Tough love needed on collusion

The controversial and multibillion-dollar project to restore the country’s four major rivers that has been aggressively pursued by the government has suffered more bad publicity after construction companies affiliated to the country’s largest conglomerates were found to have rigged bid prices to win deals in the pork-barrel project.

The Fair Trade Commission (FTC) slapped fines worth a total of 111.5 billion won ($95.2 million) on eight large builders for having colluded to match prices in bids the first stage of construction in the restoration project. The trade commission ordered eight other companies to fix their wrongdoings, and issued warnings to a further three.

The antitrust agency said the 19 builders met several times since 2009 and agreed to divide among themselves 15 construction work sites for damming and dredging. Their bids for the first stage of construction matched 93.4 percent of the estimate sought by the government, higher than it would have been had they not colluded. Absent of such unfair price rigging, the second stage of construction saw bid prices match 75 percent of the estimated price. In other words, construction costs were inflated at the expense of taxpayers.

This practice has not only squandered state funds but also undermined the fundamental principal of competitive bidding. President Lee Myung-bak’s ambitious and symbolic public project has been compromised by the constructors’ dishonest business practices from the get-go.

The price fixing was found to involve the country’s largest constructors, including Hyundai, Daewoo, GS, SK, Samsung and Daelim. But they all got off with just a slap on the wrist. In a final hearing, the FTC sharply cut the fines and allowed corporate executives to avoid being charged by prosecutors. No wonder the FTC decision is drawing strong criticism from civilian groups as well as creating a public backlash.

The antitrust agency should have taken stronger action to set a precedent against price fixing and bid rigging, which is now ingrained in Korea’s construction industry. Its refusal to do so has left few satisfied with the results of its lengthy investigation, which was initially prompted by an avalanche of questions raised by opposition lawmakers nearly three years ago. The FTC must try harder to let companies know what is acceptable and what kind of behavior will not be tolerated for future government-sponsored civil engineering works.