[1] The difference between the "Continuing expenditure contract" under Article 21 of the Act on Contracts to Which the State Is a Party and the "long-term continuing construction contract", and whether the binding force of the total construction period in the contract is limited to the continuing expenditure contract in which the State is a party for at least one year (affirmative)

[2] In a case where Company A and Company B concluded a contract in the form of a long-term long-term contract with the National Railroad Corporation by forming a joint venture, but concluded a contract to change the previous long-term long-term contract into a continuing expenditure contract, and Company A et al. sought additional payment of the construction cost corresponding to the cost of indirect construction cost due to the extension of the construction period, the case holding that the Corporation did not have a duty to additionally pay the construction cost corresponding to the above indirect construction cost to Company A et al.

[1] On the other hand, a long-term continuing construction contract is a contract in which annual installments are executed in accordance with the fiscal year by setting the total amount of a project over several fiscal years upon prior resolution of the National Assembly with regard to the total expenses of the project and adding annual installments to the annual installments. On the other hand, a long-term continuing construction contract is executed in the form of adding the total construction cost and the total construction period to the initial construction contract in the first fiscal year (the “total contract”).

Supreme Court en banc Decision 2014Da235189 Decided October 30, 2018 ruled, “The validity of the so-called "comprehensive contract" in a long-term continuing construction contract is limited to the determination of a contracting party, determination of an intention to perform a contract, contract price, etc., and the details of the performance, the scope of the construction cost to be paid to the contracting party, the period for performance of a contract, etc., shall be determined in detail through annual contracts.” Therefore, the binding force of the total construction period in a contract that is in progress for not less than one year among the contracts to which the

[2] In a case where Gap corporation and Eul corporation concluded a contract in the form of a long-term continuing contract with the National Railroad Corporation by forming a joint venture, but entered into a contract in the form of a long-term continuing contract with the National Railroad Corporation, and Gap corporation, etc., revised the contract contract concluded in the form of the previous long-term continuing contract retroactively to a single continuing expenditure contract, and sought additional payment of the construction cost corresponding to the indirect construction cost due to the extension of the construction period, the case holding that since the binding force of the total construction period is recognized only for a continuing expenditure contract which has been conducted for at least one year among the contracts to which the State is a party, the contract concluded in the form of the previous long-term continuing contract was changed to a single continuing expenditure contract, there is no obligation to additionally pay the construction cost corresponding to the above indirect construction

[1] Article 21 of the Act on Contracts to Which the State is a Party / [2] Article 21 of the Act on Contracts to Which the State is a Party

[1] Supreme Court en banc Decision 2014Da235189 Decided October 30, 2018 (Gong2018Ha, 2370)

Korea-U.S. Railroad and one other (Attorney Strict-hoon, Counsel for the defendant-appellant)

National Railroad Corporation (former Name: Korea Rail Network Authority) (Law Firm Han-gu, Attorneys Park Gam-building et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2015Na2025745 decided March 10, 2016

All appeals are dismissed. The costs of appeal are assessed against the plaintiffs.

The grounds of appeal are examined.

1. A claim for indirect construction costs incurred by extension of the construction period;

A. Article 21(2) of the Act on Contracts to Which the State Is a Party provides, “The head or a contracting officer of a central government agency may conclude a long-term continuing contract, as prescribed by Presidential Decree, in the case of lease, transportation, storage, supply of electricity, gas, and water, and other contracts that need to continue to exist for several years or require years to be implemented. In such cases, the relevant contract shall be implemented within budgetary limits of each fiscal year.” Article 69(2) of the Enforcement Decree of the Act on Contracts to which the State is a Party shall conclude a contract with the State to additionally state the total cost determined by the successful bid, etc. and to perform the primary construction within budgetary limits of the relevant fiscal year. In such cases, a contract after the second construction shall be concluded within the extent of the total cost additionally stated (referring to the adjusted total cost, if the contract price is adjusted pursuant to Articles 64 through 66) less the amount already contracted.”

On the other hand, a long-term continuing construction contract is a contract in which annual installments are executed according to the fiscal year by setting the total amount of a project over several fiscal years with prior approval of the National Assembly for the total expenses of the project and adding annual installments to the annual installments. On the other hand, a long-term continuing construction contract takes the form of entering into the first construction contract for the first fiscal year and adding the total cost and total construction period to the total construction period (the agreement on the total construction cost and total construction period entered into at the time of entering into the first construction contract

Supreme Court en banc Decision 2014Da235189 Decided October 30, 2018 ruled, “The validity of the so-called comprehensive contract in a long-term continuing construction contract is limited to the determination of the contracting party, determination of the intention to perform the contract, contract price, etc., and the details of the performance, the scope of the construction cost to be paid to the contracting party, the period for performance of the contract, etc., shall be determined in detail through annual contracts.” Therefore, the binding force of the total construction contract period in a contract that is in progress for not less than one year among the contracts to which the State is a party is recognized only as continuing

B. According to the reasoning of the lower judgment, the following facts are revealed.

On November 18, 2004, the Plaintiffs concluded a contract with the Defendant on December 31, 2004, under which the total cost of a long-term continuing contract was KRW 24,33,000,000, the total construction period of the first contract was 48 months from the commencement date of the construction, the construction amount of the first contract was 150,000,000, and the construction period of the first contract was 150,000,000, and the first contract was 150,000 from the commencement date of the construction period.

After that, the Plaintiffs and the Defendant entered into a modified contract by reflecting the design change, change of construction period, etc. that occurred during the construction process, while maintaining the total construction cost and the deadline for completion, entered into a contract by changing the former long-term continuing contract to the continuing expenditure contract (hereinafter “instant continuing expenditure contract”), and entered into several revisions contracts regarding this contract.

C. Even if the indirect construction cost of the Plaintiffs’ assertion was both reflected in the total construction cost under a modified contract or not, it is reasonable to deem that the Plaintiffs agreed to implement the instant construction work according to the modified total construction cost. Therefore, the lower court did not have a duty to pay the construction cost corresponding to the Plaintiffs’ assertion in addition to the construction cost already paid to the Plaintiffs.

Examining the reasoning of the lower judgment in light of the relevant legal principles, the instant contract concluded by the method of a long-term continuing contract is not recognized as having been changed to a single continuing expenditure contract retroactively through the instant continuing expenditure contract. Although there are inappropriate parts in the reasoning of the lower judgment, the lower court did not err by misapprehending the legal doctrine regarding the relationship between continuing expenditure contracts and long-term continuing contracts, interpretation of modified contracts, adjustment of indirect construction costs, and requirements for claims, etc.,

2. Claim for agreed amount;

The lower court rejected the Plaintiffs’ claim for the agreed amount on the ground that it is difficult to recognize that the Defendant agreed to pay the Plaintiffs the sum of KRW 42,500,000,000, which occurred from January 1, 2010 to February 28, 2012, as additional indirect expenses, by citing the first instance judgment.

Such judgment below did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules.

3. Conclusion

The plaintiffs' appeals are dismissed in entirety as it is without merit, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Dong-won (Presiding Justice)