[비즈한국] Hannam District 4 in Yongsan-gu, Seoul, where a fierce bidding war is expected between South Korea's two largest construction firms, Samsung C&T028260 and Hyundai E&C000720, is struggling to establish guidelines to prevent work stoppages ahead of selecting a contractor. Although the district initially set a guideline requiring bidders to submit a 'Responsible Completion Commitment,' it decided to withdraw it following opposition from some construction companies and instead opted to include clauses preventing work stoppages in the construction contract. This move is interpreted as a response to recent disputes over construction costs and subsequent project suspension incidents.
According to the urban renewal industry, the Hannam District 4 redevelopment association will hold a delegate meeting on the 11th to re-vote on the contractor selection plan, which now removes the requirement for construction firms to submit a 'Responsible Completion Commitment.' The association had previously presented a plan to the delegate meeting in July requiring participating firms to submit such a commitment, but it was rejected due to opposition from a majority of delegates. Following the delegate meeting vote, the association plans to issue a bid announcement on the 23rd and select a contractor in January of next year.
Responsible completion refers to a construction firm's promise to complete a project within a set timeframe. In Project Financing (PF) deals, this is typically a credit enhancement method provided by builders to developers seeking PF loans. When committing to responsible completion, construction firms also enter an agreement to overlap and assume the developer's loan debt if the completion is not fulfilled. The Hannam District 4 association had initially planned to obtain such commitments from contractors participating in the bidding.
However, Samsung C&T, which had expressed interest in bidding for the Hannam District 4 project, reportedly opposed the requirement, arguing that it imposed excessive responsibility on the contractor. The original commitment draft for Hannam District 4 included provisions for the contractor to take full responsibility for completion without any interruptions or delays—regardless of fault—and to assume project costs and relocation loan debts in the event of failure. Among members, public opinion spread that this guideline unfairly discouraged competitive bidding by placing an excessive burden on contractors.
Consequently, the association decided to replace the commitment letter with a clause in the draft construction contract to prevent unjustified work stoppages. The draft contract being presented to the delegate meeting limits the reasons for temporary suspension to specific cases, such as inconsistencies between performance and contract terms, safety requirements, emergency disaster prevention measures, or orders from the client. It also mandates that work must continue even during disputes, with the builder following association instructions until a resolution is reached. Future bidders will draft their construction contract proposals based on the association's draft.
Hannam District 4's efforts to prevent construction stoppages are viewed as a reflection of recent industry trends where disputes over construction costs have halted redevelopment projects. Previously, the Dunchon Jugong reconstruction project in Gangdong-gu, Seoul, saw a six-month work stoppage starting in April 2022 due to a construction cost dispute when the project was 52% complete. The contribution amount per member jumped threefold, from 40 million won to 120 million won. Similarly, the Daejo District 1 in Eunpyeong-gu, Seoul, experienced a shutdown in January this year due to internal conflict and unpaid construction costs, only resuming in June after six months.
Min Byeong-jin, head of the Hannam District 4 redevelopment association, explained, "To prevent the burden on our members from rising due to project cost increases following construction stoppages, we initially sought to establish a guideline for a Responsible Completion Commitment. However, after synthesizing the opposition from prospective bidders and the opinions of our members, we decided not to pursue it. Instead, we have faithfully reflected provisions in the construction contract draft to ensure work continues and completion is achieved by the deadline. We have added relevant clauses based on the Seoul Metropolitan Government's standard contract for urban renewal projects."
Hannam District 4 is a renewal project aimed at demolishing aging and dilapidated buildings in the area of 360 Bogwang-dong, Yongsan-gu, Seoul, to build 51 apartment buildings (2,331 units) ranging from 7 basement levels to 22 floors above ground. Total construction costs are estimated at 1.5724 trillion won (9.4 million won per 3.3㎡), and the total project cost including incidentals is expected to reach 2 trillion won. Hannam District 4 is considered to have the best business potential among the five districts in Hannam New Town, as it backs up to Namsan Mountain, faces the Han River, and has a high volume of general supply units (approximately 800).
Currently, South Korea's two largest construction firms, Samsung C&T and Hyundai E&C, have expressed their intent to participate in the bidding for the Hannam District 4 redevelopment project. A Samsung C&T official stated, "We have never missed a completion deadline or caused related issues. We will build a luxury complex worthy of one of the few remaining prime locations in Seoul." A Hyundai E&C official added, "We are preparing a proposal that guarantees the best benefits for the members of Hannam District 4."