PPS to Block Paper Companies from Bidding... Bid Bonds to Be Forfeited if Registration Standards Are Not Met

[Financial News] Going forward, so-called paper companies that fall short of construction business registration standards will have their bid bonds fully forfeited if they are caught taking part in public tenders without restraint.
The Public Procurement Service (PPS) said it will begin, from bid notices issued on the 31st, to have bid bonds equal to 5% of the bid amount transferred to the state treasury for companies that fail to meet construction registration standards among facility construction contracts governed by the Act on Contracts to Which the State Is a Party. PPS plans to first introduce the measure for projects under the state contracts law and then expand it to projects under the local contracts law.
Until now, PPS had only deducted points in qualification reviews and excluded violators from winning contracts when companies that failed to meet registration standards were found during bidder qualification checks. But as paper companies continued to exploit loopholes in the system and submit bids in large numbers, the agency decided to add a strong financial penalty by forfeiting bid bonds to the state treasury, effectively blocking their entry into the market.
PPS expects the tougher measure to drive out paper companies that lead to illegal subcontracting and poor construction quality, while also widening contract opportunities for sound small and medium-sized construction firms with technical capability and competence.
Baek Seung-bo, Administrator of the Public Procurement Service, said, "Paper companies are a target for strict punishment because they deprive sound construction firms of contract opportunities." He added, "Through strong forfeiture of bid bonds to the state treasury, we will make sure shell companies cannot take root in the public procurement market."
Meanwhile, PPS expects the tougher sanctions to sharply reduce the practice of "swarm bidding" carried out through paper companies. In the past, some weak firms used multiple shell affiliates to raise their odds and win public construction projects, but with the risk of losing bid bonds worth 5% of the bid amount, reckless bidding by ineligible companies is expected to become virtually impossible.

[email protected] Kim Won-joon Reporter