Construction Industry Slump... Government to Raise Minimum Bid Rate for Qualification Review System

Improvement of Local Contract System to Revitalize Regional Construction Economy
Supporting Appropriate Construction Costs by Raising Minimum Bid Rate by 2 Percentage Points
Increasing General Administrative and Indirect Labor Cost Ratios by 1 to 2 Percentage Points

The government has decided to raise the minimum bid rate for public construction project qualification evaluations. This measure comes in response to the decline in construction companies' operating profit margins due to rising construction material costs and an economic downturn.

On the 31st, the Ministry of the Interior and Safety held a meeting of the 'Public-Private Joint Special Team for Improving Local Construction Economy and Revitalizing Small and Medium Enterprises' at the Government Seoul Office and finalized the 'Local Contract System Improvement Plan' based on these points.

The improvement plan includes 15 tasks across four areas: ▲guaranteeing appropriate compensation ▲reducing burdens on companies during bidding and contracting ▲strengthening support for local and small businesses ▲enhancing protection of contractors' rights. In particular, the special team, composed of industry representatives, local governments, and experts, focused on devising practical measures that can be felt on the ground.

First, for the first time since the enactment of the Local Contract Act, the minimum bid rate will be raised by 2 percentage points to secure appropriate construction costs. Specifically, the minimum bid rates for all price brackets of qualification evaluation projects under 30 billion KRW will be increased by 2 percentage points each. This is expected to reduce the burden on companies during bidding and contracting. The adjustment reflects a realistic update of general administrative expenses and indirect labor cost ratios, which have remained unchanged since the cost calculation standards were introduced in 1989, failing to account for inflation and other changes in social conditions.

Additionally, the timing for applying price fluctuations and the requirements for single-item price changes in negotiated contracts will be relaxed. When entering into negotiated contracts due to contract cancellation, termination, or reannouncement failure, only price fluctuations after the negotiated contract can be reflected. This considers situations where prolonged negotiations prevent the reflection of appropriate price changes. The plan also includes easing the price fluctuation application criteria for specific standard materials from a 15% increase to 10% or more to reflect the soaring raw material prices.

Compensation for design fees for bidders who lose in technical proposal bids will also be adjusted to reflect reality. The current design compensation standards are lower than the actual costs incurred by companies, which has been one of the main reasons companies hesitate to participate in bids.

Support measures for local and small businesses have also been introduced. To support companies located in depopulated areas and local firms, the plan proposes ▲introducing an additional point (1 point) for companies in depopulated areas during construction qualification evaluations ▲increasing the additional points for companies located near construction sites from 0.5 points to 1 point ▲raising the criteria for the proportion of local subcontractors eligible for additional points.

Furthermore, the threshold for local contract dispute mediation will be lowered from 1 billion KRW to 400 million KRW for comprehensive construction projects, and contract cancellation or termination-related issues will be added as grounds for disputes. Cases of minor responsibility will be allowed to be replaced with fines, and interference with bid participation or contract conclusion will be added as grounds for such fines. The Ministry of the Interior and Safety plans to promptly revise related regulations to ensure the announced system improvements are implemented on the ground. The revision of ordinances, including the increase in minimum bid rates, is expected to be completed by April for immediate enforcement.

Han Soon-gi, Director of the Local Finance and Economy Office, stated, "The tasks announced this time are the result of intense discussions over the past month between the public and private sectors to prepare improvements that will genuinely help the local construction economy and revitalize small and medium enterprises." He added, "We will swiftly proceed with the amendment of related laws to ensure the local contract system improvement plan is applied early in the field."

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