President Lee Targets POSCO E&C... "Special Act on Construction Safety" to Accelerate

Countermeasures Ordered Following a Series of Fatal Accidents
Ministry of Land and Industry Associations Begin Coordinating Opinions
Safety Responsibilities and Obligations Assigned by Project Stakeholder
Penalties Include One-Year Business Suspension and Fines Up to 3% of Annual Sales for Accidents
Attention Focused on Possible License Revocation for the First Time in 28 Years

President Lee Jaemyung has zeroed in on Posco E&C and the issue of industrial accidents following a series of fatal incidents, and this is expected to accelerate legislative efforts to strengthen safety management responsibilities by construction project stakeholders through the "Special Act on Construction Safety." Despite repeated emphasis, fatal accidents have continued to occur, leading to a consensus that strong measures are needed to raise safety awareness at construction sites. However, there are also negative voices citing concerns about overlapping legislation and excessive penalties that could dampen the industry.

According to industry sources on August 7, the Ministry of Land, Infrastructure and Transport recently reported to President Lee regarding the "Special Act on Construction Safety," which was proposed by Democratic Party lawmaker Moon Jinseok and others in June, and is currently coordinating opinions with relevant associations. Earlier this month, the Korea Construction Association and other organizations formed a task force (TF) to find countermeasures to eradicate fatal accidents and are also responding to the legislative push. Last year, out of 589 industrial accident fatalities, half (276) occurred in the construction sector. The continued occurrence of safety accidents despite a decrease in project commencements further underscores the need to strengthen regulations.

Responsibilities and Obligations by Stakeholder, Up to 3% Annual Sales Fine

The Special Act on Construction Safety reflects the multi-layered subcontracting structure of construction sites and assigns safety management responsibilities and obligations to each stakeholder, including project owners, contractors, subcontractors, workers, and local governments. As a special law, it takes precedence over other laws regarding construction safety management.

Project owners are required to provide appropriate construction periods and budgets and must evaluate the safety management capabilities of designers and contractors before signing contracts. Contractors must review whether the design documents can be implemented safely and directly implement safety measures at the site, such as installing guardrails and other safety facilities. If subcontractors determine that the construction period or budget is insufficient for a safe working environment, they can request an extension of the project period or an increase in the budget from the main contractor. Supervisors may request changes to the design documents to ensure safety.

If a fatal accident occurs due to negligence in fulfilling safety management obligations, penalties may include up to one year of business suspension or a fine of up to 3% of annual sales. If all responsible parties violate their safety management obligations and cause a fatal accident, criminal penalties of up to seven years in prison or a fine of up to 100 million won may be imposed.

"Triggering Conflicts Between Stakeholders... All Earnings Could Go to Fines"

The industry voices opposition, citing overlapping regulations with existing laws, limited effectiveness in practical application, and increased regulatory burden. The Occupational Safety and Health Act already stipulates the need to secure appropriate construction periods and budgets. The Serious Accidents Punishment Act, implemented three years ago, prescribes penalties for management-level officials. Given the industry's competitive practice of working under tight deadlines, stakeholders argue that strict enforcement is difficult. There is also criticism that certain types of construction work, such as electrical, telecommunications, and fire safety, are excluded from the scope of the law, potentially creating blind spots.

Some argue that the penalties are excessive. Due to the sluggish market, the average annual operating profit margin for general construction companies over the past three years has been only 3.45%. An industry official pointed out, "The penalties for responsible parties are set excessively compared to their obligations, and there are concerns that this could trigger conflicts between stakeholders as they try to avoid penalties. Penalties should be relaxed to a reasonable level." Another industry official said, "Many construction companies have operating profit margins below 3%, so they could end up paying all their earnings in fines. If enforced, this could halt supply and put construction companies in an even more precarious position."

A representative from lawmaker Moon Jinseok's office said, "It's questionable whether applying a fine of up to 3% of sales in the event of an accident is truly excessive. There are also calls to include fire safety and electrical work, but since these fall under the Ministry of Trade, Industry and Energy, coordination between ministries is required. As this has become a government task, a pan-governmental discussion is necessary."

Jeon Youngjun, director of the Future Industry Policy Research Office at the Construction Industry Research Institute, stated, "To reduce construction safety accidents, it is necessary to shift the paradigm from continued regulation focused on post-accident punishment to policies centered on accident prevention. This requires a comprehensive review of related systems and regulations, as well as comprehensive measures that transcend the boundaries of ministries and business sectors."

First Construction License Revocation in 28 Years?

Given that President Lee has personally called for countermeasures regarding this incident, there is growing attention as to whether Posco E&C will actually face severe sanctions such as license revocation or bans from public bidding. If a license revocation does occur, it would be the first such case in 28 years since Dong-Ah Construction Industry (now SM Dong-Ah Construction Industry) had its license revoked in 1997 following the collapse of Seongsu Bridge in 1994. The Ministry of Land, Infrastructure and Transport has begun reviewing the case based on the Framework Act on the Construction Industry and the National Contract Act.

If a construction company fails to meet certain requirements, the head of the local government has the authority to revoke its license. In cases where shoddy construction endangers public safety, the Minister of Land, Infrastructure and Transport can take direct action. There have been two previous cases of license revocation due to fatal accidents: Sampoong Construction Industry in 1995 and Dong-Ah Construction Industry in 1997, following the Sampoong Department Store collapse and the Seongsu Bridge collapse, respectively. In both cases, the companies were core affiliates whose downfall contributed to the breakup of their respective groups.

However, most expect that even if business suspension or license revocation is imposed, ongoing projects will not be halted. According to Article 14 of the Construction Industry Act, projects for which contracts have already been signed or construction has commenced with the necessary permits may continue after such measures are taken. Existing projects can proceed, but new contracts cannot be secured. It is expected to be difficult for the company to recover its damaged corporate image. Many attribute Posco E&C's recent loss in the bidding for the first zone of the Yongsan Maintenance Depot redevelopment project in Seoul to the fallout from the Shin Ansan Line road collapse incident. On his first day as the newly appointed CEO, Song Chiyoung visited the site of the Gwangmyeong-Seoul Expressway Section 1 accident to inspect the scene. The company has announced plans to suspend all new orders in the infrastructure sector and improve its subcontracting structure.