| Title |
Evaluation on the impact of Lowest Bid Contracts on Site Operations in times of Severe Economic Downturn |
| Authors |
Koo, Bonsang ; Jang, Hyounseung |
| Keywords |
Low cost bid contracts ; Recession ; Design changes ; Escalation |
| Abstract |
The year 2008 was a hard year for Korea's construction companies. The real estate downturn resulted in halting new construction and stopping existing work, and inflation of global oil prices caused price hikes in rebar and concrete materials. As a solution to reducing the budget, the newly appointed government announced plans to increase low cost bid contracts from 10 billion to 30 billion won. When such economical and political factors negatively impact the construction market, projects based on low cost contracts are the hardest hit. Many problems already inherent in low cost bid contracts become accentuated. Consequently, this provides an opportune time to actually study and analyze the issues in these projects. This paper introduces the findings made from investigating four projects struggling to make ends meet in the year 2008. Results show that flow of cash (i.e., liquidity), or lack thereof, was the root cause which in turn was hampered by failed mechanisms for design changes, material inflation. Attributing cash flow risk to the bottom of the production structure (i.e., small business subcontractors) was also a problem within the industry. Contractors need a better way to prepare against material price fluctuations, and owners need to assist in expediting payment during times of extreme downturn. |