The primary laws governing the construction market in South Korea are the Civil Code and the Framework Act on the Construction Industry.

The Civil Code sets out the general principles of contracts, which also apply to construction contracts. The Framework Act on the Construction Industry establishes the fundamental principles of construction contracts, emphasising fair and reasonable formation of the contract and its faithful performance. It also includes provisions to ensure payment of contract prices, thereby strengthening the protection of contractors.

For more details, refer to the English version of the laws of the Republic of Korea.

The standard contracts used when entering into construction agreements in South Korea include the following.

• For private construction projects – the Standard Form of Construction Contract for Private Works issued by the Ministry of Land, Infrastructure and Transport (MOLIT).
• For public construction projects (as a Contract Guideline issued by the Ministry of Economy and Finance) – the General Conditions of Construction Contract.

The Standard Form of Construction Contract for Private Works is a model contract developed by MOLIT to promote fair agreements between project owners (employers) and construction contractors. It is designed to clarify the rights and obligations of both parties in a construction contract. While its use is not mandatory, it is recommended as a reference model.

The General Conditions of Construction Contract is used in public construction projects, and it establishes the fundamental principles of contractual relationships. These conditions primarily apply to relationships between the ordering entity (employer) and the contractor, as well as those between the contractor and subcontractors. In some cases, they may also apply to the relationship between the contractor and the designer.

For public construction projects, the use of the General Conditions of Construction Contract based on the Standard Contract Guidelines is mandatory. This ensures fair and reasonable formation and execution of construction contracts.

In general, a project owner becomes the employer under construction contract. In some cases, a Special Purpose Company (SPC) established through capital investment may serve as the employer. If the project site is entrusted to a trust company, that company (as trustee) may act as the employer. In public-sector construction projects, a governmental authority, such as the Public Procurement Service (PPS), may take on the role of employer.

The rights and obligations of the employer are primarily defined by the construction contract with the contractor. Commonly recognised obligations and rights include:

• the employer’s obligation to pay the contract price;
• the obligation to adjust the contract price and extend the construction period upon the occurrence of certain events;
• the right to receive reports on the commencement and progress of construction;
• the right to inspect the works; and
• the right to demand defect repairs after the completion of the construction.

Subcontractors are, in principle, in a contractual relationship with the contractor only, and not with the employer. However, under certain conditions stipulated by applicable laws or the main contract, the employer may be legally or contractually obliged to make direct payments to subcontractors for their work.

Financiers typically provide the funding necessary for the project to the employer and hold priority rights to repayment over other parties. In most cases, the employer is the borrower, and often provides collateral, such as the project site, to the financiers to secure the loan.

In projects funded by policy-based finance, institutions such as the Korea Housing & Urban Guarantee Corporation may also hold rights to recover funds as part of their financing activities.

A contractor performing construction work must be duly registered as a construction business in accordance with the requirements of the Framework Act on the Construction Industry.

The rights and obligations of the contractor are primarily governed by the construction contract entered into with the employer. Commonly recognised key provisions include

• the right to claim payment for the construction works;
• the right to request an adjustment of the contract amount upon the occurrence of certain events;
• the obligation to report to the employer on the commencement and progress of the works; and
• the obligation to perform defect repairs on the completed works after project completion.

Financiers typically provide project funding to the employer, and thus the legal relationship at issue is mainly relationship between the financiers and the employer. However, to secure priority over repayment, the contractor is often included as a party to the loan agreement. In some cases, the contractor may assume direct obligations under the financing documents, such as the obligation to complete the construction work even if the employer loses the benefit of term (known as a completion guarantee) or the obligation to jointly guarantee the employer’s debt obligations (ie, joint surety).

A subcontractor must complete the business registration for the specific type of construction work subcontracted by the contractor. For reference, it is generally prohibited for the contractor to subcontract the entire project or the majority of it to a subcontractor.

The rights and obligations of a subcontractor are primarily defined by the subcontract entered with the contractor. Generally recognised provisions are similar to the legal relationships defined in the main contract between the contractor and the employer.

In principle, a subcontractor only holds rights and obligations towards the contractor. However, under certain construction-related laws or subcontract agreements, a subcontractor may be able to directly claim payment from the employer. Additionally, it is rare for a subcontractor to directly assume rights and obligations towards financiers.

Commercial banks, investment banks, private equity firms, insurance companies, and other financial institutions often act as financiers, with government agencies sometimes participating as well. Financiers hold loan principal and interest claims against the borrower. They also may secure the loan with collateral such as the project site or other assets. In some cases, joint sureties are also required. Additionally, the contractor (typically in the role of the construction company) may provide joint surety and completion guarantees. To strengthen creditworthiness, financiers may also secure a waiver of lien rights on the constructed property in advance.

Most building design contracts require an architectural licence, and there are specialised design companies that focus on providing design services. In some cases, the contractor may enter into a single contract where they are responsible for both the design and the construction (eg, EPC contracts).

The rights and obligations of the designer are primarily governed by the terms of the design contract. The designer has the right to claim design fees, whereas the employer has the right to claim damages for breach of contract or tort if the designer provides designs contrary to instructions or if there are design defects in the constructed property.

If there is an increase or decrease in the scope of work due to design changes, the contractor may request contract price adjustment(s) from the employer.

There is no standardised or uniform definition of the scope of the works under the General Conditions of Construction Contract or the Standard Contract for Private Construction Works. Instead, the scope is typically defined and detailed on a case-by-case basis through annexed documents attached to the contract, such as the design documents, technical specifications, and other related materials. These attachments collectively form the basis for identifying the contractor’s specific obligations and deliverables under the contract.

When the employer instructs changes or variations that result in an increase in quantities, the contract price may be adjusted accordingly under the terms of the construction contract. In cases where the design change is initiated by the employer (including situations not attributable to the contractor), more contractor-favourable pricing rules apply when calculating adjustment of the contract price.

In contrast, when the contractor requests a design change, a price adjustment is permitted only if the requested change falls within specific grounds stipulated in the contract.

If the design change not attributable to the contractor results in a delay in construction, the contractor is entitled to:

• exemption from liquidated damages;
• extension of time; and
• reimbursement of time-related costs, such as indirect costs incurred during the extended period.

By contrast, if the design change is necessitated due to the contractor’s own fault, such entitlements are not granted.

As a general principle, design responsibility lies with the designer, while the employer is responsible for providing project requirements and approving the design.

In design-bid-build contracts, where design and construction are separately procured, the employer bears the responsibility for the design in the context of the employer–contractor relationship. The contractor is typically only responsible for executing the works in accordance with the design provided.

In contrast, under EPC (Engineering, Procurement, and Construction) contracts, or turnkey contracts, the contractor is responsible for both design and construction. Accordingly, the contractor assumes full responsibility for the design, including any errors or deficiencies therein, unless otherwise agreed in the contract.

Responsibility for construction execution is generally allocated through the parties’ agreement, but in general, the contractor is responsible for the overall completion, quality, safety, and schedule management of the works. The employer oversees the overall project objectives, design requirements, and permitting matters, but does not bear construction-related responsibilities unless they are exceptionally involved in direct execution.

Where subcontractors are engaged, the contractor remains fully liable to the employer for construction performance. The subcontractor is responsible to the contractor for the portion of work it undertakes, but there is no direct contractual responsibility between the subcontractor and the employer regarding execution.

The construction supervisor is responsible for supervising compliance with the design documents, construction adequacy, and safety. If the supervisor identifies any unlawful or defective work, they must instruct the contractor to rectify it. If the construction supervisor fails to fulfil their statutory or contractual duties of care – such as by negligently supervising the works – they may be held liable for damages resulting from such failure.

There is no statutory provision under South Korean law that specifically allocates responsibility for site conditions (eg, contamination, underground obstructions, soil conditions, cultural heritage, etc). Such matters are generally governed by contractual agreement between the parties.

Article 19.1(2) of the General Conditions of Construction Contract provides that if site conditions such as geology or groundwater differ from those described in the design documents, such discrepancies constitute grounds for design variation, thereby allowing for adjustment of the contract price and extension of time. In such cases, the employer bears the associated risk.

A similar provision is found in Article 21.1 of the Standard Contract for Private Construction Works, which also recognises unforeseen site conditions as a basis for contract modification.

In general, the employer, as a project owner, is responsible for obtaining the necessary permits and approvals for a construction project. These include Building permit or building report, Notice of commencement, and Use approval (Article 11, 21 and 22 of the Building Act).

For large-scale development projects, additional permits such as Development activity permit under Article 56 of the National Land Planning and Utilization Act, and Environmental impact assessment under Article 22 of the Environmental Impact Assessment Act may also be required.

These permits and approvals are mandatory requirements under public law and must be complied with. As a general rule, the employer bears the legal responsibility for obtaining such approvals.

However, in practice, it is not uncommon for certain approvals – such as the notice of commencement – to be delegated to the contractor through the terms of the contract. Therefore, while the ultimate legal responsibility lies with the employer, the execution and contractual responsibility may vary depending on the specific terms of the contract.

It is uncommon for construction contracts to include detailed provisions regarding the maintenance of the completed facility. Instead, maintenance obligations are typically governed by a separate maintenance agreement, which is often executed with the contractor or a specialised maintenance service provider, particularly in private sector projects.

Accordingly, the responsibility for maintenance after project completion is determined by the terms of the maintenance agreement. In the absence of such an agreement, the employer is generally considered responsible for the maintenance of the facility following handover of the works.

However, under the Civil Code and the Framework Act on the Construction Industry, the contractor remains liable for defects occurring during the statutory defect liability period. Apart from such defect repairs, general maintenance responsibilities fall on the employer or the party that acquires ownership of the building.

Functions such as operation, finance, and transfer are typically carried out by the employer either directly or through a third party. Depending on the nature of the project, these functions may be included in the contractor’s scope of work.

However, this varies from project to project, so there is no common practice, nor is it mandated by law or regulation.

Completion inspection is classified into administrative completion inspection and contractual completion inspection.

The contractual completion inspection is typically carried out in the following manner: the contractor first conducts a self-inspection, followed by a final inspection performed by the employer or a construction supervisor delegated by the employer. Specifically, under Article 27 of the General Conditions of Construction Contract, the contractor must request a completion inspection upon completion of the works, and the employer is, in principle, required to conduct the inspection within 14 days. If any breach or unreasonable performance of the contract is found, the employer must require corrective action. Article 27 of the Standard Contract for Private Construction Works contains similar provisions.

The administrative completion inspection refers to the site inspection and approval procedure conducted by the competent administrative authority for purposes such as occupancy approval. This inspection is initiated by the employer (building owner) and is carried out by the relevant government authority.

According to the General Conditions of Construction Contract, the contractor must complete the works and request a completion inspection, and the employer conducts the inspection and notifies the contractor of successful completion if the works pass the inspection (Article 27).

Following the notification of successful inspection, if the contractor submits a written request for takeover, the employer must issue a certificate of site takeover and formally take over the construction works (Article 28). Generally, there is no separate delivery procedure distinct from takeover; upon successful completion inspection, the employer’s takeover and the contractor’s delivery of the works occur simultaneously.

In private construction projects, the basic process is the same, though the specific details are governed by the terms of each individual contract.

The contractor is liable for defects that arise during the defect liability period, which begins on the earlier of:

• the date of completion of the construction works; or
• the date on which the facility is first managed or used.

Under Article 28 of the Framework Act on the Construction Industry and its Enforcement Decree, the duration of the defect liability period varies by the type and part of the work, ranging from one to ten years. These periods may be modified by agreement between the parties, allowing for the extension or reduction of the defect liability period.

To establish the contractor’s liability for a defect, (i) the defect must occur within the defect liability period, and (ii) the employer must notify the contractor and request repairs within the same period. Defects that arise after the expiration of the defect liability period are not the contractor’s responsibility and must be remedied at the employer’s own cost.

If a defect arises within the liability period, the employer may either (i) request the contractor to repair the defect, or (ii) repair the defect directly and claim damages from the contractor for the costs incurred.

In EPC or turnkey contracts, the contractor is responsible for both construction and design defects. However, if the design was carried out by a third-party designer, the employer may pursue claims against the designer – not the contractor – for design-related defects.

There are generally two main types of contract pricing methods in construction: the lump sum contract and the unit price contract. The actual cost reimbursement method also exists, though it is less commonly used. In practice, the classification is not always clear-cut, and a single contract can incorporate multiple types of methods. The contract price typically consists of several components, including material costs, labour costs, expenses, general administrative costs, profit, construction insurance premiums, and value-added tax (VAT).

While milestone payments are also commonly used, it is more typical in practice to calculate the construction progress at regular intervals and make payments based on the percentage of completion. Milestone payments tend to be more frequently used in design service contracts rather than in construction contracts.

There is a Construction Cost Index (CCI), which measures changes in the direct construction costs over time. This index is used to adjust contract prices in response to price fluctuations.

Under statutory or contractual provisions, if there is a fluctuation in prices, the employer is generally obligated to adjust the contract amount. However, if the contract includes a price fluctuation exclusion clause, the contractor may bear the full risk of such fluctuations.

It is common practice to stipulate interest on delayed payments as liquidated damages, and to require the provision of a performance bond. In cases where the employer fails to pay the progress payment without a justifiable reason, and it is unlikely that payment will be made even if the work continues, many contracts include provisions allowing the contractor to suspend the work. If such a situation persists for a prolonged period, termination of the contract may also be permitted.

Meanwhile, if the contractor fails to pay the subcontractor, the subcontractor may, under certain conditions, claim payment directly from the employer. Even without a direct claim by the subcontractor, the employer may pay the subcontractor directly in order to ensure smooth progress of the project.

It is also common practice to pay an advance of around 10% of the total contract amount to facilitate the contractor’s procurement of materials and payment of labour costs. Interim payments are also generally used. While it is common to withhold a portion of progress payments until completion (retention), the use of delayed payment provisions is not generally otherwise practiced.

There is no specific requirement prescribed by law; it is subject to the agreement between the parties. However, public procurement contracts are issued electronically through the Korea ON-line E-Procurement System (KONEPS).

In construction contracts, the project schedule is typically established through the contractor’s submission of a construction schedule, which is subject to the employer’s approval. Article 17 of the General Conditions of Construction Contract requires the contractor to submit a notice of commencement and a construction schedule prior to the start of the work. These documents are finalised upon the employer’s review and approval. A similar provision is found in Article 9 of the Standard Contract for Private Construction Works.

The employer usually delegates the responsibility of monitoring construction progress to the construction supervisor. If delays are observed compared to the approved schedule, the contractor may be required to submit a recovery plan.

While milestone payments are sometimes used, the most common practice is progress payments based on periodic inspections of the actual work completed in comparison to the planned progress.

In the event of a delay in construction, the contractor is generally required to immediately notify the employer of the delay and its cause, and to request an extension of the construction period.

In public construction projects, pursuant to Article 26 of the General Conditions of Construction Contract, if the delay occurs within the contract period due to force majeure, design changes, or reasons attributable to the employer, an extension of time and a corresponding adjustment to the contract price may be granted.

However, if the delay is attributable to the contractor, extension of time and adjustment of the contract price are not permitted, and the employer is entitled to claim liquidated damages.

In private construction projects, specific terms may vary depending on the contract, but the general approach is similar.

Although there is no explicit statutory provision addressing concurrent delay under South Korean law, in practice, when both parties are concurrently responsible for the delay, the issue is typically resolved by reducing the amount of liquidated damages proportionally.

If the contractor fails to complete the works within the agreed completion period, liquidated damages shall be paid to the employer for each day of delay. The amount is calculated by multiplying the contract price by the liquidated damages rate stipulated in the contract. Typically, the rate is set between 0.5/1000 and 3/1000 per day.

However, it is common for construction contracts to include provisions exempting the contractor from liquidated damages in cases where the delay is caused by force majeure or other reasons not attributable to the contractor. For example, if the supply of critical materials – unable to be substituted – is delayed due to the employer’s fault, thereby preventing the contractor from proceeding with the work, or if the commencement or progress of the construction is delayed or suspended due to the employer’s actions, such circumstances are often grounds for exemption from liquidated damages.

In the case of public construction contracts, Article 26 of the General Conditions of Construction Contract provides that if any of the grounds for extension of time listed in Article 25.3 arise, the contractor must promptly notify the employer and the construction supervisor, and submit a written application for an extension of the contract period with supporting documents detailing the grounds and the number of days requested. Grounds for extension of time include force majeure, design changes, and delays in commencement attributable to the employer, among others, which are specifically enumerated under Article 25.3.

The employer reviews the documentation submitted with the application and determines whether an extension is warranted. If the extension is approved, the contract price may be adjusted, provided that it does not exceed the actual costs the contractor has incurred during the extended period (Article 26.4).

The Standard Contract for Private Construction Works contains similar provisions.

The following circumstances are generally recognised as constituting force majeure.

• Article 32.1 of the General Conditions of Construction Contract – typhoons, floods, other severe weather conditions, war or civil unrest, earthquakes, fires, epidemics, riots, or other events beyond the control of the contracting parties.
• Article 17.1 of the Standard Contract for Private Construction Works – force majeure events include typhoons, floods, extreme heat or cold, severe weather, fine dust occurrences, war, civil unrest, earthquakes, epidemics, and riots.
• The Supreme Court of Korea has held that – “To be recognized as force majeure, the event must have occurred outside the control of the contractor, and it must be established that, even with the exercise of ordinary means, the contractor could not have anticipated or prevented the event.”

There is no statutory definition of force majeure under South Korean law. Based on the principle of freedom of contract, the parties may agree to include or exclude specific events as force majeure. Such contractual agreements are generally valid and enforceable.

In practice, when a construction delay is caused by a force majeure event, the contractor is typically exempt from liquidated damages and may request an extension of time. In addition:

• Article 32.2 of the General Conditions of Construction Contract provides that losses to the construction works caused by force majeure shall be borne by the employer.
• Article 31.2 of the Standard Contract for Private Construction Works states that if defects occur in the construction works due to a force majeure event after delivery, the contractor shall not be liable for defect repair.

Unforeseen circumstances are not specifically regulated under South Korean law but are instead determined by agreement between the contracting parties. Typically, if site conditions or circumstances arise that could not have been reasonably anticipated by the parties at the time of contract execution, such events are recognised as grounds for variation, including extension of time or adjustment of the contract price.

For instance, Article 19.1 of the General Conditions of Construction Contract stipulates that if site conditions such as geology or groundwater differ from those described in the design documents, such circumstances constitute grounds for a design change. Accordingly, an adjustment of the contract price may be made pursuant to Article 20. Furthermore, Article 25.1(8) exempts the contractor from liquidated damages where circumstances such as supply imbalances or significant price increases in raw materials result in delays in the procurement of government-supplied materials or difficulties in purchasing contractor-supplied materials.

Article 21 of the Standard Contract for Private Construction Works also provides that where “unforeseen conditions arise in connection with construction”, such conditions may lead to design changes, thereby entitling the contractor to a contract price adjustment and/or an extension of the construction period.

In domestic construction disputes in South Korea, there is no well-established legal doctrine or practice specifically recognising disruption claims. Nevertheless, there have been cases where contractors claim costs in the form of acceleration work expenses incurred to mitigate delays caused by disruption. However, since the causes of delays or reduced efficiency in construction are typically multifaceted, it is often difficult to prove a specific causal link between the alleged disruption and the extent of delay. As a result, such claims are frequently dismissed.

To successfully assert a disruption claim, the contractor must specifically demonstrate the indirect impacts caused by factors such as changes in work sequence or reduced productivity. Typically, project schedules, daily work logs, records of labour and equipment deployment, and supervision reports are used as supporting evidence.

Contracts can exclude any liability concerning construction projects, and such provisions are generally valid.

However, Article 22(5) of the Basic Act on the Construction Industry provides that a contract may be invalid if it unduly mitigates or aggravates one party’s liability for damages in the event of default, excludes or restricts a statutory right without substantial reason, or is grossly unfair to one party. However, there are few cases in which courts invalidated liability exclusion clauses under the above provision.

Under the South Korean legal system, the concepts of intent (dolus) and gross negligence are recognised. Gross negligence is generally interpreted as a state of significantly lacking the level of care that is close to intent – namely, a failure to exercise even a minimal degree of attention, such that the resulting harm could have easily been foreseen with the slightest diligence.

Under the Civil Code, a party is liable for damages if a breach of contract is caused by intent or negligence. The Civil Code does not expressly distinguish between intent, gross negligence, and ordinary negligence in terms of the basic establishment or scope of liability. However, the legal consequences and allocation of responsibility for breaches caused by intent, gross negligence, or ordinary negligence may be freely stipulated by agreement between the parties.

In construction contracts, it is permissible to set limitations on the liability of both the employer and the contractor.

Common forms of liability limitations include (i) capping the total contractual liability of either party (typically the contractor) at a specified percentage of the total contract price, and (ii) setting a maximum limit on liquidated damages. These types of clauses are frequently used to allocate risk and provide predictability in the event of a dispute.

Neither the General Conditions of Construction Contract nor the Standard Contract for Private Construction Works includes indemnity provisions. However, indemnity clauses may occasionally be incorporated into large-scale private construction projects, particularly at the request of foreign investors or insurers.

In both public and private construction contracts in South Korea, it is customary to manage risks through various forms of guarantees, including performance bonds, defect liability bonds, and advance payment guarantees.

In public contracts, these guarantees are governed by mandatory laws and regulations, while in private contracts, they may be agreed upon negotiation between parties. Guarantees are typically the contractor’s obligation and may be provided in various forms depending on the nature of the risk – such as surety bonds or insurance. Performance bonds may be provided either by depositing a cash security or by submitting a guarantee issued by an approved surety institution.

A performance bond secures the contractor’s fulfilment of its contractual obligations under the construction contract. If the contractor fails to perform its obligations without a justifiable cause, or due to its own fault, the employer is entitled to claim a specified amount under the bond. In public construction contracts, the performance bond amount is generally required to be at least 15% of the contract price. In private construction contracts, it is common to set the performance bond at around 10% of the contract price, although the exact amount may be freely determined by agreement between the parties.

A defect liability bond secures the contractor’s obligation to remedy defects after the completion of the construction. If the contractor fails to respond to a valid defect repair request from the employer, the employer may claim compensation up to the amount specified in the bond. In private construction contracts, the defect liability bond is typically set at around 10% of the contract price. In public construction contracts, the applicable rate varies depending on the type of construction and is prescribed by law, typically between 2% and 5% of the contract price.

An advance payment guarantee secures the contractor’s obligation to return the advance payment in the event the contract is terminated after the advance payment has been made.

In domestic construction projects in South Korea, two commonly used types of insurance are Contractors’ All Risks (CAR) Insurance and Workers’ Compensation Insurance.

CAR Insurance is a type of property and liability insurance that provides comprehensive coverage for physical damage to the construction works during the construction period, as well as third-party liability arising from the construction activities.

Workers’ Compensation Insurance covers the contractor’s liability for compensation in the event of death or injury to workers on the construction site.

In public construction projects, for certain large-scale works – such as airport construction, dam construction, and energy storage facility construction – with an estimated value of KRW20 billion (approximately USD14 million) or more, contractors are mandatorily required to obtain insurance covering both the construction works and third-party liability (Article 10.1 of the General Conditions of Construction Contract).

For other public works and private construction projects, there is no statutory obligation to obtain such insurance. However, in practice, public employers often include the requirement to obtain insurance as part of the bidding or contract conditions. Likewise, in large-scale private projects, it is customary for contractors to be required to obtain insurance as part of the risk management framework agreed between the parties.

Under the Korean Civil Code, a contractor may terminate the contract if the employer is declared bankrupt.

In practice, private construction contracts often stipulate that the commencement of rehabilitation or bankruptcy proceedings by either party – whether the employer or the contractor – constitutes grounds for termination or rescission of the contract. In some cases, even the issuance of a provisional seizure or attachment order against a party’s assets may be contractually defined as grounds for termination. This reflects a commercial understanding that, even without a formal declaration of bankruptcy, the other party’s ability to perform may be deemed effectively impossible, justifying early termination. However, the courts do not recognise the validity of such ipso facto clauses and allow the administrator to decide whether to terminate the contract.

By contrast, under public construction contracts, the mere fact of a contractor’s bankruptcy does not automatically constitute a ground for termination under the General Conditions of Construction Contract.

Additionally, where a contractor becomes bankrupt or insolvent and is unable to pay subcontractors, Article 43.1(2) of the General Conditions of Construction Contract requires the employer to directly pay the subcontractor for the portion of work actually performed, corresponding to the subcontractor’s contribution.

In a lump sum contract, the total construction price is agreed upon in advance, placing the risk of unforeseen costs primarily on the contractor. In contrast, a unit price contract involves setting unit prices for each work item, with payments made based on the actual quantities performed, thereby allowing the employer and contractor to share the risk of quantity variations.

A cost-plus fee contract, though less commonly used in practice, allows the contractor to be reimbursed for actual costs incurred plus a pre-agreed fee. Under this model, the employer bears most of the risk associated with changes in quantities or costs.

However, even in lump sum contracts, it is rare for the contract price to be absolutely fixed regardless of circumstances. Contracts that prohibit any price adjustment even in the event of design changes may be deemed invalid for violating mandatory legal provisions. In practice, relaxed lump sum contracts that allow for price adjustments under certain conditions (eg, design changes) are more commonly used.

With respect to price fluctuation risk, Article 64(1) of the Enforcement Decree of the Framework Act on Contracts in the Public Sector provides that if more than 90 days have passed since the contract date and the price index has changed by 3% or more, the contract amount must be adjusted accordingly. However, the parties may agree to waive such adjustment. A similar clause is found in Article 22 of the Standard Contract for Private Construction Works, but it is also common for private parties to include special provisions excluding price adjustments due to inflation or market fluctuation by mutual agreement.

Article 7 of the Standard Form of Construction Contract for Private Works sets forth provisions regarding the appointment of the Contractor’s site representative. It provides that such a representative shall be stationed on-site and shall act on behalf of the Contractor with respect to all matters related to construction, as well as to be responsible for the overall management of the project.

Article 8 imposes an obligation on the Contractor to employ workers with appropriate skills and expertise. It also grants the Employer the right to request the replacement of personnel.

Provisions of similar content are commonly found in public construction contracts.

Notably, under established South Korean case law, the site representative (also referred to as the site manager or site supervisor) is recognised as a partial general agent of a contractor under the Korean Commercial Code. As such, in the event of disputes concerning work changes or adjustment of construction costs between the Contractor and the Employer (or a Subcontractor), the actions and statements of the site representative are often considered key factors in interpreting the Contractor’s intent.

Subcontracting is a commonly used practice in construction contracts. However, pursuant to Article 29(1) of the Framework Act on the Construction Industry, a contractor is prohibited from subcontracting all or the majority of the portions of a construction project they have been awarded.

Nonetheless, exceptions exist. Full or majority subcontracting may be permitted in cases where the awarded project is divided into specialised segments, and each segment is subcontracted to two or more construction companies that are duly registered to perform the respective specialised work. Therefore, except for such exceptional cases, the prime contractor must directly carry out at least part of the principal work and may only subcontract the remainder.

Furthermore, re-subcontracting of the subcontracted work is, in principle, prohibited and is only permitted in exceptional circumstances. Moreover, the prime contractor is obligated to ensure that subcontractors comply with the relevant regulations concerning re-subcontracting.

The standard contract form for private construction works does not include general provisions regarding intellectual property rights (IPRs). In private contracts, the ownership of IPRs related to design documents and similar materials is typically determined on a case-by-case basis, considering the specific characteristics of each project.

However, Article 50(1) of the General Conditions of Construction Contract, which is used for public construction projects stipulates that: “Where it is deemed necessary for achieving the project’s objectives or for the public interest, the contracting officer may, depending on the contract terms and with the contractor’s consent, copy, use, or disclose all or part of the reports, information, data submitted by the contractor, as well as the technical knowledge derived therefrom.”

Article 50(3) further provides: “If the technical knowledge to be copied, used, or disclosed under paragraph (1) has marketable economic value, the contracting officer must pay the contractor a fair compensation. In such cases, the compensation is to be determined through consultation with the contractor, based on prevailing market prices.”

In the case of design service contracts (as a Contract Guideline issued by the Ministry of Economy and Finance), Article 35-2 of the General Conditions for Service Contracts stipulate that intellectual property rights in the deliverables shall be jointly held by the contracting authority and the contractor, with equal shares as the default unless otherwise specified. However, Article 35-3 provides that rights such as patents, utility models, and design rights are to be allocated based on agreement between the parties. As such, the jointly held IPRs under Article 35-2 effectively apply only to copyrights.

In general, the Employer, Contractor, and Designer are each entitled to claim damages for breach of contract in accordance with the Civil Code.

The Employer typically receives a performance bond from the Contractor or Designer to prepare for their potential non-performance. In the event of their breach, the Employer may make a call on the performance bond. Depending on the terms of the contract, the nature of the performance guarantee is interpreted as a security or penalty, the Employer may also claim actual damage separately by providing evidence of the loss.

Contracts generally include provisions for liquidated damages for delay. Furthermore, as post-completion remedy, it is common for the Employer to have the right to demand defect rectification or claim damages in lieu thereof. Under general principles of the Civil Code, additional damages such as consequential loss, loss of profit or opportunity may also be claimed to the extent that the legal requirements for such claims are met.

Likewise, the Contractor and other contracting parties are also generally entitled to claim damages for contract breach. In addition, the Contractor may be entitled to claim interest on delayed payments, the right to terminate the contract, and – unless expressly prohibited in the contract – may also exercise a lien over the construction site or works.

Limitation of liability clauses are often found in South Korean construction contracts, although their contents are not always consistent. This contrasts with contracts under common law systems, which include limitation of liability clauses that cap the liability of both parties to the contract price. This difference stems from South Korean practice, where limitations on remedies in construction contracts are typically the result of party negotiations.

A common example of a limitation of liability clause is one that caps liquidated damages for delay at a fixed percentage of the total contract price. Once this cap is reached, neither the employer nor the contractor has a strong incentive to continue performing under the contract in this regard, and either party may choose to terminate the agreement.

In another case, the parties may agree to limit the contractor’s liability for damages arising from defects or failure to meet performance standards to a certain percentage of the total contract amount. However, because these limitations are primarily subject to negotiation between the parties, it is difficult to generalise.

That said, if such limitations are deemed to be significantly unfair to one party, the relevant contractual provisions may be held unenforceable in dispute resolution proceedings. This is supported by Article 22(5) of the Framework Act on the Construction Industry in cases of private construction contracts, and by Article 5(4) of the National Contract Act in the case of public works contracts.

Sole and exclusive remedy clauses are not explicitly used or expressed in construction contracts in South Korea. However, under the Civil Code, liquidated damages are generally interpreted as the sole remedy. Therefore, unless otherwise provided in the contract, additional claims for damages arising from the same cause are restricted.

In actual contract cases, it is common to not only stipulate liquidated damages for delays but also to include additional remedies such as provisions allowing claims for proven actual damages or penalties.

Construction contracts in South Korea generally do not include standard provisions that exclude certain types of liability. This contrasts with international standard contract forms such as FIDIC, which typically contain exclusion clauses for indirect or consequential loss.

However, it is common for South Korean construction contracts to include provisions for liquidated damages for delay, which are generally interpreted as liquidated damages pre-agreed by parties to compensate whole damages including indirect or consequential damages. As such, claims for actual damages exceeding an amount of the liquidated damages due to delays are typically restricted.

Moreover, under South Korean law, claims for special damages – which are similar in nature to indirect or consequential loss under other legal systems – are only recognised if the other party knew or could have reasonably foreseen the circumstances giving rise to such loss. As a result, in practice, such claims are often significantly limited.

In general, terms and conditions of the construction contracts grant the construction supervisor the authority to suspend the execution of all or part of the work.

In addition, retention money is generally introduced in the contract as well, in the form of withholding a certain portion (typically 10%) of the contract price at the time of completion. This serves as security to ensure full performance of punch list items at the time of completion, and to guarantee the issuance of defect liability guarantee bonds.

A construction contract may be terminated due to causes such as a significant delay in performance or impossibility of performance by one party. Grounds for termination are recognised under statutory law and may apply even if not expressly stipulated in the contract. Additionally, construction contracts typically include termination clauses that address specific circumstances, such as prolonged suspension of the work, substantial changes to the scope of work, or bankruptcy.

Further, the Civil Code allows an employer to terminate the contract at any time before completion of the work, even in the absence of faults by the contractor, to the extent that the employer must fully compensate the contractor for any losses incurred. This includes the contractor’s loss of profit – ie, the benefit the contractor would have obtained had the contract been fully performed.

Unlike the general rule under the Civil Code, where termination has retroactive effect and both parties are restored to their original positions, construction contracts limit such retroactive effect. In principle, the contractor must deliver the work as it stands at the time of termination, and the employer must pay for the portion of the work completed before the termination (ie, the value of the progress made).

The court or institution competent to resolve construction contract disputes may be determined by the contracting parties. Common practice is to designate the court having jurisdiction over the Employer’s principal place of business, or the Seoul Central District Court, as the competent court.

In some cases, the parties may agree to arbitration administered by the Korean Commercial Arbitration Board (KCAB). However, agreeing to the jurisdiction of a specific court is the more typical approach.

The arbitration referred to in 10.1 Regular Dispute Resolution is a method of resolving disputes through a third-party arbitrator, based on the agreement of the parties. Arbitration may be conducted by institutions such as the Korean Commercial Arbitration Board (KCAB). Arbitral award has the same binding force as a final and conclusive court judgment, and its validity and enforceability are guaranteed.

In addition to arbitration, procedures such as mediation by the Construction Dispute Mediation Committee (established under the Framework Act on the Construction Industry) or the Architectural Dispute Mediation Committee (under the Building Act) may be stipulated. However, unlike arbitration, such mediation procedures are not legally binding and are typically stipulated as optional pre-litigation steps in the contract. Therefore, if either party chooses to initiate court proceedings, these procedures are unlikely to serve as a final resolution mechanism.