1.

Key Additions and Amendments Under Revised Standard Construction Contract
 

(1)

Revision of Provisions on Material Inspection and Construction Quality Management

The previous Standard Construction Contract required contractors to bear the costs of material inspection. This arrangement was criticized for causing deterioration in construction quality as contractors sought to reduce inspection costs as well.

In response to such concerns, the Revised Standard Construction Contract removes the previous provision requiring contractors to bear material inspection costs. Instead, it imposes on contractors “the obligation to take appropriate measures including quality management and quality testing,” while requiring project owners to “include quality management costs and other related expenses in the contract amount.” This revision is expected to enable more effective construction quality management.
 

(2)

Expansion of Grounds for Construction Period Extension

The previous Standard Construction Contract specified the following grounds based on which contractors could request project owners to extend the construction period: (i) causes attributable to the project owner, (ii) force majeure events (e.g., natural disasters, war, epidemics, riots, etc.), (iii) raw material supply imbalances, and (iv) enactment or amendment of laws and regulations, such as working hour reductions.

The Revised Standard Construction Contract adds “cultural property surveys or discovery of contaminated soil” to the existing grounds for construction period extension, thereby reducing the contractors’ burden arising from construction delays.
 

(3)

Relaxation of Material Price Thresholds for Contract Amount Adjustment Due to Price Fluctuations

The previous Standard Construction Contract provided that project owners and contractors could adjust the contract amount by mutual agreement when “the price of materials exceeding 1% of the total construction costs (comprising material costs, labor costs and expenses) increased or decreased by 15% or more from the contract execution date” due to price fluctuations.

The Revised Standard Construction Contract relaxes the material price threshold for contract amount adjustment due to price fluctuations from “exceeding 1%” to “exceeding 0.5%” of construction costs, enabling more flexible contract amount adjustments in cases of rapid price fluctuations compared to the previous standard contract.

However, even under the relaxed threshold of the Revised Standard Construction Contract, contract amount adjustments can only be made upon mutual agreement between project owners and contractors. Therefore, monitoring will be necessary to determine whether contractors’ burden will actually be reduced during periods of rapid price fluctuations.
 

2.

Key Provisions of Best Practice Guidelines
 

(1)

Expansion of Grounds for Completion Guarantee Extension

Regarding grounds for completion guarantee extension, the Best Practice Guidelines significantly expand the scope beyond the traditional practice of recognizing only force majeure events, such as natural disasters, civil unrest and war, as grounds for extension. The expanded grounds include: (i) war, civil unrest, raw material supply imbalances, epidemics, enactment or amendment of laws and regulations such as working hour reductions for which authoritative government interpretation has been announced (“War, Civil Unrest, etc.”), (ii) typhoons, floods, heat waves and cold waves that can be confirmed by the Korea Meteorological Administration (“Extreme Weather”), and (iii) earthquakes for which special disaster zones have been declared (“Earthquakes”).
 

(2)

Clarification of Completion Guarantee Extension Periods

The Best Practice Guidelines specifically stipulate extension periods for each ground for completion guarantee extension. Specifically: (i) for War, Civil Unrest, etc., the extension period will be the period specified in the authoritative interpretation, if any, or 30 days if not specified, with the possibility for parties to determine the actual extension period through mutual agreement, (ii) for Extreme Weather, the expected construction suspension days will be specified in the contract and, if the actual construction suspension period exceeds the expected suspension days, the excess period will serve as the extension period, and (iii) for Earthquakes, the actual period during which construction was suspended will serve as the extension period.

Furthermore, the Best Practice Guidelines provide that the total extension period, calculated by combining extension periods for each ground, is limited to a maximum of 90 days, though the total extension period may exceed 90 days if the parties reach a mutual agreement.
 

(3)

Differentiated Debt Assumption Ratios

The Best Practice Guidelines differentiate contractors’ debt assumption ratios upon expiration of the completion guarantee deadline based on the number of days elapsed and the capital ratio of the PF project (i.e., the value obtained by dividing PF invested capital (funds invested at the time of PF loan contract execution) by project costs (total project costs, including essential project costs)).