Speeding up the abolition of construction sector regulations... First pilot project to be ordered by the end of June

[Asia Economy Reporter Chunhee Lee] The details of the abolition of the business area regulations between general and specialized construction industries, scheduled to take effect in January next year, will be concretized through a pilot project.

The Ministry of Land, Infrastructure and Transport announced on the 15th that, following the approval of the Ministry of Strategy and Finance's special exemption for the 'Construction Business Area Regulation Abolition Pilot Project,' it will select target projects by receiving applications from ordering agencies and start ordering as early as the end of this month.

The projects selected for this pilot include a total of nine projects: four projects by Korea Expressway Corporation, three by Korea Railroad Corporation, and two by the Korea Rail Network Authority. The total scale is about 14.9 billion KRW, including lane installations and sound barrier installations.

Currently, under the Framework Act on the Construction Industry, complex construction projects (prime contracts) can only be executed by general construction companies, while single construction projects (subcontracts) can only be performed by specialized construction companies. This regulation, which has continued since the introduction of specialized construction in 1976, has been criticized for causing side effects such as reduced fair competition, an increase in companies on paper, and hindering corporate growth. In particular, it has been pointed out as a 'Galapagos regulation' unprecedented in advanced countries.

Accordingly, the Framework Act on the Construction Industry was amended at the end of 2018, and the business area regulations will disappear from January next year. The Ministry of Land, Infrastructure and Transport previously announced the draft amendment of subordinate laws for the enforcement of the new Framework Act on the Construction Industry on the 11th. Once the amendment is implemented, construction companies registered in two or more specialized fields will be able to act as prime contractors for general construction projects composed of specialized construction works corresponding to those fields. However, the actual abolition will be implemented in public construction projects from next year after a preparation period including the pilot project, and in private construction projects from 2022.

This pilot project targets projects under public institutions affiliated with the Ministry of Land, Infrastructure and Transport, where effect analysis can be conducted in a short period. It is composed of various types to analyze the effects of the abolition of business area regulations from multiple perspectives. Among five existing general construction projects, three will allow competition between general and specialized industries, while two will permit only specialized industries. Among four specialized construction projects, two will similarly allow competition between general and specialized industries, and the remaining two will permit only general industries.

In the pilot project, the Framework Act on the Construction Industry, scheduled to be enforced in January next year, will be applied. When specialized construction companies enter the opposite market, direct construction will be mandatory, and registration criteria such as capital and technical skills of the opposite industry must be met. Detailed matters such as recognition of construction performance in the opposite market will follow the amendment draft announced on the 11th. When a general contractor enters specialized construction, two-thirds of the total performance will be recognized, and when a specialized contractor enters general construction, all prime and subcontract performance will be recognized.

The Ministry of Land, Infrastructure and Transport plans to thoroughly inspect ordering systems, performance recognition, bidder selection criteria, and procurement systems through the pilot project to ensure the smooth implementation of the abolition of business area regulations and will also promote related institutional improvements. To this end, it will operate a joint dedicated organization with the Ministry of Strategy and Finance, Public Procurement Service, and other related agencies from the preparation stage of the pilot project and check the progress of each stage such as ordering, bidding, and construction every month.

In particular, to block paper companies, companies that do not meet registration criteria will be deducted 10 points in bidder evaluation, effectively excluding them from winning bids. In addition, a joint crackdown team with ordering agencies and local governments will conduct special on-site inspections to fundamentally block paper companies from participating in bids.

Lee Seong-hae, Director of the Construction Policy Bureau at the Ministry of Land, Infrastructure and Transport, said, "The pilot project will serve as lubrication to unlock the rigid business area barriers that have lasted for 40 years," adding, "To maximize the effect of innovation in the construction industry, we will promptly promote the expansion of specialized construction industries into large industries and the introduction of a main field disclosure system, and prepare 'ordering guidelines' to minimize confusion among ordering parties."

This content was produced with the assistance of AI translation services.