"Swarm Bidding: Construction Companies Defying Government Policies"

Large construction companies that have used what is known as "swarm bidding," involving their small subsidiary companies, continue to increase their chances of winning public housing site bids in the same manner. Despite multiple efforts by the relevant government department, the Ministry of Land, Infrastructure and Transport, to eradicate this practice, there are still "blind spots" remaining.

 

Rep. Kang Dae-sik said, "Even with just one site investigated, signs of unfair practices have appeared, so there is a high possibility that swarm bidding is rampant in the land under local government-affiliated corporations.

 

This analysis is based on the bidding data for the "Incheon Geomdan Public Housing Site AA24 Block" submitted to Rep. Kang Dae-sik (Liberty Korea Party, Daegu East District) by the Incheon Urban Development Corporation.

 

According to the data, a total of 68 companies participated in the bidding announced by the Incheon Urban Development Corporation (iH) on August 25th. The supply amount for the land was KRW 219.8 billion, allowing for the construction of 1,086 housing units. The typical practice of "swarm bidding," where the main company mobilizes multiple subsidiary companies, was evident in this bidding as well. It was revealed that at least 11 companies, including SM, Hoban, Jungheung, and Boseong, involved two or more subsidiary companies in the bidding process.

 

The Ministry of Land, Infrastructure and Transport introduced the "One Company, One Site (limiting each company and its subsidiaries to bid for only one site together)" system for public housing site bids by LH Corporation (Korea Land & Housing Corporation) from October last year, aiming to eliminate "swarm bidding." For example, Hyundai Group, despite having multiple construction subsidiaries like Hyundai Construction and Hyundai Engineering, can only participate in the bidding for one site as per this system. However, some companies under local government-affiliated urban development corporations have continued to mobilize subsidiary companies, bypassing these regulations.

 

SM Group, ranking 30th among large corporate groups, mobilized eight companies, including Samhwan Construction, Woobang, and SM PrimeLine Construction Division, for the bidding. Following them, Boseong Group, with subsidiaries such as Boseong Industry, Hanyang, and Fine Asset Management, involved six companies in the bidding. Jungheung Group (Saesol Construction, Jungheung T&C, Daewoo Construction, Jungheung ES Class, Jungheung Construction) and Hoban Group (Hoban Construction, Hoban Industry, Hoban Hotel & Resort, Sky Living, Hoban Asset Development) each mobilized five companies for the bidding.

 

Hoban continues to use swarm bidding despite warnings to "pursue it to the end"

Companies that have participated in swarm bidding have secured public housing sites that can yield development profits of hundreds of billions of won per site. According to LH, from 2017 to 2021 during the Moon Jae-in administration, five construction companies, including Jungheung, Hoban, Daebang, Woomi, and Jeil Construction, secured 67 out of 178 public housing site lots (37%) that LH offered for sale.

 

Minister of Land, Infrastructure and Transport Won Hee-ryong designated such swarm bidding as unfair competition and conducted extensive investigations into involved companies. He also requested the police to investigate companies suspected of wrongdoing. The prosecution and the Fair Trade Commission also investigated the legality of swarm bidding companies.

 

In September last year, the Ministry of Land, Infrastructure and Transport introduced the "One Company, One Site" system for LH public housing site bids with 300 or more units as part of the "Eradication Plan for Swarm Bidding on Public Housing Sites." However, due to the lack of an amendment to the Enforcement Decree of the Housing Development Promotion Act, the system has not been applied to urban development corporations under local governments. Therefore, it created a regulatory blind spot.

 

Minister Won said in April, "We will chase down companies suspected of swarm bidding to the end and establish a fair order in the public housing market." He specifically pointed out Hoban Group, which was fined KRW 60.8 billion by the Fair Trade Commission for swarm bidding, saying, "Companies operated by the two sons of Hoban Construction earned more than KRW 13 trillion in development profits alone." He added, "It's not over until it's over," and said, "After the end, we will investigate whether the companies that won land in that period met the bidding registration criteria, and the details of illegality will be revealed through police and prosecution investigations." However, Hoban Group still mobilized five subsidiary companies, including Hoban Hotel & Resort, which is unrelated to construction, in this bidding.

 

Jungheung, which even mobilized Daewoo Construction, won through swarm bidding

In the draw for the Geomdan AA24 Block held on September 11th, one of the five subsidiaries of Jungheung Group, Saesol Construction, was selected as the winning bidder. Jungheung Group also mobilized Daewoo Construction, which ranked third in construction capability evaluation, for this bidding. Daewoo Construction had rarely participated in public housing site bids before.

 

In particular, Chung Won-joo, Vice Chairman of Jungheung Group (Chairman of Daewoo Construction), is actively involved as a member of the "Housing Supply Innovation Committee" under the Ministry of Land, Infrastructure and Transport as the chairman of the Housing Construction Association. He directly participated in a meeting held on August 29th. At that time, discussions were reportedly held on measures to alleviate the housing supply shortage, including relaxing the restrictions on public housing site pre-sales. The restriction on pre-sales of public housing sites was a method to prevent the mobilization of paper companies by swarm bidding companies in the past. In fact, the Ministry of Land, Infrastructure and Transport announced on September 27th that it would relax the restriction on pre-sales of public housing sites for a year as part of the supply measures.

 

Rep. Kang Dae-sik said, "Even with just one site investigated, signs of unfair practices have appeared, so there is a high possibility that swarm bidding is rampant in the land under local government-affiliated corporations. A comprehensive investigation of public housing sites is needed." He emphasized, "To fundamentally block such practices, it is necessary to expand the 'One Company, One Site' system to all public housing sites, including the entire metropolitan area and local metropolitan cities, beyond the current application to certain metropolitan areas." In response, a Ministry of Land, Infrastructure and Transport official said, "Cases of bid mobilization by subsidiary companies have been identified in areas outside the application of the 'One Company, One Site' system, and we will work to establish the 'One Company, One Site' system in all public housing sites through the amendment of the Enforcement Decree of the Housing Development Promotion Act within this year."