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Hangang Bus Operator Notifies Shipbuilder of Liquidated Damages for Construction Delays

[비즈한국] An investigation by BizHankook has confirmed that the operator of the "Hangang Bus," Seoul's first water-based public transportation system, recently notified Gadeok Heavy Industries, one of its shipbuilders, of liquidated damages. The notification demands compensation for delays in vessel construction, with the estimated damages reaching 3 billion KRW. As Gadeok Heavy Industries claims that the Seoul Metropolitan Government bears responsibility for the delays, the dispute is increasingly likely to escalate into a legal battle.

According to BizHankook's reporting, Hangang Bus Co., Ltd. sent a certified letter to Gadeok Heavy Industries on the 30th of last month providing advance notice of liquidated damages. The letter outlines claims for compensation resulting from the failure to meet the vessel delivery deadlines for ships No. 3 through 8 (originally set for October 2 of last year under the initial March contract) and ships No. 3 and 4 (set for September 16 of this year under a modified contract in March). Hangang Bus Co., Ltd. has calculated the total liquidated damages at 2.98523 billion KRW, broken down into 2.63741 billion KRW (for a 169-day delay) and 347.82 million KRW (for a 47-day delay), respectively.

Hangang Bus Co., Ltd. stated, "As key provisions of the vessel construction modification agreement and the supplemental agreement regarding additional costs and performance bonds have not yet been fulfilled, we are urging compliance and providing advance notice of potential future legal action." They added, "The progress on ships No. 3, 4, 5, 6, 7, and 8 currently being built by Gadeok Heavy Industries has exceeded the delivery dates stipulated in the contract. This constitutes grounds for liquidated damages, and we are providing this advance warning. This is a preliminary calculation for the purpose of the claim for damages and the issuance of this certified letter; we intend to conduct a thorough review to determine the final amount later."

The Hangang Bus is Seoul's first waterborne public transit system, introduced by the Seoul Metropolitan Government last September to alleviate severe traffic congestion and public transit overcrowding during rush hours. It currently operates as a ferry service covering a total 28.9km route across seven piers along the Han River: Magok, Mangwon, Yeouido, Apgujeong, Oksu, Ttukseom, and Jamsil. The operator, Hangang Bus Co., Ltd., is a joint venture between Seoul Housing & Communities Corporation (SH), a city-affiliated entity, and E-Land Group's E-Cruise. With shares split 51% and 49% respectively, the Seoul Metropolitan Government is effectively the majority shareholder.

The service operates using 12 newly built vessels: 8 hybrid-propulsion ships (Nos. 1–8) and 4 electric-propulsion ships (Nos. 9–12). According to the Seoul Metropolitan Government, Hangang Bus Co., Ltd. has commissioned construction to three companies: Eunseong Heavy Industries (Nos. 1–2 and 9–12), Gadeok Heavy Industries (Nos. 3–4), and SJ Heavy Industries (Nos. 5–8). Initially, Gadeok Heavy Industries signed a contract in March last year to build six ships (Nos. 3–8) by October of that year. Following delays, Hangang Bus Co., Ltd. signed a modified contract in March and subsequently transferred the contract for four ships (Nos. 5–8) from Gadeok to SJ Heavy Industries in June.

Gadeok Heavy Industries claims that the responsibility for the delays lies with Hangang Bus. In a written response sent to the operator on the 6th, Gadeok argued that construction was delayed due to Hangang Bus's failures regarding: △delays in providing completed blueprints, △delays in supplying materials, and △delays in interim (labor cost) payments. Their stance is that since they are not responsible for the delays, they cannot be held liable for damages. Furthermore, it has been confirmed that Gadeok alleges a "double contract" was signed during the reassignment of the four ships without properly terminating the original contract, and that the takeover and settlement of payments for existing subcontractors were not handled correctly (related article: [Exclusive] Hangang Bus Contractor Files Injunction Against Operator to Stop Vessel Construction).

A Gadeok Heavy Industries official stated, "The responsibility for the construction delay rests with the client, Hangang Bus. Even after four of the six vessels we were originally contracted for were transferred to another company, we put our heart and soul into building and delivering the remaining two. We would at least like them to settle the labor costs for our subcontractors before they try to assign blame for the delays."

The certified letter sent by Hangang Bus Co., Ltd. also included a demand for payment of outstanding balances. It calls for Gadeok to fulfill its obligation to pay 367 million KRW—its portion of the increased construction costs agreed upon during the contract modification—as well as the submission of a defect liability bond for ships No. 3 and 4.