Hello, this is Attorney Park Jong-han from Cheongchul Law Firm.
In the case of construction contracts, if the execution of the contract is suspended during the construction, the payment for work performed up to that point is recognized. In construction contracts, the progress of the work is calculated based on the progress of the project, and the funds required for the portion already constructed are called ‘progress payment,’ and the payment for this is referred to as ‘progress payment amount.’ In other words, progress payment means the compensation paid for the completed part of the contract.
Ultimately, since progress must be determined in order to claim progress payment, it is necessary to look into the method of determining progress.
[Question]
Method of determining progress in construction contracts (in case of design changes)
[Answer]
If a construction contract is terminated due to the default of the contractor while the construction has progressed to a considerable extent, and restoring it would cause significant social and economic losses while the completed portion benefits the client, the contract will be ineffective only for the incomplete portion and the contractor must deliver the building to the client in the state it was terminated, and the client is obliged to pay for the incomplete building as per the original agreement unless special circumstances are present (refer to the Supreme Court 1992. 3. 31. ruling 91Da42630, etc.).
In such cases, the compensation due for the incomplete building that the contractor must pay will be the amount calculated by applying the ratio of progress payment to the total contract price agreed upon between the parties, and not based on the actual expenses incurred by the contractor (refer to the Supreme Court 1992. 3. 31. ruling 91Da42630, Supreme Court 1993. 11. 23. ruling 93Da25080, etc.).
At this time, the progress payment ratio is determined by calculating and confirming the ratio of the costs incurred for the work done to the total costs, which include the costs for completing the unfinished portion and the costs already incurred for the completed portion at the point when the obligation to pay construction costs arises, i.e., when the contractor suspended the work (refer to the Supreme Court 1989. 12. 26. ruling 88DaKa32470, 32487, Supreme Court 1996. 1. 23. ruling 94Da31631, 31648, etc.). However, if there are special circumstances such as agreements between the parties regarding the calculation of the progress payment ratio, it can be calculated differently (refer to the Supreme Court 1993. 11. 23. ruling 93Da25080, Supreme Court 2013. 5. 24. ruling 2012Da39769, 39776, etc.).
If there are changes to the design and specifications in the construction contract, it shall be agreed that the construction costs shall change according to those changes, and if the construction was suspended after proceeding with the changed design and specifications, it is necessary to determine the costs of construction according to the ratio of progress payment applicable to the changed construction costs based on the changes in design and specifications (refer to the Supreme Court 2003. 2. 26. ruling 2000Da40995).
As such, we have briefly reviewed the method of determining progress in construction contracts (in the case of design changes). In disputes related to national contracts and public procurement, the relevant laws are very complex and subject to frequent amendments, so one needs to be knowledgeable and experienced in these matters. It is essential to be well-informed not only about court rulings but also about the interpretations and decisions made by administrative authorities. Therefore, we strongly recommend seeking the assistance of Attorney Park Jong-han, who possesses expertise in national contract laws and extensive experience in resolving various national contract and procurement disputes.
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