[비즈한국] Amidst ongoing conflicts between construction firms and redevelopment sites over rising raw material and labor costs, it has been confirmed that Seoul City, which began construction cost verification for urban renewal projects in 2023, received requests from four reconstruction and redevelopment sites last year. To date, verification has been completed for two sites, with Seoul City recommending an average reduction of 28% from the amounts requested by the project sites.
According to the Seoul Housing and Communities Corporation (SH), the corporation has received construction cost verification requests from four Seoul-based reconstruction and redevelopment sites since it began the service in 2023. While no applications were submitted in 2023, the first year of the program, requests were filed starting with the Haengdang District 7 redevelopment in Seongdong-gu last April, followed by the Sinbanpo 22nd Apartment reconstruction in Seocho-gu in June, the Seocho Sindong-A Apartment reconstruction in November, and the Daejo District 1 redevelopment in Eunpyeong-gu in December.
Construction cost verification for urban renewal projects is a system that officially audits the costs proposed by construction companies. Under the Urban and Residential Environment Improvement Act, if a project operator seeks to increase construction costs by 5% or more (10% if the contractor was selected before the implementation authorization) after signing a contract, they must request a verification from an urban renewal support organization. Even if the increase is less than that threshold, verification is mandatory if at least 20% of union members demand it. Following the initial verification, subsequent audits are required for every 3% increase in construction costs.
Seoul City began these verification duties in 2023. Under the Act, urban renewal support organizations eligible to perform such verifications include the Korea Real Estate Board (under the Ministry of Land, Infrastructure and Transport), the Korea Land and Housing Corporation (LH), and local public corporations. Previously, the Korea Real Estate Board was effectively the only agency with a dedicated team for this task. In March 2023, Seoul City announced it would strengthen the system by delegating verification duties to SH. SH established a dedicated task force (TF) under its Urban Renewal Headquarters in September of that year and commenced operations.
Currently, Seoul City has completed verification for two sites: Haengdang District 7 and Sinbanpo 22nd Apartment. In June last year, SH recommended a reduction of 10.875 billion won (39%) for Haengdang District 7, and in August, it recommended a reduction of 22.004 billion won (25%) for Sinbanpo 22nd Apartment. The initial amounts requested by the two sites were 28.079 billion won and 88.139 billion won, respectively, while SH deemed 17.204 billion won and 66.135 billion won to be appropriate. This effectively amounts to a 28% reduction recommendation compared to the requested costs. Both cases were processed within the statutory 60-day period.
Seoul City is currently verifying the large-scale construction costs for Seocho Sindong-A Apartment and Daejo District 1. Seocho Sindong-A, which selected DL E&C375500 as its contractor, requested a verification for 335.96 billion won last November. Daejo District 1, which selected Hyundai E&C000720, requested a verification for 177.66 billion won last December. Daejo District 1 had previously experienced a construction halt early last year due to payment disputes. The statutory verification period for these two sites is 75 days (for projects over 100 billion won), and SH plans to release the results soon.
An SH official explained, "We completed the pilot projects for Haengdang District 7 and Sinbanpo 22nd Apartment, and launched the full-scale program in September 2024, through which we are now verifying the costs for Seocho Sindong-A and Daejo District 1. As our headquarters is in Seoul, we have the advantage of being able to coordinate quickly with local renewal sites. We will carry out these verifications accurately based on our data and over 30 years of experience in public construction projects."