Small construction firms are facing a crisis due to rising construction costs, worsening financing conditions, and a downturn in the construction market. Although the total value of construction contracts showed a slight recovery last year, the actual market conditions remain bleak. Increased competition for contracts, driven by a growing number of firms, has intensified the financial burden on small construction companies.
According to the Ministry of Land, Infrastructure and Transport, the total value of construction contracts last year was approximately 263.2 trillion won, an increase of about 10 trillion won compared to the previous year. However, experts caution that this does not indicate a complete recovery, as the private sector experienced significant downturns in the first quarter, with some recovery in the public and civil engineering sectors.
The recovery in contract value has not translated into improved market conditions. A report from the Korea Construction Policy Institute indicates that the construction performance index in May 2025 was 9 trillion won, down 20.8% from the same month the previous year. The building sector saw a more significant decline, with a 23.3% drop to 6.7 trillion won. The diverse nature of construction projects and the high labor input mean that this decline directly impacts employment for small specialized construction firms and workers.
Despite a shrinking market, the number of registered construction firms has increased. As of October last year, there were 87,897 registered construction companies, including 57,977 specialized firms, an increase of 4,673 from the previous year. With fewer jobs available and more firms competing, the likelihood of low-bid contracts and declining profitability has risen.
Employment figures also reflect the downturn. The number of workers in the construction industry was reported at 1.94 million last year, down from 2.11 million in 2023 and 2.065 million in 2024, indicating a continuous decline.
Park Kwang-bae, a senior researcher at the Korea Construction Policy Institute, stated, "The construction industry is one where investment and employment move together. If the decline in performance and contract awards continues, there are concerns that the decrease in employment will persist for the time being."
The biggest challenge for small construction firms is securing financing. Although rising construction costs have led to increased accounting revenues, operating profits are declining. The construction sector is classified as high-risk for credit, leading to significant burdens from loan interest rates. Firms lacking collateral often fail to secure loans even when they qualify for policy funding.
To address these issues, expanding interest subsidies for small construction firms is a priority. Given the high credit risk associated with the industry, it is essential to lower financing burdens through policy measures that offset interest rate differences. Expanding credit guarantees is also necessary. Currently, guarantee assessments focus on financial stability and revenue growth, but recent increases in construction costs and market downturns have worsened these indicators, necessitating a relaxation of assessment criteria to reflect the industry's characteristics.
Stabilizing subcontractor payments is another key measure. Small specialized construction firms are particularly vulnerable to delays in payments from general contractors due to their high reliance on subcontracting. Strengthening payment guarantees for subcontractors, expanding the use of standard subcontracting agreements, and broadening electronic payment systems in private projects are essential to mitigate cash flow issues caused by delayed payments or promissory notes.
An industry insider remarked, "Small construction firms often bear the burden of rising construction costs without being able to fully reflect them in their bids, while simultaneously facing increased financial and labor costs. A comprehensive package of measures is needed, including interest subsidies, credit guarantees, stabilization of subcontractor payments, and support for workforce retention."
* This article has been translated by AI.
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