Hello, this is Attorney Park Jong-han from Cheongchul Law Firm.

In a construction contract, if there are defects in the object delivered by the contractor, whether this is viewed as a breach of contract due to delay in performance or as performance having occurred but with defects will affect its legal handling.

If viewed as a delay in performance, a penalty for delay will be imposed, whereas in the case of defects, the contractor's claim for construction payments will be acknowledged, but only the client's claim for damages will be recognized.

Therefore, it is necessary to examine the criteria by which we distinguish between the failure to complete the performance itself and the completion of performance with defects.

[Question]

Criteria for determining delay in performance (penalty for delay) and defects (damages)

[Answer]

The Supreme Court views not completing the final work planned as a failure to perform, while if the work is completed as planned up to the final planned work, even if there are some defects requiring repair, it is regarded as completed and not a failure to perform but rather a case of having defects, thus drawing a distinction between the two cases.

Specifically, the Supreme Court stated, “If construction is halted and the final planned work is not completed, it will be considered incomplete. However, if the construction is completed as planned up to the final planned work, the major structural parts constructed as agreed, and it is deemed socially complete even if it is incomplete and requires repair, it should be interpreted that the construction is complete and merely has a defect in the object” (Supreme Court ruling 97Da23150, October 10, 1997).

At this time, whether the final planned work has been completed is judged objectively in light of the specific content of the construction contract and the principle of good faith, regardless of the contractor's claims or the client's inspection of acceptance. This standard applies equally to agreements regarding penalties for delay, which have the nature of predetermined damages for the delay in completing the work by the contractor.

In other words, if the process of constructing a building is completed and the major structural parts are constructed as agreed, even if there are some unfinished parts, this is merely a defect in the building, meaning construction is complete (refer to Supreme Court ruling 2008Da18932, June 25, 2009). When the construction is complete, the contractor's claim for construction payments is established even for the unfinished defective parts, and the client can only make claims for defect repairs or claims for damages in lieu of repairs regarding those defective parts (refer to Supreme Court ruling 2015Da214691, 214707, October 29, 2015).

Thus, we briefly examined the criteria for determining delay in performance and defects. In disputes related to national contracts and public procurement, the relevant laws are very complex, and frequent amendments require knowledge and experience. It is also essential to be familiar with not only court rulings but also administrative interpretations and cases of disposition. Therefore, it is highly recommended to seek the assistance of Attorney Park Jong-han, who has expertise in national contract laws and extensive experience in resolving various disputes related to national contracts and procurement.

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