|Apartment complexes in Banpo area, Seocho-gu, Seoul. / Yonhap|
Builder fined W635 mil. fine for abusing contractors
By Nam Hyun-woo
|HDC Group Chairman Chung Mong-gyu|
The company has also lost an 800 billion won ($714 million) contract to rebuild old apartment buildings in southern Seoul, while dealing with a site in Seoul contaminated with arsenic.
Industry officials said the troubles will likely deal a heavy blow to HDC's reputation in the market, which is already plagued with a negative outlook stemming from faltering backlogs and aggravated market conditions.
The Fair Trade Commission (FTC) imposed the 635 million won penalty against HDC, Thursday, after the builder failed to pay 448 million won in interest and commissions it was supposed to pay to 257 contractors for delays in making contracted payments.
According to the FTC, HDC made delayed payments to contractors in projects from July 2014 to April 2016, but did not pay the due interest accumulated over the delays, which is a violation of the Fair Transactions in Subcontracting Act.
During the same period, HDC paid some amounts with promissory notes, not cash, but did not gave contractors sufficient to cover commissions incurred on the notes.
"The ordering firm abused its superior status to contractors and unfairly raked in financial benefits," an FTC official said.
The penalty is the latest of a series of troubles dragging down HDC. Earlier this week, the builder lost its status as the redeveloper of a massive residential complex in the Banpo area of Seocho-gu, Seoul. The project was worth 800 billion won, 40 percent of the orders HDC won last year.
A group of homeowners in the redeveloped area held a vote Monday and approved the cancelation of HDC's status. The decision came after they and the builder failed to narrow their differences in details of the redevelopment project. Reportedly, the builder has been in conflict with the home owners to save 100 billion won in costs.
While the group has begun searching for a new builder for the project, HDC said "it cannot accept the decision," adding that it will respond by the rules, including legal measures such as an seeking an injunction nullifying the vote.
The cancellation will likely deal a heavy blow to the company's reputation, which has already been tarnished by the increased number of lawsuits it is involved in.
According to a regulatory report, HDC has 12 pending lawsuits with homeowners in redevelopment projects and new apartment owners as of the third quarter last year. Most of the suits were raised for compensation for faulty construction by HDC.
Another issue HDC is struggling with is a report on soil pollution. Broadcaster SBS recently reported that land in Guro-gu, Seoul, at which HDC broke ground in November to build an apartment complex was found to contain arsenic ― known to cause cancer ― at more than 25 times the level of the country's environmental standard.
HDC admitted to the contamination and is currently cleaning the ground.