Committee.

The public housing project with private sector participation is a project jointly implemented by private contractors and public institutions.

The public institution is responsible for providing land and managing the construction project, while the private contractor is responsible for design, construction management, handling civil complaints, defects, and other construction-related tasks.

Before the revision of the Ministry of Land, Infrastructure and Transport’s guidelines in March 2023, agreements for public housing projects with private sector participation stipulated that price fluctuations would not be reflected, even if the construction cost index rose.

However, over the past two to three years, due to unprecedented increases in construction costs caused by external factors such as the war in Ukraine, private contractors have continuously requested increases in project costs, citing business difficulties, despite the agreement’s stipulation that price fluctuations are not allowed. Public institutions found it difficult to resolve conflicts, as increasing costs beyond the agreement raised concerns about breach of trust.

To address these issues, in October 2023, the Ministry of Land, Infrastructure and Transport launched the Public-Private Joint Construction Investment Project (PF) Adjustment Committee to mediate the situation.

After two committee resolutions, construction cost guideline standards were presented, and in April of this year, a joint briefing session was held with the Board of Audit and Inspection for public institutions and private contractors to explain supplementary measures for the construction cost guidelines and plans related to pre-consultation.

To actively address the issue of increased project costs, BMC requested an official letter from the Ministry of Land, Infrastructure and Transport, and on May 20, the Ministry notified LH and each local public corporation to apply for pre-consultation with the Board of Audit and Inspection.

BMC, after prior consultation with the Board of Audit and Inspection and Busan City, decided to first apply for the Eco 18BL public sale housing project, and after internal review including legal consultation, applied for pre-consultation with the Board of Audit and Inspection through the Busan City Audit Committee.

Kim Yonghak, President of Busan Metropolitan Corporation, said, "With the active administration of the Ministry of Land, Infrastructure and Transport and the Board of Audit and Inspection, and the corporation’s proactive efforts, some issues related to breach of trust regarding price fluctuation adjustments can be resolved. By preparing measures to resolve conflicting interests, we expect to alleviate the difficulties faced by construction companies. As a leading public enterprise in the Busan region, we will continue to explore ways to achieve mutual growth with local construction companies and do our utmost to revitalize the local economy through the fulfillment of our public role."