Issue Focus

● Engineering Guarantee Insurance (EGI), the engineering mutual aid association, has issued construction guarantees at a low price to certain firms. ● The problems of issuing a construction guarantee from EGI are as follows: (1) Issuing a guarantee at a low price, which does not reflect the risk of construction, could disrupt construction financial market orders. (2) EGI has insufficient experience and ability to fulfill the obligations of construction guarantees. (3) Issuing a construction guarantee from EGI is against the Engineering Industry Promotion Act. Construction companies could avoid the construction policy by receiving a construction guarantee from EGI. (4) Despite concerns about the financial deterioration of EGI, there has been no proper legal control or supervision. (5) Issuing a construction guarantee is incompatible with the purpose of establishing EGI to support the management activities of companies belonging to the engineering industry and to promote the development of the engineering industry. (6) As the decline of construction industry is expected in the near future, in case of insolvency of EGI, enormous socio-economic costs could be incurred. ● To solve the problems, this study suggests two solutions as follows: (1) EGI should stop issuing construction guarantees. (2) Ministry of Land, Infrastructure and Transportation as well as Ministry of Trade, Industry and Energy should strengthen supervision on EGI to establish order of construction financial market and to prevent policy leakage.