South Korea’s construction industry is heading toward a direct clash as a sunset clause approaches for a “protected segment” in the cross-entry market system. Specialty contractors are calling for permanent safeguards for their right to perform work directly, while general contractors argue the current framework should remain to promote fair competition.
According to the Korea Research Institute for Construction Policy on Tuesday, Japan has maintained an “exclusive right” structure in which civil engineering and building contractors hold only oversight authority over specialty contractors, while construction rights require specific experience and qualifications. In the United States, California has also maintained exclusive rights for about 40 specialty building trades when general contractors take on single-trade projects.
The institute said that in major overseas markets, specialty contractors — the main actors in direct construction — play a central role, while in South Korea, even after cross-entry was allowed, an unfair registration system has kept specialty firms in a vertical prime-subcontractor relationship. It said a fundamental review of the current production system is urgent.
South Korea’s cross-entry system gradually allows general and specialty contractors to enter each other’s markets. To protect small specialty firms, general contractors are barred from winning specialty projects worth less than 430 million won. That protected segment is set to expire in December, and bidding is expected to be allowed starting next year.
Specialty contractors say the change could accelerate general contractors’ entry into the specialty market because barriers differ sharply. General contracting licenses cover five categories, while specialty contracting licenses cover 14. Holding a general civil engineering and building license allows a firm to perform 11 of the 14 specialty categories, while specialty licenses — such as for ground formation and paving — have narrower scopes. The institute said the average competition rate for public bids on specialty projects in 2022 rose 3.91 times from 2020.
The Korea Specialty Contractors Association and the Korea Mechanical Facilities Construction Association held a news conference Monday outside the Government Complex Sejong and submitted 408,391 petitions from member companies to the Ministry of Land, Infrastructure and Transport. The specialty contractors association said that since the system took effect, general contractors have entered “indiscriminately” into a specialty market where 99% of projects are under 1 billion won, and that the specialty sector is being encroached upon.
In the National Assembly, a proposed amendment to the Framework Act on the Construction Industry has been introduced that would raise the protected threshold from 430 million won to 1 billion won.
The Korea Construction Association, representing general contractors, is gathering petitions in opposition. It argues the system was introduced to eliminate harmful market segmentation and encourage sound competition, and that the market should not be distorted solely to protect specialty firms. The ministry has been conducting an analysis of the effects of market opening for specialty and general contractors since October last year, commissioning the Korea Research Institute for Human Settlements to carry out the study.
* This article has been translated by AI.
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