Government Excludes 'Metropolitan Firms' from Local Projects Under 15 Billion Won... Why the Regional Construction Sector Is Not Entirely Optimistic [Why&Next]

Local Public Corporation and Local Government Projects: Regional Bidding Threshold Raised to 15 Billion Won

Small and Medium Firms with Insufficient Track Records Say, "Bidding Barriers Have Actually Increased"

The '2 trillion won order opportunity' has opened up for the regional construction industry, which had been struggling with rising raw material prices and a slump in the construction market. The government has significantly raised the threshold for limited bidding to prevent local construction projects, which only regional construction firms can participate in, from being taken over by companies from other regions, such as those in the Seoul metropolitan area. However, an unexpectedly lukewarm response is being detected within the very regional construction sector that stands to benefit, with some expressing concerns that this will only deepen the polarization of the industry.

'Virtuous Cycle of Local Finances'...2.6 Trillion Won in Orders for Regional Construction Firms to Expand

Safety inspection at a construction site. The Asia Business Daily DB.

According to the Ministry of Economy and Finance on April 22, the revised 'Regulations on Contracts of Public Corporations and Quasi-Governmental Institutions' were announced on April 20. This revision raises the threshold for 'regional limited competitive bidding'—which restricts bids for local projects ordered by public corporations and quasi-governmental institutions to only regional firms—from less than 8.8 billion won to less than 15 billion won. The Ministry of the Interior and Safety also plans to announce on April 24 a revision to the 'Enforcement Rule of the Local Contract Act,' raising the threshold for local government-ordered projects from 10 billion won to 15 billion won.

This is a follow-up measure to the 'Plan to Expand Participation of Local Firms in Local Projects' jointly announced by the government and related ministries in November last year. The purpose is to revitalize the local economy by supporting regional construction companies. Regional limited competitive bidding is a system in which only companies headquartered in the metropolitan local government area where the project site is located are allowed to compete. The government estimates that, with this increase in the bidding limit, approximately 2.6 trillion won in orders per year will additionally go to non-capital region companies. According to the Construction Industry Knowledge Information System (KISCON), the number of comprehensive construction companies that filed for closure last year reached a record-high of 675, with 56% (378 companies) based outside the Seoul metropolitan area.

"Only Top Firms in the Region Will Dominate"...Small Firms Left Out in the Cold

Although the system was implemented just five months after the government announced its plan, the response from the regional construction sector—the intended beneficiaries—has been unexpectedly subdued. So far, not a single organization has issued the usual 'welcoming statement' that typically accompanies the implementation of government support measures for the construction industry. A representative from a construction industry association stated, "Half of the companies are hopeful, while the other half are concerned," and added, "The interests are so divergent that it is difficult to issue an official position."

According to the construction industry, many smaller regional construction firms have previously participated in bids by forming consortiums (joint ventures) with more experienced companies from other regions to supplement their construction records during qualification assessments. However, with the regional restriction now raised to less than 15 billion won, collaboration with firms from other regions has become more difficult, leading to concerns that opportunities to participate in bids may in fact decrease. Typically, bidders are required to have a construction record of 1.3 times the project amount within the past 10 years as of the bid announcement date. Due to the regulatory revision, the required construction record has jumped from the previous 11.4 billion won (public corporations) to 13 billion won (local governments) to 19.5 billion won (unified for both public corporations and local governments).

A representative from the construction industry said, "Top-tier companies in the region with abundant records will dominate the market through solo bids, but small and medium-sized firms lacking sufficient track records may find it impossible to find partners and could end up losing even the opportunity to bid, becoming 'orphans of the Nakdong River.'" This raises concerns that the polarization of orders within the region could intensify.

The government is aware of these industry concerns. However, for now, it maintains its principle of 'preventing local funds from flowing out of the region.' Furthermore, the government is cautious about relaxing the qualification standards, since lowering the requirements excessively to accommodate small firms could result in poor construction quality or safety accidents.

A government official stated, "The fundamental premise of this policy improvement is the virtuous cycle of local finances," adding, "We will closely monitor both the actual effects and any side effects." The official continued, "If side effects such as small firms being pushed to the brink of closure become a reality, we will promptly implement supplementary measures, such as relaxing construction record requirements through regulations or guidelines."

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