DAPA Pushing for Sole-Source Contract on KDDX? [Yang Nak-gyu's Defence Club]

Seok Jong-geon, Defense Acquisition Program Administration Chief, Interview with Domestic Media
"Contracting with Basic Design Firms Ensures Efficient Project Management"

The Defense Acquisition Program Administration (DAPA) is facing criticism for allegedly deciding to award a sole-source contract internally for the Korean next-generation destroyer (hereinafter KDDX) project. To build the warship, the project must proceed from basic design to detailed design and lead ship construction, but controversy is expected as defense companies that leaked military secrets appear likely to consecutively win the contracts.

[Image source=Yonhap News]

The KDDX project involves constructing a total of six ships with a budget of 7.8 trillion KRW. Employees of HD Hyundai Heavy Industries were caught leaking military secrets. Between 2013 and 2014, HD Hyundai Heavy Industries employees stole over 10 classified documents, including two KDDX secrets from the Navy Headquarters, as well as secrets related to next-generation submarines and special warfare support ships. Nine employees of HD Hyundai Heavy Industries were convicted by the Supreme Court in November last year for violating the Military Secrets Protection Act (Military Criminal Act). However, DAPA allowed HD Hyundai Heavy Industries to participate in the bidding, concluding that there was no evidence of involvement by the company's CEO or executives.

Administrator Seok: “The basic design company should handle detailed design to avoid post-management issues”

Seok Jong-geon, Administrator of DAPA, recently stated in an interview with domestic media, “Since the agency’s establishment, there have been 19 warship design projects, and except for one case, the company that performed the basic design also carried out the detailed design and lead ship construction,” adding, “When the company that did the basic design also does the detailed design, risks are reduced and there are no issues with post-management.” This was an official statement suggesting that the existing approach should be followed.

Administrator Seok also explained the rationale, saying, “Various combat systems, armaments, and sonar systems need to be developed and integrated, and when the company that did the basic design also performs the detailed design, risks are reduced and project management can be more efficient.”

He further mentioned that no objections from companies should be allowed depending on future project decisions. Seok emphasized, “Even if a project implementation plan is decided, if objections from companies lead to audits or legal issues, the project cannot proceed. Therefore, I hope companies will cooperate with the national interest in mind,” and stressed, “If the project is delayed, the government will struggle, but the greatest harm will be to the public.”

DAPA’s internal document also states “Continue unless there are special reasons”

DAPA’s move toward sole-source contracting was internally decided as early as last month. According to an internal DAPA document obtained by this outlet titled “Korean Next-Generation Destroyer (KDDX) Project Implementation Plan (photo),” “Since DAPA’s establishment, all 18 warship R&D projects have been carried out through sole-source contracts, with the basic design company performing detailed design and lead ship construction.” The document appears to have been written earlier this month. It states, “Related regulations stipulate continuation unless there are special reasons.” This is interpreted as meaning that HD Hyundai Heavy Industries, which won the KDDX basic design contract, will also be awarded the follow-up projects (detailed design and lead ship construction) through sole-source contracts.

Investigation results of HD Hyundai Heavy Industries and former DAPA Administrator are key

On the 2nd, when controversy arose over the sole-source contract with HD Hyundai Heavy Industries, DAPA sent a text message to reporters covering the Ministry of National Defense stating, “The project implementation plan has not been finalized,” which contradicts the internal document. DAPA plans to expedite the project by convening the project subcommittee soon, even though the contract method could be decided after the police investigation. Notably, if the National Contract Act, the higher law over DAPA regulations, is applied, competitive bidding would be possible. However, DAPA insists on sole-source contracting citing its own regulations.

Industry insiders question why DAPA is pushing for a sole-source contract with HD Hyundai Heavy Industries. DAPA allowed HD Hyundai Heavy Industries to participate in the project because there was no evidence that the company’s CEO or executives were involved in violating the Military Criminal Act. In response, Hanwha Ocean filed a police complaint alleging executive involvement during the illegal acts of HD Hyundai Heavy Industries employees. The police are expected to release investigation results within this month. Recently, Wang Jeong-hong, a former DAPA Administrator under the Moon Jae-in administration, was found to have held stocks in an IT-related company under a nominee name, and the police conducted a search and seizure of the company’s CEO.