Mandatory Package-Splitting for Construction Projects Over 50 Billion Won... Chu Kyungho: "Local Subcontracting Rates Must Be Increased"

3rd Emergency Economic Measures Committee

On the morning of the 13th, Daegu Mayor Chu Kyungho presided over the "3rd Emergency Economic Measures Meeting" at the Daegu office of the Korea Construction Association, where he finalized and announced measures such as the introduction of the public construction contract package-splitting system, increasing the subcontracting rate for local construction companies, and expanding financial support for the construction industry—long-standing demands of the local construction sector.

The Daegu construction market continued to grow steadily after 2017, enjoying a boom until 2022 that included surpassing 9 trillion won in contract awards in 2020. However, as the housing market weakened—with a surge in unsold units—the construction industry suffered a sharp downturn, with negative growth rates of -21.4% in 2024 and -19.2% in 2025 for two consecutive years, making it a primary driver of regional economic stagnation.

Daegu City officials gathered for a commemorative photo after concluding the Emergency Economic Measures Committee meeting.

The Daegu city government stated, "While there are signs of the real estate market recovering—such as a steady decline in unsold properties and increasing housing transactions—outlook remains uncertain due to various external factors, including interest rate fluctuations. Amid the construction market challenges, the local construction industry has consistently requested revitalization of contract package-splitting for large projects, cost rationalization, higher local subcontracting ratios, the spread of standard subcontracting contracts, and expanded low-interest financial support."

At the "3rd Emergency Economic Measures Meeting" held on this day, the city announced plans to promote package-split ordering of public works valued up to 50 billion won. When regional contractors enter joint contracts with large out-of-town construction companies for major public projects, the city will support local firms in securing the legal maximum 49% share.

Although regional joint contracting rules allow local companies to participate up to 49%, in practice it has been challenging to reach the maximum share in large-scale projects, given limitations in local contractors' construction capacity.

Therefore, starting this October, it will be mandatory for contracting departments to conduct a preliminary review on the viability of package-splitting for all projects with total construction costs of 50 billion won or more. For major projects of 100 billion won or greater, the city will, for the first time in Korea, operate a dedicated package-splitting review committee to conduct a more thorough feasibility assessment.

A Daegu city official explained, "For civil engineering contracts costing 50 billion won or more, our intent is to split packages and lower the amount so that local companies can participate. The participation rate is not high for contracts worth 100 billion won, but if the amount is reduced to 50 billion won or less, local contractors can participate up to the legal maximum of 49%. While we have already used package-splitting to support local construction firms, following this emergency economic measures meeting, we plan to strengthen this initiative even further."

To expand opportunities for local firms to participate in major projects, the city will organize matchmaking exchange events between large out-of-town construction companies and local subcontractors, and promote the signing of win-win cooperation agreements. This will broaden direct business opportunities for regional contractors and institutionalize mutually beneficial cooperation between out-of-town builders and the local community.

Additionally, starting this October, out-of-town contractors who sign public works contracts worth 5 billion won or more with city, district, or county authorities, or receive relevant permits, must also sign a win-win cooperation agreement. These agreements will stipulate a local subcontracting rate target (70%) and the maximal use of local labor, materials, and equipment. Implementation results will be reflected in district/county evaluations and incentives for out-of-town construction firms, thereby strengthening agreement enforcement.

To support local construction companies struggling with cash flow difficulties due to the construction market slump and unsold housing units, the city will expand financial support through the provision of 130 billion won in guarantees and additional interest subsidies.

This meeting was attended by executives from six construction firms, including HS Hwaseong and Yujin General Construction, and representatives from four associations—the Korea Construction Association, the Korea Specialty Contractors Association, and the Korea Housing Association. Economic organizations such as the Korea Employers Federation and Chamber of Commerce, as well as financial institutions including iM Bank, Korea Credit Guarantee Fund, Daegu Credit Guarantee Foundation, and the Bank of Korea, also participated and shared a wide range of opinions.

Mayor Chu Kyungho stated, "It is true that the prolonged slump in construction has had a significant impact on the local economy." He added, "In order to revitalize the construction sector, we have institutionalized the measures that the construction industry has consistently requested through this emergency economic measures meeting, as promised."

This content was produced with the assistance of AI translation services.