Assemblyman Koo Jageun Points Out Unreasonable Bidding System at Korea Hydro & Nuclear Power

Top Two Companies Account for 70% of 34 Contracts Over the Past Decade
Criticism of 'Criteria for Selection of Engineering Service Providers'
Widening Gap Between the Strong and the Weak
Risk of Collusion Under the Relative Evaluation Syste

According to data submitted by Assemblyman Koo Jageun (People Power Party, Industry, Trade, Energy, Small and Medium Business Committee, Gumi City A) from Gumi City, North Gyeongsang Province, regarding the "Status of Maintenance Service Contracts for Nuclear Power Plant Instrumentation and Control Equipment Over the Past 10 Years" from Korea Hydro & Nuclear Power Co., Ltd. (KHNP), out of a total of 34 contracts (851.7 billion won), Company A (a mid-sized enterprise) secured 15 contracts (6 of which were private contracts) worth 359.7 billion won, and Company B (a large enterprise) secured 8 contracts (6 of which were private contracts) worth 217.3 billion won. Together, the top two companies won 23 contracts worth 577 billion won, accounting for approximately 70% of the total. This reveals that, under the government's unreasonable system, a monopoly by large and mid-sized enterprises has emerged in the nuclear power plant engineering maintenance industry.

Gu Ja-geun, Member of the National Assembly (People Power Party, Industry, Trade, Energy, Small and Medium Business Committee, Gumi City A)/Photo by Kim Ihwan

Maintenance and inspection of the instrumentation and control systems, which are core facilities of nuclear power plants, are essential for their proper operation and safety. KHNP grants registration qualifications to companies by evaluating their eligibility in management, technology, and quality, with a total of eight companies currently registered. Among these, the top two companies in terms of performance are large and mid-sized enterprises, while the remaining six are small and medium-sized enterprises.

Despite these companies having passed KHNP's stringent registration standards, the industry unanimously points to the Ministry of Trade, Industry and Energy's notification on "Criteria for Selecting Engineering Service Providers" as the reason for the monopoly.

According to this notification, when KHNP evaluates bidders, it conducts a pre-qualification (PQ) process, which includes a relative evaluation of performance over the past five years. Companies are ranked first, second, third, and so on based on their contract records, with the second-ranked company receiving a 5% cumulative deduction, and so forth. From the sixth-ranked company onward, the maximum deduction is 25%.

The industry argues that since technological capabilities have become largely standardized, these deductions have become the decisive factor. The PQ relative evaluation was introduced in 2011 by the Ministry of Knowledge Economy with the intention of giving more opportunities to outstanding companies to enhance stability, but today it has instead led to a "rich-get-richer, poor-get-poorer" phenomenon.

As the evaluation focuses more on past performance than on technological capability or price competitiveness, companies that have already secured contracts have no incentive to innovate, while those lagging behind have virtually no chance. As a result, they are forced to participate in consortia in a limited capacity or are being pushed out of the market altogether.

In fact, a representative of one of the registered small and medium-sized enterprises stated, "Only the top one or two companies have plenty of work, and they also poach all the technical personnel, making it difficult for others to even bid for new projects."

Meanwhile, there is also a risk of collusion under this relative evaluation system. Assemblyman Koo Jageun pointed out, "If the first and second-ranked companies decide to bid simultaneously, they can push small and medium-sized enterprises down to third place or lower, causing them to incur even greater deductions."

Assemblyman Koo Jageun asserted that, as the actual results show, the system is clearly unreasonable. He proposed alternatives such as switching from relative to absolute performance evaluation and introducing a cap on the number of contracts awarded to a single company.