Apartment Construction Orders Reach 8 Trillion Won Era... Widespread Bid Rigging and Fronting Practices

The Helio City apartment complex in Songpa-gu, Seoul conducted a bidding process to select a security access facility installation company in 2019 and 2020. At that time, a company called ‘Apartner’ participated in the bid as the prospective winning bidder, while a company called ‘Suprema’ agreed to act as a dummy bidder, and ultimately Apartner was selected as the winning bidder. As a result, both companies were fined 2 million KRW and 5 million KRW respectively for violating the Fair Trade Act due to bid rigging.

As apartments have become a common residential culture and demand for various management facilities such as community and security has increased accordingly, the scale of apartment facility management construction and services is also growing. In this process, conflicts over the selection of contractors and the appropriateness of project costs are increasing, and furthermore, bid rigging is becoming rampant.

On the 18th, the Ministry of Land, Infrastructure and Transport announced that it will promote institutional improvements in cooperation with the Fair Trade Commission to prevent bid rigging occurring in multi-family housing construction projects.

According to a survey conducted by the Ministry of Land, Infrastructure and Transport and the Fair Trade Commission on industry conditions, bid rigging in apartment construction and service contracts is characterized by overlapping collusion between participating bidders and collusive relationships between the client (resident representative meetings or management offices) and specific companies. Since multi-family housing complexes above a certain scale are, in principle, required to conduct competitive bidding, even if the client promises to favor a specific company, the winning bid is not guaranteed for that company. Therefore, the favored company asserts its vested interests to other companies attending the site briefing and demands concessions or recruits cooperative companies as dummy bidders.

As a countermeasure, the Ministry of Land, Infrastructure and Transport plans to first revise the ‘Guidelines for Housing Management Companies and Contractor Selection (Ministry of Land, Infrastructure and Transport Notice)’ to ensure the effectiveness of restricting bid-rigging companies from participating in bids. They also plan to conduct joint investigations regularly on contractor selection fraud in cooperation with the Fair Trade Commission and local governments.

Additionally, the contractor selection guidelines will be revised to require housing management companies and bidding companies to disclose any affiliated relationships in the bid documents. Furthermore, to utilize residents’ autonomous monitoring capabilities, the multi-family housing management information system (K-APT) will be improved by adding a function to compare construction costs between similar apartment complexes. The Ministry of Land, Infrastructure and Transport stated, "We expect these measures to contribute to preventing fraudulent acts during the contractor selection process and to curb unjustified increases in management fees."

Meanwhile, the scale of apartment management fees increased from 20 trillion KRW in 2019 to 22.9 trillion KRW last year. The scale of construction and service contracts also grew from 7.1 trillion KRW to 7.7 trillion KRW during the same period, and is expected to surpass 8 trillion KRW this year.

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