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

Among the types of construction contracts, the method where the contractor (the party receiving the order) drafts the design documentation based on the construction object desired by the client (the party giving the order) and executes the construction by itself while guaranteeing performance, ultimately achieving the construction purpose desired by the client, is called the Turn-Key Base method.

This is derived from the saying that the client just needs to turn the key, and it originally refers to a contract where the construction contractor is responsible for finance, land procurement, design, construction, machinery installation, and commissioning, completing and delivering the building.

Even in this Turn-Key Base method, various reasons may cause an increase in construction costs during the execution of the project, and at such times, the contractor may want to request an increase in construction costs.

However, in principle, adjustments to the contract amount are not possible under the Turn-Key Base method; nevertheless, adjustments to the construction price may be possible under certain circumstances, which requires examination.

[Question]

Whether there is an obligation to pay additional construction costs in a Turn-Key contract

[Answer]

A contract based on Turn-Key Base means that the contractor must understand the installation purpose of the construction object desired by the client, draft design documentation tailored to that purpose, execute the construction by itself, and guarantee performance to ultimately achieve the construction purpose desired by the client (Refer to Supreme Court ruling 96Da16650, August 23, 1996).

In such a Turn-Key method, the contractor prepares the design documents and other necessary drawings and documents for construction in accordance with the general plan and guidelines proposed by the client, participates in the bidding, and after being selected as the successful bidder, estimates the costs necessary for the completion of the construction based on the design documents prepared by himself, executes the construction, and as a result, has to provide the construction object intended by the client, and it cannot be said that there is an obligation for the client to calculate and set the appropriate construction costs in advance for the bidders, nor is there any restriction or legal obligation for the contractor to submit a bid within the announced construction budget.

Therefore, even if the announced construction budget at the time of bidding was underestimated due to the fault of the client, and the bidder believed the construction budget was reasonable and concluded a contract with the client based on that, resulting in an additional expense incurred due to construction costs beyond the contracted amount, it cannot be concluded that the client committed an illegal act (Refer to Supreme Court ruling 2002Da7824, May 30, 2003). Thus, even if additional construction costs arise, the client does not have an obligation to pay for the additional construction costs.

However, if the contract terms include a provision that allows for adjustment of the contract amount in case of changes in the contract content, it is possible to adjust the construction price based on the reasons specified in that provision.

Although a contract was concluded in the form of a Turn-Key Base contract, if a reservation provision regarding the adjustment of construction costs was included, stating that adjustments to the contract amount could be made in cases of changes not only in the design elements but also in the construction period, transport distance, etc., then it should be viewed that the contract is a mixed form of a Turn-Key Base contract and elements of a detailed bid contract, since adjustments to construction costs would not be possible merely due to changes in the construction period, etc. after the contract was concluded (Refer to Supreme Court ruling 99Da52879, August 23, 2002).

In this way, I have briefly examined the obligation to pay additional construction costs in a Turn-Key contract. In disputes related to national contracts and public procurement, understanding and experience are needed due to the complexity of relevant laws and frequent amendments. It is necessary to be well-versed not only in court rulings but also in administrative interpretations and case studies. Therefore, it is advisable to seek the assistance of Attorney Park Jong-han, who possesses expertise in national contracting laws and various dispute resolution experiences in national contracts and procurement.

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