The Korea Herald


[Editorial] Collusive bidding

Builders should do away with malpractices

By Korea Herald

Published : July 30, 2014 - 21:05

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The Fair Trade Commission has slapped a record fine on major builders for their alleged collusion in bidding for a project to build a new high-speed railroad.

The antitrust watchdog imposed a combined 435.5 billion won in fines on 28 major construction and engineering companies for allegedly rigging bids for the construction of the Honam bullet-train railway linking Seoul and the southwestern city of Mokpo.

It is the largest fine ever imposed for collusion involving the nation’s builders and the second-highest for all industries, following a 669 billion won fine imposed on six LPG suppliers in 2010.

FTC officials said company officials sat together to decide on the bidding terms for each of the sections of the 184.5-kilometer high-speed railway, which is expected to be completed by the end of this year at a cost of 8.3 trillion won.

Company officials rigged bidding prices so that almost all of them could win at least one section at the lowest bidding price. This way, they were able to save as much as 3.6 trillion won. All the major builders in the country participated in the price-fixing, including Hyundai, Daewoo, Samsung, SK, GS, Daelim and Hyundai Industrial Development and Construction.

Collusion in any industry is an economic crime that deserves harsh punishment. Those who play foul while participating in public-works projects funded by taxpayers should be subject to harsher punishment. Had there not been price-fixing, the cost of building each section of the new railway could have been much lower.

Collusion, along with bribery, is entrenched in the Korean construction and engineering sectors. This year alone, the FTC has already slapped fines on companies, some of them the same ones that were caught in the high-speed railway case, for collusive bidding for subway construction in three cities ― Incheon, Daegu and Busan ― and for the Seoul-Incheon waterway project. Over the past two years, the 46 biggest builders were slapped with fines amounting to 450 billion won for collusive bidding. This is a chronic problem, not one we encounter from time to time.

Industry officials, though in a position of being unable to squarely avoid their responsibilities, complain that the antitrust penalties are too harsh, especially in view of the years-long slump in the construction sector.

They also claim that the government inadvertently fosters collusion in bidding for public-works projects. With the high-speed railway project, for instance, the government allowed each bidding participant to win a contract for only one section.

Along with the practice of giving a contract to the bidder who offers the lowest price, the one-contractor-for-one-section restriction fosters closed-door deals among the bidders. Industry officials also note that there are only a limited number of construction and engineering companies that can participate in such big projects as the construction of a bullet-train railway.

Points like these should not be taken as mere complaints. Certainly, the government must take actions to guarantee a level playing field, rather than curb fair competition by imposing unreasonable bidding restrictions.

That the government has a part to play in curbing the prevalent collusion does not spare builders from fulfilling their obligation to do away the fraudulent practice. It not only eliminates fair competition and distorts the market but it also damages their own reputations.

Last week, apparently with the impending FTC announcement in mind, top executives of major builders got together and promised to uphold fairness and transparency in bidding. It would have been better had they not pleaded for leniency from the government concerning the impending penalties.

As seen in past cases, fines do little to check builders. The government is urged to strengthen punishments, including fines, business suspensions and revocation of the right to participate in public-works projects.