Hello, I am Attorney Park Jong-han from Cheongchul Law Firm.

Generally, in construction contracts, the defect repair deposit is a deposit paid to the contractor to secure the obligation to repair defects related to the completed work by the contractor after the completion of the work.

However, in the case of long-term continuous construction projects, it is possible to have different contractors for each annual contract, and in this case, it becomes a question whether there is an obligation to pay the defect repair deposit for the entire construction to the final contractor. Although the final contractor undergoes the final inspection for the entire construction, he may think it is unreasonable to be held responsible for the work under the annual contracts that he did not perform.

Therefore, it is necessary to examine the extent to which the final contractor's obligation to pay the defect repair deposit is recognized in long-term continuous construction projects.

[Question]

To what extent is the final contractor's obligation to pay the defect repair deposit recognized in long-term continuous construction projects?

[Answer]

「The Enforcement Decree of the Act on Contracts to Which the State is a Party (hereinafter referred to as the 'State Contract Act') Article 62 (3) states that “In long-term continuous construction projects, the defect repair deposit shall be paid according to the provisions of Paragraphs 1 and 2 for each annual contract. However, in the case where the construction cannot be distinguished by defect liability for each annual contract, the defect repair deposit shall be paid after the final inspection of the total construction.”

Generally, in construction contracts, the defect repair deposit is paid to the contractor by the contractor of the completed work to secure the obligation to repair defects related to the completed work, and to impose the obligations of defect repairs or the obligation to pay the defect repair deposit on a party other than the contractor of the work, there must be a special agreement with that party, which is a natural principle of civil contracts.

Article 62 (3) of the Enforcement Decree of the State Contract Act stipulates that if the state or local government enters into a 'long-term continuous construction contract', it shall generally pay the corresponding defect repair deposit for each annual contract, but only if the contractors for each annual contract are the same and in cases where it is not possible to distinguish whether the defects occurred in the completed work are faults in the construction of any stage in the annual contracts, it is a regulation providing convenience for the procedure to require payment of the defect repair deposit for the entire work after the final inspection. Thus, it cannot be interpreted as a regulation that unconditionally forces the final contractor to pay the defect repair deposit for the total construction amount without any special agreement just because there are cases where it is difficult to distinguish the liability for defects for each annual contract due to the nature of the construction contract in 'long-term continuous construction'.

Therefore, in cases where the contractors for each annual contract are different in long-term continuous construction projects, the final contractor is usually only obligated to pay the defect repair deposit related to that construction contract, and in contrast, for the state to impose defect liability or the obligation to pay the defect repair deposit on the final contractor, there should be a special agreement with the final contractor (see Supreme Court Decision 2004. 1. 16. 2003Da19275).

Thus, we briefly reviewed to what extent the final contractor's obligation to pay the defect repair deposit is recognized in long-term continuous construction. In cases of disputes related to state contracts and public procurement, the relevant laws are very complex and frequently revised, so knowledge and experience are necessary, and one must also be well acquainted with not only the court's rulings but also the administrative agency's interpretations and precedents. Therefore, it is recommended that you seek the assistance of a lawyer with expertise in state contract laws and experience in resolving various disputes related to state contracts and procurement.

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