Korea Land & Housing Corporation (LH) said on the 28th that it cut about 45.1 billion won ($32 million) in project costs on contracts awarded in the second half of this year by revising how it calculates construction costs for public housing projects. LH expects the changes to trim an average of 100 billion won a year, or roughly 400 billion won in total, through 2030.
At the center of the revision is a change in how the standard market price is applied. The standard market price is a unit price based on market transaction prices from completed construction work, and rules require it to be used as the bid price exactly as set in the design, meaning it does not reflect the discount rate at which contracts are typically awarded.
Previously, LH compared unit prices calculated under the standard quantity-per-unit estimating system with the standard market price and adopted the lower of the two as the design price. When the standard market price was chosen, bidders had to submit that design price as their bid, making it difficult for price-competitive builders to win contracts, LH said.
Under the new method, LH calculates an expected contract price by applying the previous year's average winning-bid ratio — the ratio of the actual contract amount to the estimated price — to the unit price derived from the standard estimating system, compares that figure with the standard market price, and adopts the lower one as the design price. LH said this widens bidding opportunities for price-competitive builders while also lowering actual contract prices.
LH also expanded the items and scope covered by the standard market price. It had previously applied the price only to some items in the standard unit-price schedule, a table of unit prices by construction item based on the standard estimating system, where comparison with the standard market price was possible. Going forward, district-specific special unit-price items will also be included in the comparison. Work that had been bundled into a single unit-price item, making market prices difficult to apply, can now be compared by individual component.
LH first applied the changes to 34 blocks totaling 19,677 units ordered in the second half of this year, confirming savings of about 45.1 billion won. Expanding the covered items accounted for 27.8 billion won of the reduction, while the revised calculation method accounted for 17.3 billion won. Factoring in construction volumes scheduled from 2027 through 2030, LH estimated cumulative savings of 397.7 billion won.
"We plan to continue expanding the items subject to the standard market price and refine the calculation method to secure an appropriate budget, and to actively use the savings to expand the supply of public housing," an LH official said.
