[비즈한국] With the construction industry seeing a significant increase in urban renewal project orders this year, major construction companies are increasingly pushing back against bidding guidelines for selecting contractors. In the Apgujeong District 2 reconstruction project in Gangnam-gu, Seoul—where a fierce competition between the country's two largest construction firms, Samsung C&T028260 and Hyundai E&C000720, had been expected—Samsung C&T announced it would not participate this past June due to dissatisfaction with the union's bidding guidelines. More recently, in the Seongsu District 1 redevelopment project in Seongdong-gu, Seoul—considered the biggest prize for urban renewal in northern Seoul—Hyundai E&C and HDC Hyundai Development Company294870 have protested the union's bidding guidelines and requested a review.
According to industry sources, Hyundai E&C and HDC Hyundai Development Company sent an official letter to the union on the 18th requesting a review of the bidding guidelines for the contractor selection for the Seongsu Strategic Redevelopment Zone District 1 (Seongsu District 1) in Seongdong-gu, Seoul. The essence of their request is that the union's excessively restrictive bidding guidelines make it impossible to submit bids based on their previously prepared designs and business terms. Earlier, the union held a board meeting on the 5th and a delegates' council meeting on the 20th before issuing the bid notice for the contractor on the 21st. Until now, Hyundai E&C, GS E&C006360, and HDC Hyundai Development Company had shown interest, pointing toward a competitive bidding process.
Most of the bidding guidelines pointed out by the two companies involve prohibitions. Hyundai E&C took issue with guidelines such as: banning priority unit assignments for union members on royal floors, prohibiting premium guarantees upon move-in, banning discounts on union member sale prices, restricting financial terms, invalidating bids and stripping qualifications, allowing the union to unilaterally decide the validity of proposals, and mandating compulsory responsible completion of construction. HDC Hyundai Development Company highlighted issues such as: restricting relocation expenses to within the collateral value of union members, banning alternative design proposals, prohibiting business terms aimed at easing additional contributions, banning the assignment of Han River-view royal floors to union members, prohibiting premium guarantees upon move-in, and allowing the union to arbitrarily decide in the event of conflicts between the bidding guide and proposals.
Hyundai E&C stated, "These guidelines are excessive restrictions that prevent us from submitting business proposals that utilize our full capabilities, which not only hinders the ability to differentiate bids but also undermines the purpose of open competitive bidding and deters participation from multiple contractors. For a company like ours that was preparing a business proposal superior to our competitors, this situation is very baffling," adding, "We earnestly request a review [of the bidding guidelines]."
HDC Hyundai Development Company added, "There are many parts of the bidding constraints—such as the prohibition on various proposals, prohibitions on providing services, and limitations on what can be presented to union members—that make it difficult to align with the best designs and business terms we are currently preparing. Since the Seongsu District 1 union's draft bidding plan could potentially lead to construction cost increases in the future, we request a revision and review of the bidding guide so that a variety of business terms and designs from bidders can be reflected."
The Seongsu District 1 redevelopment project is considered the biggest prize for urban renewal in northern Seoul. The project involves demolishing aging houses in the area of 72-10, Seongsu-1-ga, Seongdong-gu, Seoul, and building 17 apartment buildings (3,014 households) with up to 69 stories. It is considered to have excellent positioning, adjacent to the Han River to the south and Seoul Forest to the north. Among the four districts in the Seongsu Strategic Redevelopment Zone, it is the largest in scale and has the fastest progress, allowing a contractor to enjoy the effects of being the first to secure a foothold in the area. The estimated construction cost presented by the union is 2.154 trillion won, with a bid bond of 100 billion won.
This is not the only instance where a major construction company has pushed back against bidding guidelines for contractor selection. Samsung C&T, which had previously expressed great interest in winning the order for Apgujeong District 2, announced in June—immediately after the union issued the bid notice—that it would not participate. The reason was that the union had presented unusual bidding guidelines, such as: significantly limiting the scope of alternative designs, requiring all interest rates to be presented only in the form of CD rates plus an additional rate, and prohibiting proposals for relocation loan-to-value (LTV) ratios of over 100%, additional relocation expense interest rate offers, and other financial engineering techniques. Ultimately, the selection of the contractor fell through twice due to Hyundai E&C being the sole bidder.
Samsung C&T explained at the time, "We selected Apgujeong District 2 as a strategic site and have been actively preparing to participate in the bid, including collaborating with global architectural designers and financial firms, to build the best apartment complex that union members can take pride in and a landmark that represents the world. However, after reviewing the union's bidding terms, we found ourselves in a situation where we could not present the items we had prepared due to the unusual limitations on alternative designs and financial conditions."
An industry official pointed out, "Bidding guidelines that tell a construction company to only propose 80% when the company wants to put 100% into the proposal are bound to face pushback. Preventing a company from highlighting its strengths effectively emphasizes the strengths of others. This goes against the intent of the Urban and Residential Environment Maintenance Act, which upholds open competitive bidding as the principle. Unless it is an act restricted by law, the union should flexibly set bidding guidelines that allow construction companies to freely make proposals related to construction so that they can earn the choice of the union members."