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

During the negotiation phase for contract conclusion, the parties can freely suspend negotiations; however, if they reach a stage where they can trust that the contract will be executed, there is a need to protect the party who relied on that trust.

In the case of the bidding process, if the contract awarding authority refuses to conclude the contract without a legitimate reason after selecting the successful bidder, the question arises as to how the bidder who relied on this decision can be protected. Therefore, it is necessary to examine whether the awarding authority is liable for damages in such cases and the extent of such damages.

[Question]

Liability for damages and its scope if the awarding authority refuses to conclude the contract after selecting the successful bidder

[Answer]

If a contractor who is to be the principal contractor selects a subcontractor by going through the bidding process and selecting a successful bidder, there is a contractual relationship established that obligates the conclusion of the main contract between the bidder and the successful bidder, and if one party unjustifiably refuses to conclude the main contract, the other party can claim damages for the non-performance of the reservation obligation. This scope of damages is generally limited to ordinary damages caused by non-performance of the reservation obligation. However, if the bidder unjustifiably refuses to conclude the main contract with the successful bidder, then the loss of benefits that the successful bidder could have obtained through the conclusion and performance of the main contract, that is, the loss of performance benefits is considered to be ordinary damages, meaning that the bidder is liable to compensate the successful bidder for this (Supreme Court ruling on November 10, 2011, case number 2011 Da 41659). This legal principle also applies similarly to national contracts.

The benefits that the successful bidder could have obtained through the conclusion and performance of the main contract can be initially considered the successful bid amount that could have been received from the other party under the main contract. However, since the successful bidder avoids direct and indirect costs incurred due to not reaching the conclusion and performance of the main contract, these costs should naturally be deducted from the amount of damage they are entitled to claim. Moreover, based on the principle of fair and reasonable distribution of damages, courts will objectively assess and determine a damage amount that takes into account various circumstances, such as the efforts that the successful bidder would have needed to expend during the performance process and the business risks they would have had to assume.

As such, we have briefly examined the issue of liability for damages and the scope of damages when the awarding authority refuses to conclude the contract after selecting the successful bidder. In disputes related to national contracts and public procurement, the relevant laws are very complex and subject to frequent amendments; therefore, knowledge and experience in this area are essential, and one should be well-informed not only about court rulings but also administrative interpretations and case decisions. Thus, we strongly recommend seeking the assistance of an attorney who has expertise in national contract laws and experience in resolving disputes related to various national contracts and procurement.

Cheongchul Law Firm is comprised solely of attorneys from the four major law firms in the country: Kim & Chang, Gwangjang, Taepyeongyang, and Sejong, and a team of specialized attorneys in the relevant field is formed for each case instead of relying on a single attorney. Cheongchul provides comprehensive solutions for the entire business rather than just addressing specific issues, focusing on ultimately helping clients achieve their desired outcomes through legal consulting. If you need assistance in achieving your goals, do not hesitate to contact Cheongchul.