Korean Economy News
4 builders fined $61.4 mil. for collusion

By Yoon Ja-young

The country’s antitrust agency slammed a 70.2 billion won ($61.4 million) penalty on four construction companies for colluding in a railway construction project linking Wonju and Gangneung in Gangwon Province.

According to the Fair Trade Commission (FTC), Thursday, Hyundai Engineering & Construction, Hanjin Heavy Industries & Construction, Doosan Heavy Industries & Construction, and KCC Engineering & Construction colluded while bidding for the roadbed construction orders by Korea Rail Network Authority.

The project is part of the Wonju-Gangneung railway, a core transportation route for the PyeongChang Winter Olympics scheduled for early next year. A high-speed train running at 250 kilometers per hour will operate on the railway. It will take only an hour and 12 minutes from Seoul to Gangneung, which compares with current five hours and 47 minutes.

On March 21, 2013, the day before the official bid, managers of the four companies discussed which section of the project each will win as well as bidding prices. They jointly worked on documents to be submitted for the bidding.

The four companies used a loophole in the bidding system. Basically, a bidder offering the lowest price wins the order in the bidding, but Korea Rail Network Authority introduced a price adequacy test in the bidding. Any bidder that suggests a price that is deemed to be extraordinarily low compared with the average of all bidders is excluded from the bidding.

For each bidding, three of the colluders suggested extraordinarily low prices, thus lowering down the average bidding price. Then, the remaining one of the four colluders suggested a price that is higher than those offered by the three but lower than those offered by other companies not participating in the collusion. As the three colluders have pulled down the average bidding price, the fourth could avoid suspicion that it is suggesting an extraordinarily low price. They took turns so they could each win one of the construction zones.

“It is different from previous collusions, where players suggested extraordinarily high prices to ensure one of them can win,” an FTC official said.

“It is meaningful since we have restricted collusion in railway construction which will be a major means of transport during the PyeongChang Winter Olympics.”

According to the FTC, managers of the four companies exchanged over 35 phone calls and text messages to coordinate their collusion. It levied 21.7 billion won on Hyundai, while the other three each faced around 16 billion won in penalties. The FTC explained that Hyundai was levied a higher penalty as it had previously violated the law.

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