Public Procurement Service Improves 'Killer Regulations' on Small and Medium Public Ship Orders

The Public Procurement Service (PPS) plans to support the growth of small and medium-sized shipbuilding companies through public procurement by improving unreasonable killer regulations.

On the 15th, the PPS announced that it will review the implementation status of the ‘Public Ship Order System Improvement Plan’ confirmed at last year’s Emergency Economic Ministers’ Meeting and additionally establish regulations such as contract guidelines to support the smooth landing of the system.

Public ships have so far been ordered integrally by demand agencies, who customarily fixed major equipment such as engines and propulsion systems during the design phase along with shipbuilding. The problem was that shipbuilders ended up bearing the costs of major equipment that they should not have been responsible for.

To improve this structure, the PPS revised the bid price evaluation formula in December last year and applied it from January this year. The core change was to evaluate only the ship manufacturing cost excluding the price of major equipment in the public ship price evaluation.

With the improvement in price evaluation methods, the winning bid rate in ship manufacturing bids increased from the previous 88% to 91%, and 123 small and medium shipbuilding companies were able to reduce their annual cost burden by more than 16.5 billion KRW, according to the PPS.

Another aspect of regulatory improvement was converting contract amount adjustments due to price fluctuations into an index adjustment rate to alleviate the burden of price increases on ship manufacturers under long-term contracts.

Building a ship requires about 1,300 types of materials. Until now, manufacturers found it difficult to increase contract amounts even when material unit prices rose after contract signing because they could not secure proof of price fluctuations for each item.

To resolve this unreasonable situation, the PPS prepared the ‘Standard Index Table by Ship Size, Type, and Item’ and the ‘Ship Price Fluctuation Adjustment Rate Calculation Table,’ which have been publicly available on the Korea ON-line E-Procurement System (KONEPS) since February.

Through this, ship manufacturers can choose the contract amount adjustment method as ‘index adjustment rate’ at the time of contract signing, and in this case, they do not need to prove price fluctuations for each item used in ship manufacturing.

The PPS also established the ‘Public Ship Contract Guidelines,’ which will be implemented from this month. According to the guidelines, demand agencies must disclose detailed specifications and special terms of major equipment pre-selected by the agency when ordering public ships in the future.

Additionally, when defects occur in ships, demand agencies and shipbuilders are required to promptly and clearly investigate the causes and responsibilities of defects jointly, and the costs necessary for defect investigation can be shared by agreement among team members through the operation of a ‘Defect Joint Response Team.’

Lim Gi-geun, Administrator of the PPS, said, “We will improve unreasonable practices to reduce the burden on small and medium shipbuilders in public ship orders and maintain a mutually equal cooperative and balanced relationship between the public and private sectors. Based on this, we will focus the PPS’s capabilities on supporting small and medium ship manufacturers to grow stably in the public market.”