"280 Million Won, You Pay It"… Officials Avoiding 'Sudden Shock Bills' [The Trap of Rapid Execution]①

Paid in Line with Rapid Execution Policy
Company Bankrupt After Receiving 280 Million Won
State Orders Officials to "Compensate for Losses"
"To Avoid Disciplinary Action"... Local Governments Turn to Insurance

If you are a public official handling accounting or contract work in a local area, there is a well-known story. In 2010, local government officials in Eumseong-gun, Chungbuk, were fined billions of won by the state. The incident began with rapid execution. At that time, the government instructed local government officials to advance the second half of the budget to the first half and execute it quickly. The reason was to revive the sluggish economy as soon as possible.

Departments responsible for outsourcing projects to the private sector and disbursing government funds were no exception. Normally, advance payments should have been made after assessing the contractor and their execution capability, but the shortened review period led to careless examination. The principle of paying according to the progress stage was also abandoned. A practice began where most of the promised payments were made before the construction was even completed, in line with the rapid execution policy.

Eventually, an accident occurred. A contractor who was supposed to install road nameplates and building number plates took 280 million won of government money and then went bankrupt. The problem was that the money was paid before the construction was completed. The on-site verification process was also skipped. The public officials had to cover the losses. Four officials who signed the approval documents received bills demanding repayment of the embezzled money.

Mr. A, a public official who witnessed this incident firsthand, told Asia Economy, "It became widely known that public officials were held liable for rapid execution," and recalled, "It was a decisive moment when local government officials began to be cautious about rapid execution." Since they followed the government policy, they believed there would be no personal issues, but after being held liable, Mr. A lamented, who would actively engage in rapid execution?

Public Officials Start Taking Out Insurance, Distrusting the State

Afterwards, similar cases occurred frequently in various local governments. In one local government in Gangwon Province in 2012, a construction contract worth 416 million won was signed for road expansion and paving. To revitalize the local economy, 291 million won was paid as an advance, but a year later, the construction company submitted a letter of abandonment and went out of business. In 2021, in a local government in Jeonbuk, public officials pressured by rapid execution failed to detect forged documents from a contractor and paid the advance. Two responsible officials were notified to compensate 160 million won each.

In response, most local governments introduced a new system called 'Performance Bond Insurance.' Performance Bond Insurance is a product that guarantees losses from non-performance according to the guarantee contract when a project is not fulfilled. If a contractor receiving government funds fails to complete the construction, the guarantor company pays the money instead. Public officials established regulations requiring submission of insurance enrollment documents to select local government contractors. This added unnecessary administrative procedures to avoid disciplinary actions due to rapid execution.

Local public officials cite Performance Bond Insurance as a representative example of the side effects of excessive rapid execution. Contractors bear additional costs for the insurance, and public officials waste administrative resources in the process of demanding insurance. Mr. B, who is in charge of contract work at a local government in Gyeonggi Province, said, "Because the Performance Bond Insurance fees are expensive, many contractors complain," and added, "Some even request to receive payments slowly because they do not want to enroll in the insurance, which is troublesome."

The public officials' union insists that the side effects of rapid execution, which have been repeated like a precedent event, need to be properly addressed. A representative from the National Public Officials Union said, "When the business days in March begin, local governments go into emergency mode to meet the first quarter rapid execution target rate," and "It often happens that contractors are forced to take money they do not want." They further argued, "The government should refrain from excessive rapid execution."