Research Reports

This research aims to derive measures to improve the system by analyzing the current status of the payment guarantee system in the domestic private construction industry. This study consisted of reviewing the actual condition of the private construction project payment guarantee system, actual construction business transaction practices, and payment status, and reviewing the case of the overseas private construction project's price protection. In August 2013, the payment guarantee system was introduced for the private construction company, but damages are still sustained in the private construction industry due to the unpaid construction costs. The data from the Korean Commercial Arbitration Board and Seoul Guarantee Insurance show that the payment guarantee system for the private construction project is not effective. The survey was conducted to determine the transaction practices and payment status of the Private Construction Corporation. When asked if they had any experience receiving construction fees from a commercial construction company, about 30 percent said they had not received it. It was found that more than 70 percent of the recipients paid the contract fulfillment guarantee to the client. That is, although the guarantee for performance is provided, no collateral or payment guarantees are provided. On the other hand, France, Switzerland, and Germany protect their construction bond more strongly than Korea because they have a “construction lien”. In addition, the UK, Australia and Singapore require that the adjustment process be made by the third person. FIDIC International Standard Contracts and the U.S. Construction Association standard contract terms specify that the owner requests confirmation of the financial capabilities suitable for the payment obligation. As a result, this research has suggested three major measures to improve the payment bond system for private construction projects. The first is the conservativeness of the payment guarantee. The second is the expanded supply of the construction industry's sales bond insurance. The third is the introduction of the construction priority privilege system in the mid - to long-term, as shown abroad.