Bidding, Contract Systems to be
Advanced and Streamlined

Investments into new process technologies for furthering the edge of the domestic plant engineering sector

Korean contractors landed contracts surpassing the $10 billion mark for the first time since the Asian financial crisis, ushering in the first year of "Korea's renaissance as an overseas construction powerhouse." "The boom in the overseas construction industry has continued into this year as Korean contractors have achieved $5.4 billion worth of contracts in the first quarter of this year. The government plans to do their utmost to help Korean companies achieve a combined target of $13 billion contracts during the whole of the year,"said Seo Jong-dae, assistant minister of the Headquarters for Construction Affairs at the Ministry of Construction and Transportation (MOCT) in a recent interview with NewsWorld.
Assistant Minister Seo said Korean plant engineering contractors have a competitive edge in such areas as desalination, petrochemical plant and power generation, and IT-related plant projects. Korea's plant engineering sector took up a 76 percent share or some $8 billion of the total orders landed during 2005. "I see that there is more room for the domestic plant engineering field to win more orders through technology development and improved competitive edge,"he said. Investments into new process technologies that have far-reaching effects are necessary and investments will have to focus on such projects as core processes, basic design technologies, and digital plant operation technologies based on international standards, he noted.
Seo also said his headquarters is striving to overhaul bidding and contract regimes of construction projects as part of its efforts to develop Korea as a construction powerhouse of Northeast Asia. The following are the excerpts of the interview.
Question: Will you tell our readers about major business plans and imminent tasks your headquarters will handle during 2006?
Answer: Our headquarters plans to place priority on advancing the construction industry, raising construction technology R&D efficiency and promoting the overseas construction industry.
The overseas construction industry has made strides, but it has shown signs of hitting "the wall"in improving an edge due to outdated systems and practices. In reality, Korea lags behind advanced countries in terms of technology levels. First, our headquarters is striving to advance the construction industry by overhauling construction production system and bidding regimes, upgrading construction technology and strengthening such industrial support foundations as construction materials and manpower.
It is endeavoring to establish a R&D roadmap for construction and transportation and build up performance management regimes to raise construction technology R&D investment efficiency, while reinforcing support systems designed to boost contracts of overseas construction orders that show signs of a surge.
Imminent tasks our headquarters still has to tackle with are innovative plans designed to promote coexistence and competitive edge by helping the participants of construction sites collaborate each other by putting behind conflicts and confrontation. The plans were reported to President Roh Moo-hyun on March 22.
Q: Will you give statistics on large-scale overseas construction projects being undertaken by Korean companies abroad and construction orders they landed during last year and during the first quarter of the year's What is the target figure for the entire year?
A: A total of 162 Korean companies are undertaking 481 projects worth a combined $39.28 billion in 52 countries. The biggest projects are a $1.2 billion contract on repairing crude oil storage facilities and another $1.2 billion one on crude oil export facilities, which SK E&C and Hyundai Heavy Industries Co. landed from Kuwait last year, respectively.
Early this year, Daewoo E&C was awarded an $880 million worth of crude/gas integrated development project in Nigeria.
Last year Korea's overseas construction contracts surpassed the $10 billion mark for the first time since the Asian financial crisis, ushering in the first year of "Korea's renaissance as an overseas construction powerhouse."The overseas construction industry boomed with $14 billion worth of contracts of orders landed during 1997 shortly before the Asian financial crisis. Since then, the industry had suffered doldrums with the value of contracts declining on down to $3.7 billion in 2003. However, the industry took a turn for the better with $7.5 billion in 2004 and peaked to $10.9 billion last year. It is an encouraging phenomenon for the industry to make the feat with a focus on a selective, profit-taking contract strategy, departing from the past's quantitative receipts of orders.
The boom in the overseas construction industry has continued into this year as Korean contractors have achieved $5.4 billion worth of contracts in the first quarter of this year. The government plans to do their utmost to help Korean companies achieve a combined target of $13 billion contracts during the year.
An analysis of contracts of orders landed during the first three months of the year indicates that Korea's overseas construction industry has maintained both quantitative and qualitative growth. The first quarter figure represents a 436 percent jump over the same period of last year, and it is significant for Korean contractors to diversify the countries where they have landed orders to the African region.
The government is seeking to establish overseas construction funds in a bid to facilitate project financing abroad while installing a center for helping SMEs landing overseas orders and funneling SMEs for exploring overseas markets. It plans to strive to beef up cooperation with Middle Eastern countries, including Kuwait and UAE to solicit more orders from the region while trying to diversifying overseas construction markets by building up cooperative ties with the newly emerging markets like African and Central Asian countries.
Q: Will you elaborate on steps designed to strengthen a competitive edge of the construction industry with the goal of developing Korea into a construction powerhouse of Northeast Asia?
A: As said earlier, the 2006 business plans worked out by the headquarters are designed to improve its competitive edge, and I bet if they are pushed ahead with without a hitch, it could lead to realizing the ultimate goal.
First, the ministry plans to overhaul the division of the construction business classification into general construction and specialized construction businesses that can be hardly seen across the world and readjusting it in such a way to improve efficiency of construction production. It is also working to revamp existing bidding systems as lowest price bidding system and qualification assessment system so that construction firms armed with technology can be awarded with orders.
The ministry plans to raise the portion of construction technology R&D outlays from the current 1.5 percent of its total budget scale in 2006 to 3 percent in 2007 or 510 billion won. It will concentrate budget allocation on such projects as the ones related to commercialization of technologies with an edge and exploration of new markets as well as high-tech research disciplines combined with energy, environment and other study arenas.
It will implement mid- and long-term projects as steps designed to revitalize construction management systems and build up construction technology database with a view to ensuring growth of construction engineering industry, essential for evolving the nation into a construction powerhouse of Northeast Asia.
Q: What steps are in place to help Korea develop technologies of the plant engineering industry and strengthen its competitive edge?
A: During last year, Korea's plant engineering sector accounted for 76 percent or about $8 billion of landed orders. I understand that there is more room the plant engineering field can win more orders through technology development and improved competitive edge.
Construction firms find it difficult to secure process technologies in the plant engineering industry in a short period of time and they are expensive, but the available technologies have far-reaching effects, so investments into new process technologies are necessary. Investments will have to focus on such projects as core processes, basic design technologies, and digital plant operation technologies based on international standards. I see the need for establishing a plant technology research center designed to take the initiative in developing such technologies, accumulating and disseminating such basic infrastructure as standards, knowledge and manpower.
It is also significant to improve comprehensive capabilities in such areas ranging from source process technologies to project planning, design, and project management - project implementation systems and financing. To this end, the industry community is striving to secure a non-price competitive edge in such areas as project management technology and financing procurement capability. The government also will spare no efforts to provide policy support in offering international- recognized plant manpower cultivation programs and gathering information from abroad and supplying it.
Q: Would you explain steps designed to revamp bidding and contract processes while creating a sound construction culture?
Bidding and contract regimes of construction projects should be overhauled so that fair competition can prevail in the construction market. The current qualification assessment system for examining projects worth less than 50 billion won subject to the PQ system or non-PQ projects proves to be ineffective in assessing project performance capability, so it will be strengthened to reflect additional assessments after finishing existing projects. In the case of projects worth more than 50 billion subject to the PQ system, the current lowest price bidding system will be streamlined to examine factors for reducing construction costs and prevent dumping practices designed to land orders.
I endeavor to correct unfair and opaque practices that have a negative impact on the domestic construction industry. Deals with subcontractors will be managed in a transparent manner through the on-line database, Knowledge Information System of Construction Industry (KISCON), established in 2004, and firms found to conduct illegal practices and engaged in substandard work will be expelled from the market.
I expect the ongoing innovative collaboration policies among orderers, constructors and subcontractors to forge horizontal cooperative ties, thus creating a sound construction culture.
Q: What roles do you ask the business community, people and foreign investors play in the development of the construction industry?
A: I would like to ask them to solicit cooperation not only from the construction community and government but also from people. Such issues as relaxation of entry barriers between general and specialized construction businesses could cause internal conflicts and confusion. I ask for the understanding of government policies because such steps are needed badly in accordance with the cause of making the domestic construction industry come to life with an edge and with advanced standards. People are advised to take an affirmative attitude toward the business community's efforts to cleanse itself by declaring diverse codes of conduct.
I cordially ask foreign investors to join forces in the drive to develop Korea into a construction hub of Northeast Asia by aggressively make investments into Korean contractors at a time when they are expected to expand presence in the overseas construction industry and raise the competitive edge. nw

Suh Jong-dae, assistant minister of the Headquarters for Construction Affairs at the Ministry of Construction and Transportation