Public Works Guarantee Companies Tighten Rules

The minimum bid necessary to qualify for guarantees for large public construction projects has been hiked by the guarantors. Seoul Guarantee Insurance and Korea Financial Construction Cooperative said Friday that public construction projects worth more than 100 billion won ($78 million) require the guarantees, and contracts without them are subject to cancellation.

Amid worries of subpar construction work, the two guarantee companies have raised the minimum ratio of bid-to-estimated value required for their guarantees from 60 percent to 73 and 75 percent.

Guarantees will be secure for all bids of more than 78 percent of the estimated value. But a company that receives a guarantee this year by bidding between 73 percent and 75 percent of the value will be ineligible for another guarantee from Korea Financial Construction Cooperative in that range. Also, with all bids between 73 percent and 75 percent, the company will need to provide collateral worth five times more than the difference of the bid amount and 78 percent of the project's value. With a bid between 75 percent and 78 percent, the company has to provide collateral worth 1.5 times the difference.

Companies that bid between 75 and 78 percent of the value of the project will be subject to inspection committee hearings before getting guarantees.

by Kang Hwang-sik