"Cutthroat Competition Brings Losses"...Seongsu District 2 and Mok-dong District 12 Move Toward Private Contracts With DL and GS

Seongsu District 2 Fails to Attract Multiple Bidders, DL E&C Submits Solo Bid
GS Engineering & Construction the Only Bidder for Mok-dong District 12
Private Contracts Favored for Mok-dong Districts 6, 10, and 12
Builders Avoid Competitive Bidding Due to Financial Costs and Bid Deposit Burden

Following DL E&C’s solo bid for Seongsu Strategic Maintenance Zone District 2, GS Engineering & Construction was the only bidder for Mok-dong District 12 on the same day. As a result, competitive bidding is disappearing from major redevelopment project sites in Seoul. The shift appears to be due to the intensifying competition through excessive financial offers to win the votes of association members, so construction companies are strategically focusing their resources only on projects where their chances of securing contracts are high.

According to the maintenance industry on September 1, DL E&C was the sole bidder for Seongsu District 2 after the bidding closed at 2 p.m. on August 31. IPARK Hyundai Development Company, considered a strong candidate after attending the site briefing, ultimately chose not to participate.

Seongsu District 2, with an estimated construction cost of 1.8 trillion won, is considered the most commercially promising among the Seongsu Strategic Maintenance Zones. Previously, companies such as Samsung C&T, DL E&C, and Hyundai Engineering & Construction had all expressed interest in bidding. However, Samsung C&T decided to focus on Seongsu District 3, while Hyundai Engineering & Construction withdrew from both Seongsu Districts 2 and 1, resulting in three out of four districts (excluding District 4) moving towards private contract awards.

If DL E&C concludes a private contract with Seongsu District 2, it is expected to relieve some pressure in the competition to secure prime redevelopment sites along the Han River. Earlier this June, DL E&C succeeded in its first order for the year by winning Mok-dong District 6 in Yangcheon-gu, but aside from that site, the company’s new orders from urban redevelopment for this year have struggled to reach 2 trillion won. A DL E&C representative stated, “We will do our utmost to transform Seongsu District 2 into a residential landmark along the Han River.”

On the same day, GS Engineering & Construction was also the sole bidder when submissions closed for the contractor bid for Mok-dong District 12 in Yangcheon-gu, resulting in a failed tender. The site briefing held in July drew interest from GS Engineering & Construction, Daewoo E&C, POSCO E&C, and IPARK Hyundai Development Company, but only GS Engineering & Construction submitted a final bid. The Mok-dong District 12 project involves developing a 43-story, 2,810-unit apartment complex and community facilities on Sinjeong-dong 326, with a projected construction cost of 1.7888 trillion won.

For the 14 complexes of the Mok-dong New Town, except for a few, there is growing expectation that orders will end up being divided among certain companies. DL E&C secured the contract for District 6, the first site to complete contractor selection, through a private contract. Hyundai Engineering & Construction has been named the preferred bidder for District 10. Samsung C&T is reportedly likely to be the sole bidder for District 13, whose bid closes on September 7.

The sites where competitive bidding is still expected include Districts 7 and 14, both considered prime locations between Mok-dong and Omokgyo subway stations. DL E&C and GS Engineering & Construction are showing interest in District 7, while Daewoo E&C, POSCO E&C, and DL E&C are reported to be eyeing District 14. However, in District 14, there is still disagreement between the trust company and association members over whether to allow consortium bids. It has also been reported that several construction companies are reviewing bids for earlier districts 1 and 3, but as there is still time remaining before a contractor is selected, the final landscape of competition may change.

The main reason construction companies are avoiding competition for large-scale projects is the inevitable risk of losses during the bidding process. Builders with comparatively lesser brand power often resort to offering dramatically favorable financing conditions, such as promising to secure project funds at negative spreads below market interest rates, in order to sway the votes of association members. A representative at a major construction company explained, “Gaining the construction rights through a bid is worthwhile, but a failed bid results in reputational damage and considerable costs. Particularly in Mok-dong, construction companies have each been working behind the scenes for their target complexes for some time, so the current strategy is to choose targets and focus resources on them.”

Bid deposits approaching 100 billion won are another major factor hindering competitive bidding. For the Seongsu Strategic Maintenance Zone, aside from District 4, each of Districts 1, 2, and 3 set the deposit at 100 billion won. Mok-dong District 12’s bid deposit is 80 billion won. An industry official noted, “With 14 complexes in Mok-dong, if a company bids for multiple sites, the total amount of deposits required could reach several hundred billion won. As a result, construction companies must carefully consider the financial costs of raising such large bid deposits, leading to greater caution when entering bids.”

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