Military Supply Office Blames Winning Bidder for Delivery Responsibility... Court Rules "Bid Restriction Illegal"

A company designated as the successful bidder for military supplies filed an administrative lawsuit after being sanctioned with a 'bidding restriction' by the Ministry of National Defense following a delivery failure, and won the first trial.

Seoul Administrative Court, Seocho-gu, Seoul. / Photo by Hyunmin Kim kimhyun81@

According to the legal community on the 26th, the Administrative Division 2 of the Seoul Administrative Court (Presiding Judge Shin Myung-hee) recently ruled in favor of plaintiff A, an electric equipment manufacturing and sales company, in the first trial of the lawsuit seeking cancellation of the sanction against a debarred party filed against the Minister of National Defense.

Previously, the Naval Logistics Command issued a bid announcement in April 2020 for the purchase of naval ship parts. The announcement included a cautionary note stating, "It is mandatory to thoroughly review matters related to procurement such as specifications, unit price, delivery deadlines, and discontinuation status of the relevant procurement items, and to confirm the possibility of delivery."

Company A, which was a bidder, succeeded in winning the bid with an amount of 39,627,350 KRW and received a quotation from Company B, the manufacturer listed in the announcement.

However, the quotation sent by Company B was 61,600,000 KRW, which was higher than the estimated price and budget. Company A inquired with the Logistics Command about the detailed specifications of the goods and repeatedly requested an adjustment of the contract amount.

The Logistics Command refused, stating that "price adjustment is not subject to consideration." They reasoned that matters related to procurement should have been reviewed and confirmed by Company A before bidding, and the responsibility lies entirely with Company A.

Eventually, at Company A's request, the contract was terminated in November 2020. The following April, the Logistics Command imposed a six-month bidding participation restriction on Company A, citing "failure to fulfill the contract without justifiable reason." Company A appealed to the administrative court, claiming unfairness.

The first trial court judged that "there was a justifiable reason for failing to deliver the goods in this case," and ruled that the Logistics Command's sanction should be canceled. Company A requested samples or detailed specification documents of the related goods from the Logistics Command and tried to procure from companies other than Company B, but despite Company A's various efforts, the Logistics Command did not cooperate at all.

The court stated, "The Logistics Command set the estimated price solely based on the quotation amount received from Company B about three years before the bid announcement date. It is hardly conceivable that a thorough review was conducted in this regard," and added, "Rather, it appears that the bidding officer at the Logistics Command proceeded with the competitive bidding process vaguely and, when faced with a situation where normal delivery was difficult, tried to shift all responsibility onto the plaintiff."

Furthermore, "(Although the primary responsibility lies with the plaintiff for not properly confirming the cautionary notes,) even if it is not recognized that the plaintiff had justifiable reasons for failing to deliver the goods in this case, the sanction in this case is illegal as it is a disposition that exceeded and abused discretionary power."

The Ministry of National Defense appealed against the first trial court's ruling.