Forty Lose Jobs Overnight... "Every Day is Nerve-Wracking": Subcontractors and Downstream Industries in Crisis [Construction Crisis Report]

<3-1> Chain Reaction in Subcontracting and Downstream Industries
"Delayed Payments by Main Contractors Have Become Routine"
Even a 35-Year-Old Ready-Mixed Concrete Company Collapses
Cement Kilns Shut Down, Steel Plants Suspend Operations

Recently, a wave of bankruptcies among construction companies has devastated the subcontracting ecosystem. Specialized construction firms that rely on subcontracting detailed processes such as rebar, electrical work, and windows have been hit hard by both a decline in construction volume and worsening liquidity among major contractors. Since dozens to hundreds of subcontractors typically have contracts at apartment construction sites, if a primary contractor goes bankrupt, a domino effect of subcontractor bankruptcies follows.

According to industry sources on July 30, cases of subcontract payments being reduced or delayed have become increasingly common. As companies go bankrupt or shut down, many specialized construction firms are unable to collect their payments, and their difficulties are mounting. The head of a specialized construction company in Gyeonggi Province said, "If the amount owed by the primary contractor is 100, they only pay 70," adding, "They claim the remaining 30 will be paid after project completion, but eventually they demand a reduction."

A ready-mixed concrete truck is moving at a ready-mixed concrete plant. Photo by Yonhap News

The head of a specialized construction company in Busan also explained, "At the contract stage, construction companies secure their own margins first and pass the remainder to the subcontractors," and "even when raw material prices rise, they reduce losses by cutting subcontractor rates, so the primary contractors are not significantly affected." He further noted, "Construction companies repeatedly cancel bids until they get the price they want. In private sector projects, there are no restrictions on bid cancellations, so only the lowest bids are ultimately awarded." This means that subcontractors end up accepting loss-making lowest bids just to secure work, and the resulting losses are borne by the subcontractors themselves.

Unable to receive payment for their work, many companies are now struggling even to pay their taxes. The head of a specialized construction company in North Jeolla Province said, "Even if a 1 billion won project goes bankrupt, we still have to pay 100 million won in VAT," adding, "It's a daily struggle." In some cases, companies are given unsold apartments instead of payment, but even then, they must pay an acquisition tax of 13.2%.

Industries that depend on construction company orders are also being shaken one after another. The construction industry has a significant ripple effect on other industries. According to the Bank of Korea, as of last year, the forward and backward production inducement coefficient for construction was 1.970, similar to the manufacturing sector (1.973) and higher than the all-industry average (1.804).

Ready-mixed concrete company T in Dalseong County, Daegu, closed its doors on June 30. The company had been in business for 35 years. More than 40 people, including about 30 employees and 15 ready-mixed concrete truck drivers, lost their jobs overnight. A truck driver who worked there said, "The owner tried to hold on, even resorting to forced restructuring, but ultimately had to shut down. I heard they lost 1 billion won over six months. The owner was in tears."

Ready-mixed concrete companies, which supply concrete to construction sites, are a prime example of a downstream industry that cannot survive without construction companies. In Daegu alone, three ready-mixed concrete companies have closed recently, and two more are preparing to shut down.

The cement industry is expecting its worst sales year ever. An official from the Korea Cement Association said, "Domestic cement sales in the first quarter of this year dropped by 22% compared to last year," adding, "Annual sales are likely to fall below the projected 40 million tons." Of the approximately 30 kilns nationwide used for cement production, 11 have already ceased operation. He added, "The cement industry is equipment-intensive, so investment in maintenance and environmental measures is ongoing, but profitability has deteriorated to a very serious level."

The steel industry, which produces construction rebar and related materials, has also not been spared. As construction demand has fallen, orders have plummeted, leading to a string of factory shutdowns. Dongkuk Steel's Incheon plant halted operations for the first time in 53 years, and Hyundai Steel's Pohang Plant No. 2 has suspended rebar and special steel bar production and entered an indefinite shutdown.

Order of Articles in the 'Construction Crisis Report' Series

<1-1> Construction Sites at a Standstill, Daily Workers' Lives in Ruins
<1-2> "Three to Four More Bankruptcies Expected"...Mid-sized Builders on the Chopping Block
<2-1> PF: Once a Lifeline, Now a Trap
<2-2> Easing Multi-homeowner Regulations, the Key to Reviving Local Real Estate
<3-1> "A Daily Struggle"-Subcontractors and Downstream Industries on Shaky Ground
<3-2> Even Major Companies Can't Avoid Wage Arrears
<3-3> LH and Local Governments Also Owe Wages ---> Wage Arrears at Publicly Funded Sites
<3-4> Even the President Steps In...Urgent Need for Structural Reform
<3-5> The Company That Survived Without Illegal Re-subcontracting
<3-6> Joining Hands Amid the Collapse
<4-1> Foreign Construction Workers Encroaching on Domestic Jobs
<4-2> Not 'Regulating Foreigners' but 'Protecting Locals'
<4-3> The Root Cause of Deteriorating Profitability: Frequent Rework