[비즈한국] Amidst conflicts between the construction industry and project owners at various sites due to rising raw material costs and a sluggish real estate market, the scale of lawsuits related to construction costs filed by major Korean builders last year has increased approximately fourfold compared to the previous year. The disputes primarily involve project owners failing to pay the construction fees stipulated in contracts or refusing to agree on cost increases resulting from inflation or design changes.
According to BizHankook's analysis of each company's business reports, major builders ranked 2nd to 9th in domestic construction capability—Hyundai E&C000720, Daewoo E&C047040, Hyundai Engineering, DL E&C375500, GS E&C006360, POSCO E&C, Lotte E&C, and SK Ecoplant—which disclosed construction cost-related lawsuits exceeding 2 billion KRW, filed a total of 31 such cases last year, an increase of 19 cases (158%) from the previous year. The total value of these lawsuits amounted to 913.3 billion KRW, an increase of 672.1 billion KRW (379%) year-on-year. Samsung C&T (ranked 1st) and HDC Hyundai Development Company (ranked 10th) were excluded from the analysis as they only disclose lawsuits exceeding 15 billion KRW and 10 billion KRW, respectively.
GS E&C accounted for the largest volume of construction cost-related litigation at 275.9 billion KRW (4 cases). In December of last year, GS E&C filed a 257.1 billion KRW claim against the Sinbanpo 4th District (Maple Jai) reconstruction union, marking the highest claim amount among construction cost lawsuits filed by builders last year. Additionally, GS E&C filed a construction fee lawsuit against the Mia 3rd District redevelopment union (11 billion KRW), a cost-sharing lawsuit regarding a U.S. military base against Grima Construction (2.3 billion KRW), and a counter-claim against a subcontractor (5.5 billion KRW). Among these, the cases involving the Mia 3rd District and Grima Construction were concluded through withdrawal of the suit and compulsory mediation, respectively.
The scale of construction cost-related lawsuits by company last year was as follows: △Hyundai E&C 207.9 billion KRW (6 cases) △DL E&C 149.1 billion KRW (7 cases) △POSCO E&C 131.6 billion KRW (4 cases) △Hyundai Engineering 63.2 billion KRW (3 cases) △Lotte E&C 46.5 billion KRW (3 cases) △Daewoo E&C 22.7 billion KRW (3 cases) △SK Ecoplant 16.5 billion KRW (1 case). Hyundai E&C requested arbitration for 170.1 billion KRW in additional construction costs from HD Hyundai Chemical, and DL E&C sought arbitration for 102 billion KRW from a Vietnamese state-owned oil company. POSCO E&C filed a lawsuit for 106.5 billion KRW in additional costs related to the Songdo American Town development project in Incheon.
The rise in construction costs is the underlying driver for the increase in builder-initiated lawsuits. According to the Korea Institute of Civil Engineering and Building Technology, the construction cost index in December last year was 130.18 points, an increase of approximately 11% compared to three years ago in December 2021. The construction cost index is an indicator of changes in direct costs, such as materials, labor, and equipment. Although the annual growth rate of the construction cost index has slowed from the 11% range in 2022 to 3% in 2023 and roughly 2% in 2024, builders burdened by the cumulative rise in construction costs are frequently seen demanding price increases from project owners or cost-sharing from joint contractors.
Lee Eun-hyung, a senior research fellow at the Research Institute of Construction Policy, noted, "Following the global quantitative easing after the COVID-19 pandemic, raw material prices rose, creating a gap between the costs at the time of contract and the actual time of construction. Most builders are forced to litigate as a matter of survival." He added, "Disputes arise because past contracts often included clauses unfavorable to builders, such as 'reflecting the lower of the Consumer Price Index or the Construction Cost Index for price adjustments' or 'no increases in construction costs after the contract.' While it is relatively easy to reach agreements with private entities like unions, cases involving corporations or public institutions often require court rulings to avoid issues regarding breach of fiduciary duty."