Board of Audit and Inspection: "Kepco KDN Illegal Subcontracting and Bid Collusion... Disciplinary Action for Those Involved"

Public Disclosure of Audit Expertise of KEPCO KPS and KEPCO KDN
Other Companies Merely Serve as Formal Bystanders in Bidding

It was revealed through an audit by the Board of Audit and Inspection that KEPCO KDN, an ICT service subsidiary of Korea Electric Power Corporation (KEPCO), engaged in illegal subcontracting, secured projects by using front companies, and colluded in bidding.

On the 14th, the Board of Audit and Inspection disclosed the full audit report on KEPCO KPS and KEPCO KDN and stated that it requested disciplinary action against those involved in bid rigging at KEPCO KDN.

According to the audit report, KEPCO KDN secured four information and communication construction or software projects, including the "replacement of aging storage" from KEPCO between 2021 and 2022, totaling 57.2 billion KRW.

KEPCO KDN subcontracted the tasks under these four contracts into nine contracts to seven companies without obtaining KEPCO's approval, and it was confirmed that three of these cases exceeded the subcontracting limit of 50%.

In September 2022, Manager A of KEPCO KDN agreed with Manager B of another company to have the other company participate in the bidding as a formal front to prevent KEPCO KDN from bidding alone and causing the bid to fail in the "unstructured data storage materials" tender issued by KEPCO.

Manager B accepted this, expecting it would benefit his company's business, and in the October 2022 bidding, submitted a higher bid than KEPCO KDN. Subsequently, in November of the same year, KEPCO KDN won the contract for the project.

The Board of Audit and Inspection pointed out that in the process of subcontracting for the cloud infrastructure construction project contracted with KEPCO in December 2021, Manager A also induced unfair joint actions in the subcontracting process initiated in January 2022.

Accordingly, the Board of Audit and Inspection demanded disciplinary action (suspension) against one person involved in unfair handling of bidding-related tasks at KEPCO KDN and urged caution to prevent illegal subcontracting or unfair joint actions prohibited by the Fair Trade Act in the future.

The Fair Trade Commission was notified to prepare measures such as imposing fines on KEPCO KDN and related companies, and KEPCO was urged to thoroughly manage and supervise subcontracting going forward.

Additionally, KEPCO KPS was found to have excessively strict evaluation criteria related to technical personnel when subcontracting to pre-registered external partners during this audit, restricting competition and causing unnecessary burdens on companies, such as requiring temporary employment of technical personnel for registration.

An official from the Board of Audit and Inspection explained, "We notified KEPCO KPS to improve the evaluation guidelines that require partner companies to secure more or higher-level technical personnel than actually needed for project execution to be eligible for registration, so that competition is not restricted and unnecessary burdens on companies are eliminated."