South Korean builders are coming under increasing pressure as they undergo investigation for suspected bid rigging amid difficult market conditions, industry sources said Wednesday.
Insiders said the Fair Trade Commission is examining all large-scale public construction projects undertaken during the previous Lee Myung-bak administration. If builders are found to have rigged bidding prices, they could be fined and barred from participating in future projects.
The FTC has not confirmed the investigations, but industry sources said at least seven or eight companies are being probed over work related to railway lines in Busan and Daegu and highways.
"Among the top 10 builders, many are being probed for five or six different offenses at the same time," an insider who declined to be identified said. He added that the FTC has taken a tougher stance on anti-trust activities compared to the past, indicating there could be considerable penalties.
Authorities have already slapped fines exceeding 111.5 billion won ($105 million) on Hyundai E&C, GS E&C and SK Engineering and Construction Co., which were involved in the so-called four rivers project, and 132.2 billion won in fines on 21 builders that built a subway line in Incheon.
Some say the probes come at a rough time for the industry as a whole, and is causing some to stay clear of public work projects altogether.
They expressed concerns that the FTC fines may reach as high as 1 trillion won.
Sluggish demand for new homes and a drop in major construction work have seriously affected the bottom line of many builders. In addition, companies that are found to have manipulated prices or rigged the bidding process could be excluded from taking part in future public work for up to a year, a serious blow for business.
Faced with difficulties in the home market, local builders have turned to foreign markets, but due to the stiff competition to secure orders, some have taken to undercutting prices to the detriment of their profit margins.
Competition in foreign markets comes not only from overseas rivals, but from South Korean companies, which compete to secure orders even if they do not make money.
Related to such developments, the Construction Association of Korea launched a working level task force late last year to deal with price rigging practices and prevent other unfair trade activities.
CAK officials said that it has asked the government for leniency because fines could seriously hurt some companies already strapped for work and earnings.
Choi Min-soo, a researcher at the Construction and Economy Research Institute of Korea, said the FTC should consider taking steps to reduce fines and other administrative penalties if clients placing the orders had not been seriously hurt. (Yonhap News)