The Small Business Procurement Mechanism in Korea

Due to the chronic depression in the national economy, many construction firms encounter a risk of bankruptcy in Korea. There are more than 10,000 general constructors in Korea and they actively compete to be selected for any public procurement project. However, the firm sizes are substantially different so that unregulated competition can drive the public procurement market to be entirely dominated by big firms. In fact, the over-dominance of big firms is a serious problem in Korea and extends to ‘Bipolarization’. Thus, there is a growing concern that the construction industry itself might face a crisis if the polarization continues without a proper policy for small firms. Accordingly, ‘Rating System’ arises as a useful mechanism to overcome the adversity of the current market and aims at the efficient allocation of public procurements. For award, the only way that a tiny firm can compete against a gigantic firm is to cut the bidding price. This abnormal competition based on the price-cutting hinders an improvement of technology in the construction industry. In this research, we will discuss how to inspire a competition of technology in the public procurement market and claims that ‘Rated System’ can play an important role in normalizing the public procurement market.