The 780 billion won Korea Destroyer Next Generation (KDDX) program has been decided to proceed with competitive bidding between HD Hyundai Heavy Industries and Hanwha Ocean after drifting for two years. With the project significantly delayed by overheated rivalry between the two companies and fairness controversies, the government decided to complete all contracts by the end of next year.
The Defense Acquisition Program Administration (DAPA) said it convened the Defense Acquisition Program Promotion Committee (DAPPC) at the Ministry of National Defense in Yongsan-gu, Seoul, on the afternoon of the 22nd and unanimously approved a resolution to select the contractor for KDDX detailed design and lead ship construction through a designated competition between HD Hyundai Heavy Industries and Hanwha Ocean. A DAPA official said, "There was an opinion (at the DAPPC) that securing fairness through competition would be efficient."
Accordingly, DAPA plans to rewrite the basic plan for detailed design and lead ship construction and submit it as an agenda item to the DAPPC. The plan is to table it by the first quarter of next year at the latest. Once the DAPPC vote is completed, DAPA will issue a bid notice. Because KDDX is defense materiel, defense companies HD Hyundai Heavy Industries and Hanwha Ocean will be designated bidders. A DAPA official said, "The goal is to sign the contract by the end of next year."
◇ From a private contract to competitive bidding… DAPA says it considered "legality and fairness"
The KDDX program is to build six next-generation destroyers by 2030, with a total budget of 780 billion won. The goal is to replace aging ships slated to retire between 2028 and 2030. Typically, a naval ship program proceeds in the order of conceptual design → basic design → detailed design → lead ship construction → follow-on ship construction. Hanwha Ocean handled the conceptual design in 2012, and HD Hyundai Heavy Industries handled the basic design in 2020.
DAPA initially planned to complete the selection of the contractor for detailed design and lead ship construction in July last year. Considering the convention that the company in charge of the basic design enters into a private contract for detailed design and lead ship construction, HD Hyundai Heavy Industries was likely to win the order. But the situation changed after employees of HD Hyundai Heavy Industries were convicted for leaking KDDX-related secrets in 2013–2014, and the company received a security penalty at the corporate level.
DAPA allowed participation in the KDDX bid, judging there was no indication of involvement by the CEO or executives, but Hanwha Ocean argued this was problematic and that the two companies should compete through proposal evaluations. Hanwha Ocean also said it could not accept DAPA's compromise last Oct. of "joint design, simultaneous ordering, simultaneous construction." In the end, DAPA reverted to a private contract early this year, citing project continuity and force introduction timelines.
However, after President Lee Jae-myung said on the 5th, "I heard there was talk of giving a private contract on top of being punished for siphoning off military secrets—make sure to check things like that carefully," the mood shifted. The industry sees this as the president effectively putting the brakes on DAPA's private contract plan.
That said, a DAPA official drew a line, saying, "The DAPPC agenda item was decided by a subcommittee on the 4th, and during the process the commissioners reviewed the paperwork," and "The committee made its own decision after considering various matters such as legality and fairness."
◇ The key is HD Hyundai's security penalty… HD Hyundai says "it is regrettable that principles and rules were shaken"
The key now is whether HD Hyundai Heavy Industries will receive a security penalty for the leak. A DAPA official said, "The 1.8-point security deduction ended on Nov. 19," adding, "Any additional security deduction after that would be a matter for the company to inquire with the agency if a bid notice is issued and proposal evaluations are conducted." Ordinarily, with the basic design, HD Hyundai Heavy Industries is expected to score higher than Hanwha Ocean in other evaluations, but if a security deduction is applied, the result could be reversed.
Regarding concerns that if HD Hyundai Heavy Industries receives another security deduction it could file an objection and the project could be delayed again, a DAPA official said, "The agency is fully aware of those concerns," adding, "We will actively review such matters to ensure they do not affect force integration."
A Hanwha Ocean official said, "It is fortunate that the selection method for the KDDX detailed design and lead ship contractor has finally been decided," adding, "Hanwha Ocean will do its best to contribute to strengthening the Republic of Korea Navy's capabilities through winning the KDDX project going forward and to build a top-class warship that can lead K-ocean defense in the 2030s."
An HD Hyundai Heavy Industries official said, "We respect the DAPPC's decision, but it is regrettable that the principles and rules that have been observed were shaken," adding, "We plan to review the DAPPC's decision closely and hope that future procedures will proceed fairly in accordance with the law and principles."