Recently, there have been claims that the obligation for prime contractors to directly perform construction work, mainly in projects ordered by local governments, is being strengthened beyond its original intent.
The Korea Research Institute for Construction Industry announced on the 21st that it has published a report titled "Issues and Rational Improvement Measures of the Direct Construction Obligation System: Focusing on Changes in Local Contract Systems and Seoul City Policies."
The direct construction obligation system requires construction businesses, as prime contractors, to directly perform part of the contracted work without subcontracting or outsourcing it. The Ministry of Land, Infrastructure and Transport introduced this system in 2006 to prevent the proliferation of unqualified and poor-quality companies. For construction projects under 9 billion KRW, the system mandates a direct construction obligation ratio ranging from a minimum of 10% to a maximum of 50%, depending on the contract amount.
The report pointed out that recently, in local government-ordered projects, the direct construction obligation system may act as a regulation that hinders industrial development, contrary to its original purpose. This is due to policies by some ordering agencies and local contracts that have strengthened the obligation and scope of direct construction by prime contractors. The Ministry of the Interior and Safety introduced the "Direct Construction Evaluation System" this year, which reflects the direct construction ratio of bidders in the evaluation for general construction projects over 3 billion KRW ordered by local governments. Seoul City has also announced independent policy enhancements, such as mandating direct construction for major work types.
The Korea Research Institute for Construction Industry diagnosed that there is a lack of empirical evidence proving that the direct construction obligation system reduces poor-quality construction and improves quality and safety.
Furthermore, it viewed that the obligation for prime contractors has been uniformly strengthened for general construction projects over 3 billion KRW without considering the special characteristics of the projects and without creating an environment conducive to activating direct construction. This measure disregards the construction production method based on division of labor and specialization and acts as an excessive regulation beyond the scope of legal delegation, raising concerns about industrial confusion and contraction.
Accordingly, the Korea Research Institute for Construction Industry proposed alternatives such as ▲establishing policy operation principles under the delegation of higher laws ▲policy relaxation alternatives to improve the effectiveness of the direct construction obligation system ▲strengthening cooperation between the central government and local governments.
Kim Minju, a senior researcher at the institute, emphasized, "To realize the original purpose of the direct construction obligation system, it is important to design realistic alternatives and balanced policies rather than uniformly strengthening regulations. If local governments want to operate independent policies, they should first consider complementary and relaxation measures for related systems and policies under the delegation of higher laws and at levels acceptable to the industry."
Regarding the direct construction evaluation system implemented by the Ministry of the Interior and Safety this year, she said, "Although the obligation ratio was designed at 30%, a 20% relaxation guideline was announced due to concerns about system confusion. However, many confusions in the industry are expected this year, and additional efforts are needed to achieve the system's purpose and prevent industrial confusion through more detailed system design and improvements linked to the construction production system."
Meanwhile, Seoul City announced that it will review the regulation requiring prime contractors to directly perform construction work in public projects it orders. Earlier, on the 14th, Seoul City held a "Great Debate on Deregulation to Revive Livelihood," where demands were made to abolish the system that requires prime contractors participating in public projects ordered by Seoul City to directly perform at least 50% of the work.
Seoul Mayor Oh Se-hoon said, "This regulation was created by me, and I will request a review as part of taking responsibility." He added, "In the mid to long term, reducing the subcontracting ratio is necessary to minimize the problems, side effects, and disadvantages arising from illegal subcontracting. There is significant resistance on-site because the direct construction ratio has been raised without structural adjustments on a larger scale."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
