Construction ratio for regional small builders recognized up to 3 times

Small firms relocating outside Greater Seoul to receive top management scores

Three physical AI component projects added to innovation initiative

The government plans to expand opportunities for regional firms to participate in public construction contracts worth less than 30 billion won ($22.1 million) issued by state agencies and public institutions. Small and medium-sized enterprises that have relocated from Greater Seoul to other regions will receive top scores in the management evaluation component of public bidding assessments, and the recognized period for past delivery records will be extended. The initiative aims to use national procurement contracts to redistribute public procurement demand — currently concentrated in the metropolitan area — to regional areas and strengthen the growth foundation of local businesses.

Deputy Prime Minister and Minister of Economy and Finance Lee Hyung-il discussed the plan, titled "Preferential Treatment for Non-Metropolitan Firms Through National Contracts," at an emergency economic ministers' meeting held Wednesday at Government Complex Seoul.

Workers at a construction site in Seoul. [Newsis]
Workers at a construction site in Seoul. [Newsis]

The overhaul builds on preferential measures for regional firms announced in November last year for the construction sector and in April this year for goods and services. Last year, the total value of contracts issued by state agencies and public institutions reached 145.5 trillion won, accounting for 61 percent of all public procurement, yet regional firms' participation remained limited.

In general construction contracts directly awarded by the Public Procurement Service last year, the share of contracts requiring a minimum level of regional firm participation — known as mandatory regional joint contracts — stood at just 3 percent by value for state agencies and public institutions, far below the 94 percent recorded for local governments.

The government will raise the contract value threshold for mandatory regional joint contracts in state agency construction projects from the current ceiling of 8.8 billion won to 30 billion won, and for public institutions from 26.5 billion won to 30 billion won. Under the arrangement, regional firms must hold at least a 30 percent stake in joint consortiums for state agency projects.

However, in consideration of non-discrimination obligations under the World Trade Organization's Government Procurement Agreement, the rules will not apply when a foreign construction firm serves as the lead member of a joint consortium or when fewer than 10 eligible regional firms are available.

The government estimates the measures will increase the annual value of mandatory regional joint contract awards by approximately 1.6 trillion won, with regional firms' contract wins rising by 500 billion to 800 billion won. The projections are based on simulations using Public Procurement Service direct-award data from the past three years, assuming regional firms take a 30 to 49 percent stake in the expanded pool of eligible contracts.

Evaluation criteria for the construction ratio of regional small builders participating in large projects will also be relaxed. The recognized participation share in joint consortium assessments — currently capped at one times the firm's construction capacity rating — will in principle be expanded to two times, with large projects such as turnkey contracts allowed up to three times when necessary. A penalty mechanism will be introduced to deduct points from firms that bid with a share exceeding the relaxed ceiling.

"Regional firms need a track record to enter the next project, but without one they cannot get in — creating a vicious cycle," a Ministry of Economy and Finance official said. "The idea is to create enough construction opportunities for them to build a sufficient record and break that cycle."

In the goods and services sector, the government will apply the Ministry of Interior and Safety's regional preference index to award differentiated bidding bonus points by area. Firms relocating from Zone 1, which covers Greater Seoul, to Zone 4, the most underdeveloped areas, will receive a 3-point credibility bonus in eligibility assessments for goods and general services for two years; those moving to Zone 3 will receive 2 points; and those moving to Zone 2 will receive 1.5 points. Firms already based outside Greater Seoul will also receive bonuses of 0.5 to 1.5 points depending on their zone.

Differentiated bonus points based on relocation status and zone will also apply in the second-stage competition of multiple-supplier contracts. Bonus points for non-metropolitan firms will be newly introduced in technical services such as design and construction supervision — areas that previously had no preferential mechanism — to broaden regional firms' access to public procurement.

Small and medium-sized enterprises that have relocated outside Greater Seoul will receive additional benefits. Those that moved out of the metropolitan area within the past two years will be eligible for a perfect score in the management evaluation component of eligibility assessments for goods manufacturing and general services. For goods manufacturing bids worth 1 billion won or more, the recognized period for past delivery records will be extended from five years to seven, and firms meeting just 50 percent of the benchmark record will receive a perfect score. Contracts requiring a certain level of quality assurance — such as those involving life safety or public health — will remain subject to standard criteria.

Separate restricted competitive bidding for firms in population-declining areas will also be permitted. For contracts below the publicly announced threshold, participation may be limited to firms located in population-declining areas within the same metropolitan jurisdiction as the construction site or delivery location. The measure aims to reduce competition pressure from relatively larger firms in regional hub cities and expand contracting opportunities for small businesses in population-declining areas.

Oversight will be tightened to prevent nominal relocations and token joint-contract arrangements. The actual construction performance of regional firms relative to their stated consortium share will be factored into evaluations, and requirements for recognizing a firm's registered headquarters will be introduced in the goods and services sector as well. Firms that apply for bonus points based on a fraudulent relocation will be disqualified from contract awards or barred from bidding. Starting in January next year, eligibility verification investigations will be expanded to cover all projects under 30 billion won subject to eligibility assessments.

The government plans to finalize preferential criteria for regional firms in the goods and services sector in the first quarter of next year, and to complete the legislative and contract standard revisions needed for the expanded mandatory regional joint contracts, relaxed construction ratio rules, and restricted competitive bidding for population-declining areas by the first half of next year.

The meeting also produced a pan-government cooperation framework to address K-shaped polarization. A polarization response TF, headed by the deputy prime minister for economic affairs, will focus on narrowing gaps across five areas: the dual structure of the labor market, industry and business, regional disparities, generational divides, and social inequality.

The government plans to identify priority tasks for restoring social mobility and easing downward pressure on vulnerable groups, linking them to coordinated support through fiscal, tax, financial and regulatory improvements. The TF's coordinating unit will begin operation Thursday, and priority tasks agreed upon before year-end will be incorporated into the 2027 economic growth strategy.

The government is also expanding its ultra-innovation economy initiative to secure future growth drivers. Three physical AI component projects — next-generation sensors, actuators, and secondary batteries for humanoid robots — have been added to the existing 15 flagship projects. The plan is to leverage the competitiveness of South Korea's key industries, including semiconductors, automobiles and batteries, to promote the localization and commercialization of core robot components.

For next-generation sensors, the government will pursue the development and demonstration of on-sensor AI semiconductor technology for robotics, defense and mobility applications. For actuators, the focus will be on securing high-output, high-durability and lightweight technology and commercializing domestically produced components. For secondary batteries for humanoid robots, the government will support the development of high-output, high-energy-density batteries and next-generation all-solid-state battery technology. The government plans to hold joint public-private task force meetings for each project before year-end and provide package support — from technology development through demonstration to commercialization — reflecting real-world demand.

As a measure to counter high oil prices stemming from the war in the Middle East, the government decided to extend a fuel tax cut set to expire at the end of this month by two months, through Jan. 31 next year. The current reduction rates — 15 percent for gasoline and 25 percent for diesel and liquefied petroleum gas butane — will be maintained. As a result, tax savings compared with pre-cut rates will continue at 122 won per liter for gasoline, 145 won for diesel and 51 won for butane.


y2k@heraldcorp.com