Construction firms get relief on public projects

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Construction firms get relief on public projects

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The state-run Korea Land & Housing Corporation (LH) on Monday announced support measures intended to revitalize the construction industry.

LH, which has more than 800 construction partners, last month said it plans to inject 23.6 trillion won ($2.11 billion) into the construction sector this year, 9.3 trillion won of which will be spent during the first half of this year.

The corporation funds the construction of public housing and some other major public projects.

Effective this week, LH will suspend penalties for construction delays if the delay was caused by a late delivery of overseas materials.

The public corporation will also change the way it provides firms with money to purchase temporary construction materials, like fences, by paying them a lump sum when the project starts, instead of in installments.

LH said it will also shorten the interim inspection period to accelerate the payment process.

The measures will be effective throughout the first half of this year. LH may extend the support measures, depending on the degree of the coronavirus’s impact on the construction industry.

“As the organization that places the largest number of orders in the construction industry, which has a big economic impact, LH is making diverse efforts to play the leading role in revitalizing the industry,” said LH CEO Byeon Chang-heum on Monday.

Also on Monday, the Korea Research Institute for Construction Policy released a report that projects on-year investment in public construction projects will increase by 6 percent this year, compared to 3.9 percent projected in October. The nonprofit research institute, which initially projected a 4.2 percent drop for private construction projects, revised that outlook to a 7 percent drop.

The report states conglomerates will be hurt by the delay in overseas construction projects. Smaller firms will suffer from lack of liquidity, as they qualify only for higher interest rates and smaller loans.

“Currently, construction companies are not suffering from a decline in orders, but from a lack of laborers,” said Park Sun-gu, a researcher from the institute. “A lot of workers at the construction sites are foreigners, but following the coronavirus, the ordering organizations are requesting the construction operator only use domestic workers.”

Conglomerates will likely take the responsibility for the construction delay overseas because contagious disease is usually not included in the contract as a cause of penalty exemption.

“Even if conglomerates take the issue to court, it is highly unlikely for them to win,” Park said. “But compared to other industries, like the airline or petrochemical industries, construction is less affected by the coronavirus because the government injects large amounts of money into the industry by constructing more public buildings.”

Before the coronavirus, 10.4 percent of construction firms were projected to go bankrupt as of 2018, according to the institute. The pandemic could raise that figure by around 1.5 percent points.

BY JIN MIN-JI [jin.minji@joongang.co.kr]
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