Amid increasing conflicts over construction costs between construction companies (contractors) and project developers (maintenance business associations, etc.), the National Assembly is discussing a plan to amend relevant laws to establish procedures and organizations for mediation and arbitration in case of disputes arising from construction costs from the construction contract stage. Construction cost disputes often escalate to civil lawsuits, leading to prolonged project delays and damages. The aim is to amend the law to effectively mediate these conflicts and reduce the damages suffered by the parties involved.
According to the National Assembly on the 20th, on the 17th, Representative Yoon Young-seok of the People Power Party and nine others proposed the 'Partial Amendment to the Urban and Residential Environment Maintenance Act.' In the amendment, the representatives included provisions to incorporate fluctuations in construction costs due to design changes or price changes at the time of the contract into the contract document. It also included matters related to the selection of organizations for verifying construction cost fluctuations, and it stipulated that documents to be submitted during the verification process must be clearly specified in the contract beforehand. A National Assembly official noted, 'Current Urban and Residential Environment Maintenance Act does not specify how to mediate construction cost conflicts, and prolonged conflicts often lead to significant damage due to project delays,' adding that 'we are pushing for legal amendments to expedite conflict mediation.'
The amendment provides for the 'Urban Dispute Mediation Committee' to serve as the mediation body for construction cost disputes that may arise after the contract. The committee will be composed of two commissioners nominated by both the project developer and the contractor, and the committee’s decisions will be treated with the binding effects of judicial mediation. Additionally, once the committee initiates the mediation of construction cost disputes, a legal framework for submitting necessary documentation must be established in advance to ensure rapid mediation.
Until now, when a construction cost dispute occurred, external organizations such as the Seoul Metropolitan Government, Korea Real Estate Board (REB), and Seoul Housing and Communities Corporation (SH) handled mediation. However, this mediation approach lacks legal authority, resulting in limitations in resolving conflicts, often necessitating other procedures such as litigation.
The amendment also includes provisions allowing local government heads such as mayors and county chiefs, as well as contractors, to request verification of construction costs. Under current law, only the project developer or maintenance business association can request cost verification.
Lee Min-ki, the representative attorney at Law Firm Yosu, said, 'Due to the impacts of the recent Ukraine war and others, construction costs have risen significantly, and it often takes considerable time to mediate disputes, resulting in damages due to project delays.' He added that 'the effort at the National Assembly level to quickly mediate disputes and establish procedures and methods for resuming construction through agreements will have quite a positive effect.'
Meanwhile, more places are seeking verification from external organizations because they cannot resolve construction cost disputes independently. The Korea Real Estate Board (REB) has verified construction costs for 27 business sites experiencing conflicts this year (as of June 12). Last year, the REB verified 30 business sites in total, and within six months this year, it has verified a similar number to the entire last year. SH Corporation, which started verification tasks for construction costs since last year, verified two business sites last year and has already completed verification for two sites this year.