Redevelopment and reconstruction associations are seeking to lower construction costs or apply high-end brands by changing contractors. However, legal disputes with existing contractors are causing project delays, accumulating financial costs, and leading to claims for damages. Experts emphasize the need to weigh the benefits of a change against the associated costs.
According to the construction industry on September 13, the Gangnam Wonhyo Villa Reconstruction Association in Seocho District, Seoul, recently voted to cancel its selection of Daewoo Engineering & Construction as the contractor. Daewoo was chosen last June after proposing an alternative design with a total construction cost of 338.7 billion won, or 15.5 million won per 3.3 square meters. Disagreements over construction costs and contract terms arose, prompting Daewoo to signal potential legal action.
In Seongnam's Sangdaewon 2 District, conflicts arose with the existing contractor, DL E&C, over the application of the high-end brand 'Acro' and construction costs. The association voted to terminate the contract in May and selected GS Engineering & Construction as the new contractor, proposing a cost reduction and an August start date.
However, at the end of July, a court partially granted a request to suspend the effectiveness of the assembly's resolution, halting the contract termination and the selection of a new contractor. Since then, the association and DL E&C have been negotiating to normalize the project by adjusting construction costs and start dates.
During this process, financial costs continue to accumulate. The association estimates that financial costs related to relocation and project expenses in Sangdaewon 2 District amount to about 100 million won per day. As the start date is delayed, the burden of interest continues to grow.
In Busan's Hadang 1 District, disputes over contractual responsibilities are ongoing. Kolon Global received a notice of contract termination worth approximately 116.8 billion won in July for a project where it signed a contract in May 2024. The association claims that the financing for the project was not properly executed and that demands for increased construction costs were excessive. In contrast, Kolon Global argues that it has been reviewing the need for adjustments to construction costs due to changes in the project plan in accordance with contractual procedures.
The Sangyeok Jugong 5 District in Nowon District, Seoul, signed a contract with GS Engineering & Construction in January 2023 for a total construction cost of 334.2 billion won, or 6.5 million won per 3.3 square meters, but terminated it in November of the same year. Owners found the shared costs unacceptable and deemed the contract terms unfavorable.
GS Engineering & Construction claimed the termination was unilateral and sought the return of the bid bond and damages. In July, the Seoul Central District Court recognized the liability for damages, resulting in the complex having to pay a total of 2.54 billion won, including 2.2 billion won in principal and 340 million won in delayed interest.
Even if construction costs or contract terms improve through a change of contractor, prolonged litigation, re-bidding, and contract negotiations can diminish expected benefits. Delays in recovering funds through sales and in occupancy can make it difficult to assess the effectiveness of the new contractor's proposed terms.
A system for verifying and mediating construction costs is also in place. If a contractor is selected before the approval of the project implementation plan, verification is required if construction costs increase by more than 10%, and if selected afterward, by more than 5%. Inflation adjustments are excluded. However, the verification results are not binding, necessitating negotiations between the association and the contractor. The Seoul city government reported that it mediated conflicts through cost verification and coordinator mediation in 37 redevelopment projects from 2024 to 2025.
Shin Bo-yeon, a professor at Sejong University’s Department of Real Estate AI Convergence, stated, “Changing contractors is not as simple as exchanging goods. The project timeline can be delayed by 1 to 2 years while terminating the contract with the original contractor and selecting a new one.”
Professor Shin urged that as costs increase during the litigation and contractor re-selection process, which ultimately burdens the members, the role of public mediation and adjustment should be strengthened to prevent unnecessary cost increases.
* This article has been translated by AI.
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