After the Defense Acquisition Program Administration (DAPA) said it would extend for one year the security demerit points imposed on HD Hyundai Heavy Industries, which was convicted for leaking military secrets, HD Hyundai Heavy Industries said it would take "all legal action," stoking concerns over the Korea Destroyer neXt generation (KDDX) project. Even if the method for moving the project forward is decided, companies are expected to push back.
DAPA said on the 30th of 4th that it plans to extend the security demerit points applied to HD Hyundai Heavy Industries through Dec. of next year. Nine HD Hyundai Heavy Industries executives and employees were indicted on charges of leaking military secrets and were found guilty with their verdicts finalized. Eight of the nine were sentenced in Nov. 2022, and the remaining one in Dec. 2023. If a conviction related to security is finalized, the company in question receives demerit points for three years in defense bids.
DAPA initially viewed the two rulings as one and decided to apply only three years of demerit points (1.8 points) from the time the eight verdicts were finalized. However, based on a legal review that found the types of leaked secrets and the offenses differed and should be separated, it decided to impose an additional demerit (1.2 points) stemming from the one finalized ruling. Defense bid outcomes are decided by fractions of a point, so a 1.2-point demerit makes winning a bid difficult.
HD Hyundai Heavy Industries objected, saying DAPA abruptly changed the stance it had maintained. It argued that DAPA had repeatedly announced that when multiple people are involved in one case or punished in multiple cases, demerit points are imposed only for three years from the time of the first finalized ruling; and that if verdicts for indicted employees are finalized at different times, it could be an excessive sanction, so the internal rule adds 0.5 points but imposes them only for three years. With the demerit period nearing expiration and the KDDX project implementation method soon to be decided, HD Hyundai Heavy Industries said it is not reasonable to impose demerits when there is no new criminal circumstance.
DAPA believes there is no problem with this decision under its internal rules. A DAPA official said, "There is no rule in the internal regulations (such as standards for concluding contracts through negotiations for force improvement programs) that specifically requires providing an opportunity for explanation," adding, "The review result is additional demerit points, and it has not yet been officially imposed. We will take another look."
HD Hyundai Heavy Industries has conveyed a protest position to DAPA since the previous day and is seeking response measures in preparation for an official demerit imposition disposition.
Industry officials worry that if the conflict over the KDDX project is not resolved, the credibility of the KDDX project, already delayed for nearly two years, could be shaken. A former military official said, "Unnecessary controversy has been added amid already severe conflict among KDDX participants," and added, "Whether it is a private contract or a competitive bid, it is questionable whether companies will fully accept DAPA's decision."
Some also question whether overseas clients can trust a country where the government and companies, and companies among themselves, are in conflict. After failing in Australia's new frigate program 4th, DAPA and HD Hyundai Heavy Industries and Hanwha Ocean promised a "One-Team," but that promise now risks fizzling out.
A political insider said, "Conflicts breaking out at home can only be the biggest weakness of Korea's defense industry."