Exclusive
Apgujeong Zone 2 Association Members File Injunction to "Stop Selection of Construction Contractor"

[비즈한국] It has been confirmed through BizHankook’s reporting that members of the Apgujeong Zone 2 reconstruction association in Gangnam-gu, Seoul, recently filed an injunction with the court to halt the construction contractor selection process for the Apgujeong Zone 2 reconstruction project. The lawsuit argues that the association’s delegate assembly resolution, which finalized the plan for selecting a construction contractor, contains significant defects, rendering both the resolution and any contractor selection based on it invalid. Previously, the Apgujeong Zone 2 reconstruction association issued a bid notice for contractor selection following a delegate assembly resolution in June; however, the bidding resulted in a failed bid on the 11th, with Hyundai E&C000720 as the sole bidder.

According to industry sources, Apgujeong Zone 2 association members filed an injunction with the Seoul Central District Court on the 12th, seeking to suspend the validity of the delegate assembly resolution that finalized the contractor selection plan, as well as the ongoing contractor selection process based on that resolution. The core of the argument is that the delegate assembly’s decision regarding the contractor selection and the subsequent process are illegal and void. Previously, the Apgujeong Zone 2 reconstruction association held a delegate assembly in June to pass the "Resolution on Contractor Selection Plan and Bid Guidelines" before issuing the bid notice.

The issue raised by the association members who filed the injunction is the omission of the "original design" at the time of the delegate assembly resolution. According to the contractor selection plan and bid guidelines finalized at the assembly, bidders are prohibited from proposing changes to the original design provided by the association for certain items, such as the number of main buildings. Bidders who violate these guidelines face cancellation of their selection and invalidation of their bid. However, it is reported that the association’s original design, which serves as the basis for invalidating bids and canceling contractor selection, was not disclosed to the delegates at the time of the assembly resolution.

The members who filed the injunction claimed, "The delegate assembly resolution was conducted with the 'original design'—a crucial standard for bid invalidation or contractor selection cancellation—omitted. This resolution and the contractor selection bid notice based upon it are invalid due to significant illegalities, including violations of the Seoul Metropolitan Government’s public support standards for contractor selection, infringement on members' right to know, infringement on delegates’ right to deliberate and vote, impairment of bidding fairness, infringement on members’ opportunity to choose a contractor, and evasion of the Urban Improvement Act, which mandates that 'design documents' and 'changes to building design summaries' are matters exclusively for the general assembly."

The bidding guidelines that restricted methods for borrowing project expenses and relocation costs were also brought under fire. According to the aforementioned contractor selection plan and bid guidelines, bidders are required to propose relocation costs within the individual member's collateral value (100% LTV) and interest rates only in the form of "base rate (CD) + spread." Furthermore, the guidelines mandated that additional relocation costs and base relocation costs must be subject to the same interest rates, and prohibited the proposal of financial techniques other than direct lending, payment guarantees, or loans guaranteed by the Korea Housing & Urban Guarantee Corporation (HUG). Bidders violating these were also to have their bids treated as invalid.

The members who filed the injunction added, "The delegate assembly resolution, which established the contractor selection plan and bid guidelines by extremely and selectively restricting the methods for borrowing project expenses and relocation costs, along with the bid notice based on it, infringes upon the members' right to compare and select from various contractors, impairs the fairness of the bid, and contains significant illegalities contrary to the provisions of the Urban Improvement Act, thus holding no validity." They also argued that the current bid guidelines created a environment for a single specific construction company to dominate, thereby violating the Urban Improvement Act, which designates the selection and change of contractors as matters for general assembly resolution.

Apgujeong Zone 2 is the first site in the Apgujeong Apartment District to select a construction contractor for a reconstruction project. Currently, the Apgujeong Apartment District is pursuing reconstruction across six zones, including Hyundai Apartments (Phases 1-14), Hanyang Apartments (Phases 1-8), and Miseong Apartments (Phases 1-2). Apgujeong Zone 2 includes Hyundai Phases 9, 11, and 12, as well as Shinhyundae; the association issued a bid notice in June for the construction of 14 apartment buildings reaching up to 65 floors (2,571 households). The total construction cost was set at 2.7489 trillion won, with a bid deposit of 100 billion won.

However, the first bid for the Apgujeong Zone 2 contractor selection failed. This is because Hyundai E&C was the sole bidder for the reconstruction project contractor selection, which closed on the 11th, one day before the injunction was filed. The association is expected to issue a second bid notice; if this also fails, the selection is highly likely to shift to a private contract. Under the Act on the Improvement of Urban Areas and Residential Environments, while competitive bidding is the principle for selecting a contractor for urban projects, if bidding fails two or more times, the contractor can be selected through private contracting.

This lawsuit is analyzed to have been triggered by Samsung C&T028260’s decision not to participate in the contractor selection bid. Samsung C&T, which had previously shown great interest in winning the Apgujeong Zone 2 contract, announced that it would not participate in the bid in June, shortly after the association issued the notice. The reasons cited included the association’s "unusual" bid guidelines, such as heavily restricting the scope of alternative designs, mandating that all interest rates be presented only as CD + spread, prohibiting proposals for LTV over 100% for relocation costs, banning proposals for additional relocation cost interest rates, and prohibiting the use of other financial techniques.