POSCO E&C and Doosan Heavy Win Lawsuit Against Korea Rail Network Authority Over Donghae Line Construction Payment

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[Asia Economy Reporter Seongpil Cho] Construction companies including POSCO Engineering & Construction, Poonglim Industrial, and Doosan Heavy Industries, which were responsible for the 67 billion KRW-scale railway subgrade construction project on the Donghae Line, won a lawsuit against the Korea Rail Network Authority (formerly Korea Rail Infrastructure Corporation) demanding additional construction costs due to project delays. The Authority failed to secure the budget properly, resulting in delayed project completion and having to pay a large sum to the contractors.

According to the legal community on the 7th, the Seoul Central District Court Civil Division 34 (Presiding Judge Yangho Kim) partially ruled in favor of the plaintiffs in a lawsuit filed by three construction companies including POSCO Engineering & Construction against the Korea Rail Network Authority for construction payments. The court ordered, "The Authority must pay the construction companies approximately 3.28 billion KRW plus delay interest."

POSCO Engineering & Construction and others participated in the bidding for the "Donghae Line Pohang~Samcheok Railway Construction Section 3 Subgrade Construction Project" issued by the Authority in February 2009 and were selected as contractors. The total construction period was from April 2009 to April 2014, five years, with a contract amount of approximately 52.4 billion KRW. However, the project was completed in April 2018, more than four years later than originally scheduled, and the construction companies filed a lawsuit in June 2018 demanding additional construction costs due to the extended construction period. The lawsuit amount was approximately 3.945 billion KRW.

After more than three years of deliberation, the court recognized that the contract was amended due to reasons such as the project budget being assigned a lower priority, which caused the extension of the construction period, and ruled in favor of POSCO Engineering & Construction and others. The court stated, "It is difficult to consider that the reasons for the contract amendment originated from the responsibility of the construction companies," and added, "The project was delayed due to reasons such as budget allocation and design changes that should have been carried out prior to construction, and the construction companies can apply for contract amount adjustments corresponding to indirect construction costs due to the extension of the construction period."

However, the court reduced the additional construction costs calculated by the construction companies by about 10%. This was because it did not exclude the possibility that, if the construction cost adjustment process had proceeded through negotiations between the parties, the adjustment might have been made for a smaller amount within the scope of actual expenses. According to Supreme Court precedents, the court may determine the adjustment amount within the actual expense limit, considering expected amounts and other factors, based on principles of good faith and equity when the contract amount is adjusted by agreement.

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