KDDX Project to Proceed with Private Contract with HD Hyundai Heavy Industries

The Defense Acquisition Program Administration (DAPA) is reportedly planning to proceed with the Korean Next-Generation Destroyer (KDDX) project through a private contract. If the project resumes after this week's briefing at the National Assembly, HD Hyundai Heavy Industries is likely to win the contract. However, criticism is expected over the agency's failure to respond strictly to companies with a history of leaking defense secrets, suggesting that controversy over how to proceed with the KDDX project will continue.

원본보기 아이콘

According to the government and other sources on August 22, the KDDX Technical Advisory Committee reached a final decision to use a private contract method and reported this to Defense Minister Ahn Gyu-baek on August 14. The committee has also begun informing the National Assembly's Defense Committee of its decision this week. A government official stated, "At the direction of the Defense Minister, a meeting of the KDDX Technical Advisory Committee was held to discuss technical matters and the business approach," adding, "We plan to complete the report to the National Assembly's Defense Committee this week, based on the premise of a private contract."

The key issue in the KDDX project is which company-HD Hyundai Heavy Industries or Hanwha Ocean-will be selected for the detailed design and construction of the lead ship. HD Hyundai Heavy Industries maintains that, according to established practice, the company responsible for the basic design should also be awarded the detailed design and construction of the lead ship through a private contract. In contrast, Hanwha Ocean argues that the process should be conducted fairly through competitive bidding. If the Technical Advisory Committee's decision is upheld, HD Hyundai Heavy Industries would have the advantage.

◆ Intensifying conflict ahead of the Defense Project Promotion Committee's decision = Even if DAPA persuades the National Assembly regarding the private contract policy, significant hurdles remain. The final decision must be made at the Defense Project Promotion Committee (DPPC) meeting, which could be held as early as the end of this month or early next month. Opposition among DPPC members is strong. The DPPC consists of 25 members: 19 from the military and government, and 6 from the private sector. The civilian members argue that, since the Ministry of Trade, Industry and Energy designated both companies as "multiple defense contractors" earlier this year, competitive bidding is required.

In particular, the civilian members oppose a private contract with HD Hyundai Heavy Industries, which has a record of leaking defense secrets. Employees of HD Hyundai Heavy Industries were found to have leaked two classified documents related to the Korean next-generation destroyer, as well as more than 10 other secrets concerning the next-generation submarine and special operations support ship, from the Navy Headquarters between 2013 and 2014. Due to the exposure of these leaks, HD Hyundai Heavy Industries must receive a 1.8-point security penalty in competitive bidding until this year. However, if the project proceeds through a private contract, HD Hyundai Heavy Industries can continue without any additional penalties.

DAPA maintains that, since its establishment in 2006, all 18 naval projects have been carried out through private contracts, with the company responsible for the basic design also handling the detailed design and lead ship construction. This practice is reflected in Article 61, Paragraph 3 of the Enforcement Decree of the Defense Acquisition Program Act and Article 89 of the Defense Program Management Regulations. An internal DAPA document obtained by this publication, titled "KDDX Project Implementation Plan," states, "All 18 naval R&D projects conducted since DAPA's establishment have been handled through private contracts, with the basic design company responsible for the detailed design and lead ship construction." The document further explains, "Relevant regulations stipulate that, unless there are special circumstances, the same company should continue to carry out the work."

This controversy over the private contract has led to criticism that DAPA is protecting HD Hyundai Heavy Industries despite its history of leaking classified information. Meanwhile, in other projects, the agency has allowed companies with similar violations to participate in competitive bidding, reducing the level of sanctions and fueling criticism that the standards are inconsistent.

◆ Waiting out sanctions while insisting on competitive bidding = Previously, DAPA has insisted on competitive bidding, rather than private contracts, and has even brought defense companies that violated the Military Secrets Protection Act into projects. The Type 1 Special Operations Submachine Gun project is a representative example. In June 2020, Dasan Machinery was selected as the preferred bidder for this project. However, within less than a month, the Defense Counterintelligence Command conducted a raid, suspecting Dasan Machinery of leaking military secrets related to firearms development. The leak was confirmed to be true. A former executive of Dasan Machinery was found to have transferred military secrets, including requirements and performance specifications (ROC) for machine guns and sniper rifles discussed or decided at the Joint Chiefs of Staff between 2015 and 2020, to Dasan Machinery in exchange for money. Those involved were convicted. DAPA has the authority to revoke the defense contractor status of companies that leak secrets.

Dasan Machinery was only sanctioned as a disqualified contractor, being barred from bidding for 12 months. When the sanction period ended, DAPA resumed the project with the company this year. This contradicts DAPA's earlier claim that the replacement of the 40-year-old K-1A submachine guns used by special forces was urgent and that the project needed to proceed quickly. This has led to criticism that DAPA may have deliberately delayed the project to allow Dasan Machinery, which leaked military secrets, to participate.

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.