Hello, this is Attorney Baek Gi-hyung from Cheongchul Law Firm.

In the case of design and construction lump-sum bidding projects, commonly known as turn-key projects, it is often understood that additional construction costs cannot be claimed in principle.

This is because Article 91 (1) of the Enforcement Decree of the Act on Contracts to which the State is a Party (hereinafter referred to as the 'State Contract Act') stipulates that "even if the contract terms for large-scale construction projects are changed due to alternative bidding or changes in design for lump-sum bidding, the contract amount cannot be increased except in cases where the government is responsible or in cases of unavoidable circumstances such as natural disasters."

So, in turn-key projects, is it also impossible to claim additional construction costs in cases of 'extension of construction period' or 'price changes'?

[Question]

Is it possible to claim additional construction costs due to 'extension of construction period' or 'price changes' in turn-key projects?

[Answer]

The Supreme Court has stated, "A construction contract based on the design and construction lump-sum bidding (Turn-Key Base) means that the contractor understands the purpose of the installation of the project desired by the client, prepares design documents suited to that purpose, proceeds with the construction based on those documents, and guarantees the performance in order to ultimately fulfill the client's intended purpose of the project. However, even if the contract is established in the form of a design and construction lump-sum bidding contract, if there are changes not only in the design elements but also in the contract contents such as construction period or transport distance, the contract amount can be adjusted under provisions reserving adjustment regarding construction payments. Therefore, it can be adjusted based on the occurrence of reasons for contract amount adjustment specified in those provisions." Thus, it is ruled that when there are changes in the contract contents such as construction period, in principle, adjustment of the contract amount is possible (Supreme Court Decision No. 2011Da109012 dated November 28, 2013).

This is because the title of Article 91 (1) of the Enforcement Decree of the State Contract Act stipulates "Restrictions on adjustment of contract amount due to design changes," and the wording of the clause also limits the reasons that cannot increase the contract amount to 'design changes,' thus it cannot be assumed that these provisions apply unconditionally to other reasons such as price changes or extension of construction periods.

Therefore, it can be said that even in turn-key contracts, the general provisions allowing adjustments to the contract amount as per Article 64 and Article 66 of the Enforcement Decree of the State Contract Act can still be applied regarding price changes or extensions of construction periods.

In practice, it is common to easily give up on claims for contract amount adjustments or additional construction costs just because it is a turn-key contract or EPC contract. However, in case law, there are often adjustments to construction payments in the case of turn-key contracts or EPC contracts, taking various circumstances into consideration. It is essential to keep in mind that instead of hastily judging based solely on the form of a turn-key contract or EPC contract, one should closely examine the specific contents of the construction and the substance of additional construction costs.

Attorney Baek Gi-hyung has worked in the construction/real estate team of the Defense Facilities Administration and a large law firm, specializing in tasks related to bidding and usage permits for state-owned property, lease agreements, imposition of fines, and other duties concerning public property, and possesses extensive experience and skills in resolving numerous disputes, representing both the state and dispossessed persons. If you need assistance regarding state-owned property, local property, or public property, please feel free to contact us.

Cheongchul Law Firm consists solely of attorneys from Korea's top four large law firms: Kim & Chang, Kwanga, Taepyeongyang, and Sejong, and is organized into teams of specialized attorneys in the relevant field related to each case rather than relying on a single attorney. Cheongchul provides comprehensive solutions that go beyond resolving specific issues, focusing on ultimately achieving what the client desires. If you need assistance in achieving your goals, do not hesitate to contact Cheongchul.