"Dawonsys Fails to Deliver 61% of Vehicles from First and Second Contracts"
Misuse of Advance Payments and Failure to Expand Production as Promised
The Ministry of Land, Infrastructure and Transport announced on December 26 that it had requested a police investigation into Dawonsys for delaying the delivery of railway vehicles ordered by Korea Railroad Corporation (KORAIL). The ministry confirmed that part of the advance payment from the contract was used for other purposes, and that Dawonsys temporarily increased delivery volumes just before signing an additional contract, only to halt deliveries soon after. The ministry also decided to conduct an additional audit of KORAIL, the ordering party.
According to the ministry, out of the 150 vehicles in the first contract signed between 2018 and 2019, 30 vehicles (20%) remain undelivered. For the second contract, 188 out of 208 vehicles (90%) have not been delivered. In total, only 140 out of 358 vehicles from the first and second contracts have been delivered, leaving 218 vehicles (61%) still outstanding. The original contract stipulated that these vehicles should have been supplied between 2022 and 2023. Despite Dawonsys breaching the contract and failing to supply the trains, KORAIL signed a third contract for 116 vehicles last year.
Previously, after these issues were raised during the National Assembly audit in October this year, the ministry began an audit in November of all purchase contracts between KORAIL and Dawonsys, as well as KORAIL's contract management practices. The investigation found that Dawonsys used part of the contract advance payment for the purchase of general electric train parts (such as auxiliary power units) unrelated to the production of the specific railway vehicles (ITX-Maum) in question.
Under contract law, advance payments can only be used for the execution of the specific contract. According to the expenditure records submitted by Dawonsys, 105.9 billion won out of the 245.7 billion won advance payment for the second contract was spent on manufacturing vehicles for the first contract. An on-site inspection at Dawonsys's Jeongeup plant, where the vehicles are produced, revealed that materials and parts sufficient for only 2 to 12 vehicles had been secured, making timely production virtually impossible.
Regarding the third contract, just before signing in April last year, Dawonsys temporarily increased its monthly delivery volume from four to twelve vehicles, but immediately halted deliveries from May onward. The investigation also found that, although the company pledged to expand its production line in the technical proposal submitted for the third contract, this plan was not implemented.
President Lee Jaemyung previously raised concerns during this month's ministry work briefing about KORAIL signing an additional contract with Dawonsys despite the previous contract not being fulfilled, as well as the excessively large advance payment. The ministry stated, "Along with requesting an investigation into Dawonsys for breach of contract and regulatory violations, we plan to promptly conduct an audit of KORAIL’s overall contract management and take strict action against any illegal or improper handling of work."
Park Seonsun, CEO of Dawonsys, appeared as a witness at the National Assembly Land, Infrastructure and Transport Committee's audit on Korea Railroad Corporation (KORAIL), Korea Rail Network Authority, and SR held at the Korea Rail Network Authority headquarters in Dong-gu, Daejeon, in October this year, where he faced criticism from lawmakers. Photo by Yonhap News.
Separate from this investigation request, the ministry will continue its audit. Based on legal consultation, the ministry concluded that misuse of advance payments and suspension of deliveries after the third contract could constitute criminal fraud under the Criminal Act.
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