Episode 138: Consortium for Bidding
「Saudi Housing Corporation Selects 300,000 Housing Units, Will the Middle East Boom Continue?」
[March 1979. Miteb bin Abdul Aziz, Saudi Arabia’s Minister of Housing, visited Korea. The purpose of his visit was to discuss the participation of Korean companies in the construction of 300,000 housing units, a project that had been discussed between the leaders of the two countries last year.
The Saudi Arabian government expressed the following position:
“The Saudi Arabian government is currently reviewing the construction of large-scale housing complexes to improve the housing facilities for nomads. We are planning apartments with 2 to 30 floors, with each complex accommodating more than 2,500 households. A total of 20 complexes will be constructed in different regions, and we hope that Korean companies will actively participate.”
At the end of the practical meeting, the two sides agreed to implement special exemption measures for the ‘Classification’ of Korean construction companies by May of this year and exchanged memorandums of understanding (MOUs).
As a result, Middle Eastern construction projects, which were previously only open to companies registered with the Saudi Ministry of Commerce, Saudi agents, or through their own companies, will now be accessible to Korean companies without going through intermediaries.
The stage has been set for Korean construction companies to win a significant portion of the 300,000 housing units scheduled to be ordered within the year.
- Reporter Joo Young-mi]
The volume released this time is a whopping 37,000 units for the first order alone.
The amount of housing complex construction contracts signed in three regions reached 10.5 billion dollars, exceeding the Jubail Industrial Port construction, which was called the construction of the century.
During the president’s visit to the Middle East in February, the two leaders reached a consensus, and finally, the door to the Saudi housing market project has been opened.
[Project (37,000 units, 5,200 ha)]
「Major Projects
Riyadh: 8,320 units, 66,890,000 square meters
Al Khobar: 10,200 units, 78,350,000 square meters
Jeddah (P. Fawaz): 5,800 units, 30,370,000 square meters」
The government instructed Park Se-il, president of Korea Housing Corporation, a long-time overseas construction authority, to select 20 contractors to participate in the Middle East construction.
On the day of the consortium announcement, starting with Mirae Construction and Taeyang Construction, Cheongwoo Construction, Namyang Construction, Daewoong Construction, Terra Construction, and Leeho Construction were called one after another.
Each time a company was announced, the construction companies that were included in the consortium cheered, while the companies that were not called were nervous.
And finally, Mo Sang-bum, the manager of the Ministry of Construction, calmly called the last turn, holding the card.
“The 20th and final company selected for the consortium is Daese Construction. Congratulations.”
At that moment, the Daese Construction employees who attended the meeting clenched their fists.
On the other hand, the companies that were not selected were met with a mixture of sighs and disappointment.
“Daese Construction?”
“Daese, not Osung?”
“How is this possible?”
When Daese Construction was called, the remaining companies buzzed.
No one expected that Daese Construction would beat Osung Construction and be selected for the consortium.
The most shocked by this unexpected turn of events was Osung Construction.
Osung, who had been confident that they would be called at the end, strongly protested.
“No, this is unacceptable. Daese Construction as a member of the overseas bidding consortium! Is there any justification for this decision?”
Kim Jung-oh, vice president of Cheongwoo Construction, responded to the objection of CEO Ha Yeong-kwon of Osung Construction.
“Daese Construction has won the Dammam City Housing Construction Project in Saudi Arabia and has experience participating in numerous difficult projects, including the Iri Station reconstruction project and the Jirisan Forest Road development project. Daese Construction’s predecessor, Sungjin Construction, was a company with a very good reputation, with almost no claims after construction. It is absurd to say that Daese Construction, which has inherited the workforce of Sungjin Construction, lacks business capabilities.”
Still not convinced, CEO Ha Yeong-kwon of Osung Construction immediately retorted.
“That’s ridiculous. It is not objective for Daese, which lags far behind in domestic construction rankings, to be qualified as a member of the consortium. I heard that Cheongwoo and Daese have a close relationship as military suppliers. I think we need to hear the opinions of other construction companies as well.”
Then, Director Joo Moon-kwang of Mirae Construction, who had been listening to the discussion silently, stepped up to provide support.
“We, Mirae, also agree with Daese Construction’s participation in the consortium. CEO Lee Chang-jin of Daese Construction is a veteran engineer with considerable experience. Furthermore, Daese Construction has a track record of successfully completing the Dammam construction project. We did not find any reason why it does not meet the selection criteria.”
However, Ha Yeong-kwon did not give up easily.
“Then, what do the other companies besides Mirae Construction think? If you have any objections, please speak freely.”
The representatives of the companies selected for the consortium looked at each other.
However, the answers that followed betrayed Ha Yeong-kwon’s expectations.
“We agree with Mirae Construction.”
“Well, I don’t see any particular reason to exclude Daese Construction from the selection.”
The reactions of the companies that were not selected were also different from what Ha Yeong-kwon had hoped for. As the fact that Lee Chang-jin was Jin Tae-chun’s son-in-law became implicitly known, a strange atmosphere was created among the construction companies.
In fact, since there was almost no mid-sized construction company that had not borrowed money from Jin Tae-chun at least once, they could not easily express their dissatisfaction, considering the aftermath.
Rather, the companies that judged that it would be beneficial to participate as subcontractors and receive even a small share of the profits kept their mouths shut.
Ha Yeong-kwon was stunned by the companies that seemed to have promised to avoid giving a definite answer.
Driven to a corner, he looked at Taeyang Group as if clutching at straws.
“Then, what does Taeyang Construction think?”
He believed that Taeyang, being in-laws, would at least take their side.
But Executive Director Shin, who attended in place of Nam Tae-gon, shattered Osung’s illusion.
“Yes. I’m sorry, but we at Taeyang Group have no different opinion on this matter.”
In fact, Shin Seon-ho was not happy with it, but there was nothing he could do.
He couldn’t reverse what had already been decided by the higher-ups.
With no other companies objecting besides Osung, and large corporations like Mirae and Cheongwoo openly showing their support, even Ha Yeong-kwon, who had been expressing his dissatisfaction, had no choice but to back down.
Daese Construction, which was ranked around 100th in the construction company order, proudly took the last seat in the consortium, which only selected 20 companies.
However, it was a humiliating defeat for Osung, the only large corporation that failed to participate in the consortium.
After the selection was over, Ha Yeong-kwon, who was furious, called Shin Seon-ho separately and protested.
“Executive Director Shin, I am very disappointed with this. Is that the intention of Taeyang Group? Or is it yours?”
“I apologize. I am only following the orders of my superiors.”
In the end, Ha Yeong-kwon returned empty-handed, and Chairman Ha Sam-do flew into a rage as soon as he reported.
“What? You were dropped from the consortium? What kind of nonsense is that?”
“I don’t know what happened either. Taeyang Group also supported Daese Construction. We can’t let this stand.”
Ha Sam-do, who was furious, called Nam Tae-gon.
“Hey, Nam Tae-gon! How could you do this to me?”
Until now, Nam Tae-gon had put up with Ha Sam-do’s temper, but there was a limit.
As Ha Sam-do continued to be aggressive, Nam Tae-gon’s words became harsh as well.
“Look, Sam-do. Even if we are in-laws, do I have to spoon-feed you? Didn’t I tell you time and time again to make an effort to manage the construction company’s performance? Honestly, you should be ashamed of yourself for being dropped.”
“What! How dare you say that to your in-law?”
“It seems like you’re getting emotional, so I’ll hang up now. It’s uncomfortable to talk anymore, so let’s not contact each other for a while. I have nothing more to say.”
The phone was hung up, leaving Ha Sam-do dumbfounded.
“Hey! Nam Tae-gon! Nam Tae-gon… Hey, he hung up?”
Unable to contain his anger, Chairman Ha shouted.
“That ungrateful bastard, Nam Tae-gon! After all I’ve done for him! He’s just going to wash his hands of this?”
Executive Director Yoon, who was next to him, also had a very indignant look on his face.
“He’s a snake. That fox Nam Tae-gon is not to be trusted.”
“It’s my fault. They say not to raise a beast with black hair, and he’s exactly like that.”
Ha Yeong-kwon cautiously asked Ha Sam-do, who was trembling with betrayal.
“More importantly, what are we going to do now? This is a big problem since our entry into the Middle East has been thwarted. What are we going to do with the manpower and equipment we’ve already recruited in anticipation of the construction order?”
Ha Sam-do, who had already made up his mind, replied to Ha Yeong-kwon’s concerns.
“What else can we do? We have to make it work. Isn’t that our Osung’s creed?”
“Then what are you going to do?”
“We cannot miss out on this project. If we are excluded from this consortium, all the groups in Korea will laugh at us. Contact Namyang Construction right now! We’re going to get into Middle East construction no matter what, even if we have to swap shares!”
Ha Sam-do, burning with fighting spirit, and the executives with determined expressions.
It was the moment when a crack appeared in the solid relationship between Osung and Taeyang.
At the same time, at Lee Chang-jin’s office in Seodaemun-gu.
Daese Construction, which succeeded in joining the consortium, is having a toast.
As the employees gathered in the conference room were having champagne, Director Kwak Do-hyun, who returned from the chemical plant work, said to Lee Chang-jin.
“Chairman Nam kept his promise, sir.”
“He had no choice. In fact, I think the track record of the Dammam housing project in Saudi Arabia was decisive in joining the consortium. Minister Mubarak also expressed his hope to continue a positive relationship with us.”
In the case of Osung, the fact that they had never undertaken the entire construction project in Saudi Arabia, although they had undertaken partial construction or subcontracting, acted as a fatal weakness.
Of course, it was undeniable that it was easy to participate in the consortium because Taeyang Group did not interfere.
“By the way, I heard that Osung acquired more than 51% of the shares from Namyang Construction. Joining the Middle East construction even after exchanging shares, they are something else. But with this level of determination… They must be very upset with Taeyang. It’s enough to break up their relationship.”
“Well, they’re still in a cooperative relationship on the surface, but I’ve heard that it’s definitely not like before. I can’t blame them for being upset.”
“It’s their own fault. Anyway, is our allocated volume about 2,300 units?”
“Yes, that’s right. It’s about 40% of the volume ordered by Jeddah City. But the unit price of the construction cost is lower than I thought.”
“About how much?”
“The housing construction cost is about $28,000 per unit, which is only about 1,900 riyals per pyeong. I don’t think the profit margin from the construction cost will be that big.”
According to Manager Seo, who is staying in Saudi Arabia, it would be tight to match the unit price at that price.
But Lee Chang-jin wasn’t too worried.
“Well, we expected that to some extent, didn’t we? The reason why Saudi Arabia gave benefits to our construction companies in the first place was to lower the unit price. Think positive. The construction cost is cheap, but it’s much more profitable than just receiving labor subcontracting, isn’t it? If we reflect the design changes and negotiate well, it will be a profitable business. Besides, since it’s a turnkey project, there are many ways to make money if you use your head well.”
A turnkey project is a project in which everything from building construction to interior furniture and room supplies is prepared. The buyer just has to open the door and move in.
It is more demanding than simply completing an apartment, but it is possible to make a large profit if you standardize the interior construction according to the design standards and provide everything from knives and faucets to lights.
Then, Manager Seo Yo-han, who was listening to the discussion, asked with a worried look.
“That’s true, but we’ll need a lot of heavy equipment to carry out such a large-scale project. Where do we get that much?”
“Although we are a heavy equipment manufacturer, we have limitations in handling such a large volume at once.”
As expected, the volume that Lee Chang-jin was assigned was enormous.
The site area was 9.9 million square meters, and the total floor area was 2.2 million square meters.
It included 2,300 units of 36-pyeong apartments, employee dormitories, a gymnasium, and other auxiliary facilities, and it was predicted that more than 45,000 glass doors, 30,000 wooden entrance doors, 45,000 plywood sheets, 14,000 tons of rebar and H-beams, and more than 150,000 square meters of tiles would be used.
- To be continued in Episode 139 -
