KORAIL Terminates Contract with Dawonsys over Delivery Delays... Reduces Advance Payment from 70% to 30%

MOLIT Public Agency Briefing on Livelihood and Safety Sectors

Korea Railroad Corporation (KORAIL) has decided to terminate its contract with Dawonsys, which was responsible for the delayed delivery of trains. Going forward, KORAIL plans to minimize advance payments in future train procurement contracts and implement measures to eradicate preferential treatment for former executives.

Jung Jungrae, Acting President of KORAIL, stated at a Ministry of Land, Infrastructure and Transport (MOLIT) affiliate agency work report held at the Government Complex Sejong on January 14, "We take external criticism regarding Dawonsys's delay in delivering the ITX-Maum trains very seriously and will improve the overall system."

According to MOLIT, Dawonsys signed its third contract with KORAIL in April 2024, but by the end of last year, the company had not even completed the preliminary design, let alone delivered the trains. In addition, Dawonsys failed to deliver more than half of the trains under the first and second contracts signed in 2018 and 2019.

Yonhap News Agency

President Lee Jaemyung strongly criticized the situation during the MOLIT work report last month, stating that "a government agency was defrauded." In response, KORAIL filed a criminal complaint for fraud and formed a prompt delivery task force together with MOLIT. To strengthen oversight of advance payment usage and delivery progress, KORAIL reinforced its team with 34 dedicated personnel, including 13 internal and external accountants.

The report revisited the issues surrounding the 2024 contract. Acting President Jung explained, "At the time, all other train manufacturers were also experiencing delivery delays, and based on our inspection, we believed Dawonsys had sufficient production capacity." However, Kim Taebyeong, Director General of the Railway Bureau at MOLIT, pointed out, "In the case of other companies, only some foreign-made parts could not be imported due to COVID-19, so their situation was different. Considering the contracted quantity at the time, Dawonsys should have had 140 factory workers, but only had 30 to 60, and sometimes none at all."

He continued, "Last year, there were train breakdowns caused by defective parts, which the industry considers unacceptable incidents. There are more than 10 former KORAIL employees at Dawonsys, and investigations and audits will determine whether any undue influence was exerted."

Minister Kim also issued a stern rebuke. He said, "There was a risk of a major accident due to aging trains, and although there was an opportunity to take action in the middle of the process, proper measures were not taken. I believe KORAIL should sincerely bow its head and apologize to the public." Acting President Jung responded, "We are deeply reflecting on our actions and will work together with MOLIT through the prompt delivery task force."

Until now, KORAIL had paid 70% of project costs as advance payments, but has decided to reduce this to the regulatory minimum of 30%. The contract method will also be improved so that funds are paid in accordance with progress rates, and measures to eliminate preferential treatment for former executives were established last month.