By Diplomacy Journal Lee Jon-young

 

The Ministry of Land, Infrastructure, and Transport (MOLIT) announced on Feb. 1 that it will impose an eight-month business suspension on five construction companies, including GS E&C, in connection with the collapse of the underground parking lot of an apartment building in Geomdan New City in Incheon.  

 

Five companies, GS E&C, Dongbu Corp., Daebo E&C, Sangha Construction, and Asia General Construction, were given an eight-month business suspension. The suspension period is from April 1 to November 30.

 

The suspended construction companies are prohibited from engaging in business activities related to new businesses, such as signing contracts and participating in bids, during the suspension period. 

 

However, if a contractor has signed a contract prior to the suspension, or has received a permit or authorization in accordance with relevant laws, construction work can continue.

 

The suspension was decided in accordance with the Administrative Procedure Act and the Operating Regulations of the Administrative Disposition Review Committee in the Construction Sector. MOLIT explained that the decision was reached after deliberations by the Administrative Disposition Review Committee, which is composed of experts from the legal, academic, and industry sectors, and after hearing the related parties.

 

The five construction companies were administratively penalized under Article 82 (2) (5) of the Basic Act on the Construction Industry and Article 80 (1) of the Enforcement Decree of the same Act for "causing significant damage to a major part of the structure of a facility through intentional or grossly negligent construction.”

 

The accident occurred on April 29 last year, when the upper slab of the basement floor (approximately 1104㎡) collapsed during the new construction of an apartment building in Geomdan, Incheon. The upper slab of the second basement (approximately 185㎡) collapsed in a chain, and the Construction Accident Investigation Committee analyzed the failure to install shear reinforcement rods, poor quality concrete, and insufficient measures against excessive loads in the upper part of the underground parking lot as the main causes of the accident.

Earlier, the Seoul Metropolitan Government announced on Jan. 31 that it had imposed an administrative penalty of a one-month business suspension on GS E&C in connection with the collapse of the underground parking lot of an apartment building in Geomdan New City, Incheon. An additional one-month suspension is expected after a hearing in March. Initially, the MOLIT imposed an eight-month business suspension on GS E&C and requested an additional two months from the Seoul Metropolitan Government.

 

According to the MOLIT's decision, GS E&C and four other construction companies will be suspended from April 1 to November 30. Seoul City confirmed the suspension period for GS E&C from March 1 to 31. 

 

If the Seoul Metropolitan Government adds a one-month business suspension to GS E&C, GS E&C is expected to be unable to conduct all business activities as a construction company, such as participating in bids, from March until the end of this year.

 

In response, GS E&C said that there was a problem with the appropriateness of the administrative sanctions and filed a lawsuit for a temporary restraining order and a lawsuit to cancel the administrative sanctions.

 

GS E&C issued a position statement on the day, saying, "After receiving the pre-disposal notice from the MOLIT and Seoul City last year, we went through the hearing procedures of the MOLIT and Seoul in December, respectively, and did everything we could as a general contractor, such as preparing and submitting additional opinions at the hearing in January." "This business suspension disposal did not reflect the opinions of the general contractor at all despite these appeals, so GS E&C has no choice but to take legal action," it emphasized.

 

"The contractor has been suspended for the collapse of the underground parking lot of the Incheon Geomdan apartment building. GS E&C recognizes its responsibility as a general contractor and once again apologizes to its customers, shareholders, and the public."

 

GS E&C's legal action was previously expected in the construction industry. This year, the company is expected to undertake major urban renewal projects in Seoul, including Yeouido and Mokdong, and it is inevitable that its 'Xi' brand will suffer from the suspension for eight months.

 

Above all, if the court accepts the application for a preliminary injunction against the administrative suspension of business, there is no restriction on business activities until the judgment of the case to cancel the administrative suspension, and there is no hindrance to business activities for at least several years. In practice, administrative lawsuits are a two-judge system, and it usually takes two to three years until the outcome of the trial.

 

The suspension of HDC Hyundai Development Company, the contractor for the collapse of the Hakdong redevelopment project site in Gwangju in June 2021, has not been resolved so far. The first trial is currently underway.

 

GS E&C posted its first operating loss in 10 years last year in the aftermath of the collapse of an underground parking lot at its Geomdan apartment complex in Incheon. The company posted an operating loss of 380 billion won, including 552.4 billion won in costs for follow-up on the collapse.

 

Depending on how GS E&C presents its case in court, the suspension could be shortened. However, once the suspension is finalized, the company is expected to suffer a business hit as new business orders will be completely halted. 

 

While GS E&C is unlikely to be affected by the lawsuit in the short term, in the long term, the loss of trust in GS E&C and the Xi brand could lead to a weakening of its competitiveness for orders.