SOUTH KOREA Law and Practice Contributed by: Hyeon Kang, Tae Kyoon Kim, Seungil Hong and Sung-Ho Moon, Bae, Kim & Lee LLC
owner is responsible for appointing an architect to carry out the design, and the contractor is responsible for the construction only. For large-scale public construction projects, design-build contracts have become more fre - quently used of late. In such contracts, the con - tractor is responsible for the design (in whole or in part) as well as the construction of the project. 7.3 Management of Construction Risk Commonly used contractual devices for manag - ing construction risks are as follows. Retention/Retainage/Holdback Provisions Although these provisions are enforceable in principle, a contract that has been prepared by one party for execution with multiple counterpar - ties will be treated as a standardised contract, and any retention provision in a standardised contract that is unjustifiably unfavourable to the other party may be unenforceable. Indemnity Provisions, including Liquidated Damages and Penalty Provisions Although these provisions are enforceable in principle, a court may reduce the amount of liq - uidated damages at its discretion if it finds the amount to be excessive (ie, in circumstances involving concurrent delay), and a penalty pro - vision may be unenforceable if the amount is found to be excessive. Contract Provisions Regarding Damages for Delay Delay damages are generally calculated by mul - tiplying the contract price by the rate of delay, and the amount is payable unless the delay was due to force majeure, or it was the owner/ employer’s fault. Although delay damages are enforceable in principle, they are treated as liquidated damages by Korean courts, and if
a court finds the amount of delay damages to be excessive, it may exercise its discretion to reduce the amount. Please see 7.4 Management of Schedule-Related Risk . Consequential Damages Provisions Consequential damages are only recognised if they are expected or reasonably foreseeable by the party liable for such damages. Therefore, in order for consequential damages to be recover - able, they should be expressly contemplated in the contract to the extent possible. A contractual agreement to exclude consequential damages or compensation for loss of profit is enforceable in principle. 7.4 Management of Schedule-Related Risk Schedule-related risk on construction projects may be managed by including provisions regard - ing damages for delay in the construction con - tract. Parties are allowed to agree that an owner is entitled to monetary compensation for delays in achieving certain milestones and completion dates. However, if a court finds the amount of delay damages to be excessive, it may exercise its discretion to reduce the amount. The typical percentage for delay damages is 0.1% of the contract price per day of delay. Furthermore, parties may include a provision allowing the owner to terminate the contract if there is a material delay in the construction. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance Owners often seek additional forms of security to guarantee the performance of contractors under construction contracts, such as: • bid bonds, whereby a bidder is obliged to pay the deposit money when participating in a bid
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