28 companies fined for trying to fix railroad bid

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28 companies fined for trying to fix railroad bid

The Fair Trade Commission has imposed 435.4 billion won ($423.9 million) in fines on 28 local building contractors that were caught colluding in a bidding for a 3.6 trillion won project to construct a bullet train network linking Korea’s western region.

It is the second-largest fine the FTC has ever imposed in a single case, following a 668.9 billion won fine that was slapped on six liquefied petroleum gas retail suppliers in 2010.

In addition to the fine, the FTC plans to call for a prosecution investigation into the companies that played major roles in the collusion as well as some of their executives.

“We discovered that the companies involved in the bidding had divided the construction zones in the project in advance and decided among themselves which companies would win which bids and which companies would serve as the foil,” an FTC official said. “With the fine and other punitive measures, we think we can help correct the chronic practice of collusion in the construction industry.”

The Honam High Speed Railway, scheduled to be completed this year, is a 184-kilometer (114-mile) KTX railway that will connect Seoul with Gwangju via Osong, Gongju, Iksan and Jeongeup. A total of 8.35 trillion won is earmarked for the project, which includes the design fee and the acquirement of property.

The railroad’s construction alone will cost about 3.6 trillion won, according to the government and the Korea Rail Network Authority (KRNA).

The government and the KRNA divided the railway into 19 different zones and put each one up for bidding in 2009 and 2010 in search of building contractors that satisfied both rate and credibility. All bidding processes except three were found to be corrupt, the FTC said.

The bidding for 13 zones was carried out in 2009 through a price procurement auction - selecting the companies that provided the cheapest rates. Twenty-eight building contractors that took part in those bids, worth 2.49 trillion won in total, were found to have conspired for their own gain.

Thirteen of the country’s major building contractors won each of the zones, having worked out with the other companies in advance that they would win the bids at 76 percent of the previously estimated cost for each section, the FTC said.

The other companies offered higher prices, as agreed upon in advance, expecting they would benefit from the scam by later being hired on as subcontractors for the projects. The FTC said it has imposed 347.9 billion won in fines on those companies.

The FTC said it will ask the prosecution to investigate 15 companies and seven executives from seven companies.

Eleven companies were also found to have colluded in auctions for three other zones, carried out in an alternative bid, and for the train base, conducted in a turnkey bid. Those auctions were conducted in 2009 and 2010. The FTC has imposed 87.6 billion won in fines on those companies. Nine of the companies will be brought to the prosecution, it said.

Samsung C&T was slapped with the largest fine, at 83.6 billion won, which is almost a third of the company’s net profit from last year.

BY MOON GWANG-LIP [joe@joongang.co.kr]

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