Low Satisfaction with Direct Purchase System among Construction Companies... "Loss Prevention Measures Needed Such as Restricted Competition"

More than half of respondents on-site express 'negative' satisfaction with direct purchase materials
Calls for expanded subcontracting competition limits and adjustment council functions

There have been calls to improve the direct purchase system to enhance construction efficiency and prevent losses for construction companies.

View of a reconstruction apartment site in Seoul city / Photo by Yonhap News

According to the Construction Trend Briefing (Issue 915) recently published by the Korea Research Institute for Construction Industry on the 22nd, the procurement scale of the direct purchase system for construction materials, applied to general construction projects over 4 billion KRW and specialized construction projects over 300 million KRW, has increased in both the number of cases and contract amounts over the past three years.

Based on data from the Public Procurement Service, the average annual contract (delivery requirement) amount from 2009 to 2015 was 15.4 trillion KRW, increasing to 24.4 trillion KRW (1.72 million cases) in 2020, 27.2 trillion KRW (1.83 million cases) in 2021, and 30.5 trillion KRW (1.81 million cases) in 2022.

This system is a sub-system of the "Designated Competitive Products for Small and Medium Enterprises" aimed at promoting the purchase of SME products and supporting their market access, and it applies to public construction projects above a certain scale.

However, despite the growth in procurement scale, more than half of the general construction company sites surveyed showed low satisfaction with direct purchase materials compared to self-supplied materials.

According to a survey conducted by the Korea Research Institute for Construction Industry through the Korea Construction Association from the 6th to the 21st of last month targeting nationwide general construction company sites with experience using direct purchase materials, out of a total of 331 responding sites, 183 sites (55.3%) evaluated their overall satisfaction with direct purchase materials negatively.

In particular, negative evaluations were prevalent regarding adherence to or shortening of construction periods (78.9%), process management (78.5%), and determination of responsibility in defect disputes (62.2%). Compared to a 2016 survey where negative opinions on the impact of construction execution were within 30% by category, the evaluation of direct purchase materials has significantly worsened.

Responses indicating experience of delays in subsequent construction phases due to supply and installation delays of direct purchase materials reached 84.3%. Additionally, 34.9% viewed that construction companies bore costs themselves to recover the schedule, causing losses.

In this regard, the Korea Research Institute for Construction Industry pointed out that the direct purchase system is acting as a cause of decreased construction efficiency, contrary to the legal premise. They also noted that even if construction conditions worsen, construction companies structurally lack means for separate management or feedback. They emphasized that when subcontractors make direct purchases, the Korea Federation of SMEs and product-specific associations should provide a supply pool and conduct restricted competition.

Park Hee-dae, a senior researcher at the Korea Research Institute for Construction Industry, said, "To improve this system, the function of the Direct Purchase Exception Reason Adjustment Council should also be expanded and improved," adding, "Consideration should be given to including construction project management experts or regional construction association officials as ex officio members."

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