Seoul moves to curb 'fees without accountability' in joint small-scale housing maintenance projects, sets standard criteria

[Financial News] The Seoul Metropolitan Government is moving to reform joint-implementation contracts for small-scale housing maintenance projects under which excessive fees are charged without taking responsibility for construction or financing. After finding cases in which construction firms received fees at least four times as high as those charged by specialized maintenance project management firms, the city decided to prepare a standard agreement and strengthen oversight.
According to the city on the 2nd, an analysis of contracts covering 45 sites involving three construction firms participating as joint implementers, along with fact-finding inspections of two associations, found opaque selection procedures, excessive advance fee payments and contract structures with unclear lines of responsibility.
Joint implementation of small-scale housing maintenance projects was introduced so construction firms could support associations that lack financial resources and expertise from the early stages of a project. However, problems have emerged in which some construction firms perform work similar to that of maintenance companies but charge high fees without taking responsibility for construction or financing.
Rather than restricting joint implementation itself, the city plans to clarify construction firms' authority and responsibilities and improve contract structures that disadvantage association members.
An analysis by the city of contracts covering 45 sites involving three construction firms serving as joint implementers, as of October this year, found problems including a lack of transparency in the scope of work and selection procedures, excessive fees and advance payments, and no verification of firms' capacity to carry out projects.
Problems revealed by the contract analysis were also confirmed during on-site inspections. After receiving a series of complaints in June that construction firms were involved in all aspects of projects from the association-formation stage, the city inspected two associations whose joint implementer was the construction firm in question, from July 27 to August 7.
The inspections found a total of 49 cases of irregularities. The Seoul Metropolitan Government referred nine cases for investigation, issued corrective orders in 21 cases and took administrative guidance measures in 19 cases.
Key findings included cases in which the bidding notice and the evaluation score sheet for the general meeting did not match during the selection of joint implementers, and cases in which consent forms did not state the construction firm's qualifications, role or fees.
The city also found cases in which service contracts were signed without approval at a general meeting or payments exceeded the contract amount. Other issues included contracts requiring 80% of fees to be paid in advance by the time construction began, failure to keep meeting transcripts and nondisclosure of relevant materials.
The city concluded that joint implementers had not adequately fulfilled their project management responsibilities, despite being tasked with supplementing the associations' expertise. Some contracts assigned joint implementers responsibility for general meetings, budgets and project cost management, but provided few mechanisms for holding them accountable for poor management.
The city plans to improve the system as a whole, from the selection of joint implementers to contracting and fund management, and strengthen oversight of illegal and improper conduct.
To that end, the city proposed amendments to the Special Act on the Maintenance of Vacant Houses and Small-Scale Housing to the Ministry of Land, Infrastructure and Transport twice, in August and October. The proposals would establish a legal basis for criteria governing the selection of joint implementers and their agreements, and explicitly require construction firms participating as joint implementers to also bear the responsibilities of contractors.
The city also proposed applying the same standards to registered project operators, since they could circumvent stricter regulations on construction firms by participating in joint implementation as registered project operators.
The Seoul Metropolitan Government will also introduce its own measures before the law is amended. In December, it plans to draw up selection criteria for construction firms and registered project operators serving as joint implementers, as well as standard consent forms and standard agreements, and distribute them to the autonomous districts and associations.
The city will also strengthen on-site oversight. The Seoul Metropolitan Government, autonomous districts and outside experts will jointly inspect the selection process for joint implementers, contract terms and fund management. If illegal or improper conduct is found, the city plans to take necessary measures, including issuing corrective orders and referring cases for investigation. It will notify the relevant associations of the inspection results and require them to disclose the findings to their members.
Myeong No-jun, head of the Seoul Metropolitan Government's Housing Office, said, "Even before the law is amended, we will continue to apply the Seoul Metropolitan Government's standard agreement and conduct additional inspections of each construction firm to ensure association members are not harmed. We will thoroughly oversee sites where problems have been identified and protect the rights of association members."

[email protected] Choi A-young Reporter