POSCO E&C Faces Construction License Revocation Crisis... First Case in 28 Years?

Ministry of Land, Infrastructure and Transport Begins Review Following Presidential Order
Possibility of License Revocation for the First Time in 28 Years Since Dong-A Construction
Existing Projects Can Continue Even If Administrative Sanctions Are Finalized
Reputational Damage Likely to Hinder New Orders in the Second Half of the Year

POSCO E&C, ranked seventh in construction capability, with annual sales of approximately 10 trillion won and about 6,000 employees, is facing its greatest crisis in 31 years since its founding. This is because President Lee Jaemyung has directly ordered a review of strong legal sanctions against POSCO E&C, including the possible revocation of its construction license. If the government decides to revoke its construction business license, it will be the first case in 28 years of license cancellation due to a major accident or fatality since Dong-A Construction Industry (now SM Dong-A Construction Industry), whose license was revoked in 1997 after causing the collapse of Seongsu Bridge in 1994.

POSCO E&C Songdo Office. POSCO E&C.

According to the presidential office on August 6, President Lee instructed, "Report all legally possible measures, including construction license revocation and bans on public bidding." In response, the Ministry of Land, Infrastructure and Transport has begun a legal review, focusing on the Framework Act on the Construction Industry and the National Contract Act.

According to Article 83 of the Framework Act on the Construction Industry, if a registered construction company fails to meet the requirements stipulated by law, its license registration can be revoked or its business can be suspended for up to one year. While most of the 13 detailed provisions fall under the authority of local governments, the Ministry of Land, Infrastructure and Transport can directly impose sanctions under Article 83, Paragraph 10. This applies in cases where, due to intent or negligence, a construction project is poorly executed, causing significant damage to a major structural part of a facility and endangering public safety.

There have been two previous cases where a construction company's license was revoked due to a major accident or fatality: Sampoong Construction Industry in 1995 and Dong-A Construction Industry in 1997. The former lost its registration due to the Sampoong Department Store collapse, and the latter due to the Seongsu Bridge collapse. Both companies were also core affiliates of their respective groups, Sampoong Group and Dong-A Group. The incidents contributed to the eventual dissolution of both groups. Sampoong Construction Industry disappeared from history, while Dong-A Construction Industry has continued as SM Dong-A Construction Industry after being sold twice.

As news of the president's directive spread, anxiety has grown among future residents of apartment complexes under construction by POSCO E&C, as well as among members of redevelopment and reconstruction associations nationwide. POSCO E&C is currently operating 103 construction sites across the country, 39 of which are apartment projects (including mixed-use complexes). Some of these are only a few months away from completion. This year alone, the company has won over 5 trillion won in urban renewal projects, including major contracts such as the Seongnam Eunhaeng Jugong reconstruction (1.2972 trillion won) and the Isu Geukdong·Woosung remodeling (1.9796 trillion won).

However, most analysts believe that even if a business suspension or license revocation is actually imposed, it is unlikely to result in construction stoppages. In 2022, HDC Hyundai Development Company received a one-year business suspension following the collapse of Hwajeong I-Park in Gwangju, but continued construction after obtaining a stay of execution through an administrative lawsuit. Even in the worst-case scenario, if license revocation or business suspension is finalized, Article 14 of the Framework Act on the Construction Industry allows projects for which contracts have already been signed or permits have been obtained and construction has started to continue. Existing projects can proceed, but new contracts cannot be won.

Ultimately, the most immediate issue is reputational risk. In June, POSCO E&C suffered a decisive defeat to HDC Hyundai Development Company in the bidding for Yongsan Maintenance Depot Zone 1, with many analysts attributing the loss to the aftermath of the road collapse accident at the Gwangmyeong Shinansan Line construction site, which resulted in one fatality. In major projects scheduled for the second half of the year, such as Gaepo Woosung 4th and Seongsu 2 District, the stigma of being a "company with a fatal accident," as officially recognized by the president, is likely to continue to pose a risk. Even if the company avoids significant operational disruptions, it is expected to face ongoing risks of business suspension and license revocation, as well as administrative sanctions from the government, for the foreseeable future.