HD Hyundai Heavy Industries is repeatedly weighing whether to take part in the Korea Destroyer Next Generation (KDDX) project. Although it is at a disadvantage in the bidding because information such as construction methods and new technologies was disclosed to rival Hanwha Ocean and it was also docked points for leaking military secrets, there is a view that if it gives up participation, it will be difficult to win follow-up projects.
According to the defense industry on the 24th, HD Hyundai Heavy Industries, which did not participate in the first announcement, has recently been holding last-minute internal discussions on whether to join the KDDX detailed design and lead ship construction project. Under the State Contracts Act, if the bidding is conducted through a designated competitive bidding method and even one company does not participate, the bid fails and a reannouncement is made.
The Defense Acquisition Program Administration reannounced the project on the 18th. Bid registration closes on the 28th, and proposal submissions close on the 29th.
The KDDX project is the first domestic destroyer program to build both the hull and Aegis system with domestic technology. A total of 7.8 trillion won will be spent to build six 6,000-ton(t)-class mini Aegis ships. The goal is to replace aging vessels reaching retirement between 2028 and 2030.
Warship programs typically proceed in the order of concept design→basic design→detailed design→lead ship construction→follow-on ship construction. Daewoo Shipbuilding & Marine Engineering handled the concept design in 2012, and HD Hyundai Heavy Industries handled the basic design in 2020.
HD Hyundai Heavy Industries did not participate in the bidding at the time of the first announcement last month. The reason given was that, as the agency disclosed basic design data, rival Hanwha Ocean would gain access to its information based on that data, but HD Hyundai Heavy Industries did not have the rival's information and needed time to develop a strategy.
Before issuing the first announcement, the agency sent both companies a request for proposals to prepare their bid proposals. In addition to simple design drawings, the request for proposals included labor cost unit prices to be applied during future lead ship construction, construction methods, and technology application plans.
HD Hyundai Heavy Industries has argued that many of the materials prepared during the 2020 basic design, which were compiled with an eye to the detailed design, fall under trade secrets contained in the request for proposals. The company said that, because the contractor that handled the basic design has often also taken on the detailed design in warship projects, it included more information.
An HD Hyundai Heavy Industries official said, "During the basic design process, we reflected not only KDDX but also the construction know-how and technology strategies accumulated through carrying out the Sejong the Great-class, Jeongjo the Great-class, and frigate programs," and added, "We are at a disadvantage because there is a high possibility that the rival will use the materials to prepare its proposal."
HD Hyundai Heavy Industries filed for an injunction with the Seoul Central District Court to bar the agency from disclosing the KDDX basic design materials, but it was dismissed on the 8th. The court said, "It is not recognized that the materials were provided with the intention to obtain an improper benefit or cause harm, and thus it does not constitute a trade secret infringement." HD Hyundai Heavy Industries has appealed the ruling.
The fact that HD Hyundai Heavy Industries received a security-related point deduction is also cited as a reason it is at a disadvantage in the bidding. Previously, nine employees of HD Hyundai Heavy Industries received final guilty verdicts for violating the Military Secret Protection Act after they illegally obtained and shared through the company's intranet 12 Navy confidential materials, including KDDX concept design drawings of Daewoo Shipbuilding & Marine Engineering in 2013, by secretly photographing them. Eight were finalized guilty in 2022, and one in 2023.
Initially, the agency viewed the two verdicts as one case and decided to impose a 1.8-point deduction. However, after an internal review late last year, it decided to treat them as separate matters and set a policy to apply an additional 1.2-point deduction through December this year. The agency plans to decide whether to apply the deduction during the proposal evaluation process. Because awards can be decided by decimal points, a 1.2-point deduction is expected to be a variable that could determine the outcome.
According to the defense industry, there are many skeptical views within HD Hyundai Heavy Industries, saying it has become virtually impossible to win the KDDX contract. If HD Hyundai Heavy Industries also forgoes bidding in the reannouncement, the agency must conclude a private contract with Hanwha Ocean.
However, the industry expects HD Hyundai Heavy Industries will ultimately bid to win follow-up projects. A defense company official said, "If workloads shrink, skilled workers cannot help but move to competitors," and added, "That means leakage of core technologies and a decline in competitiveness, so from a long-term perspective, I expect HD Hyundai Heavy Industries to participate in the bidding."
The agency maintains that its plan to conclude the contract within this year remains unchanged. An agency official emphasized, "The plan initially set to deliver the ships to the Navy by the target date of 2032 must not be further delayed."
An HD Hyundai Heavy Industries official said, "We will deliberate sufficiently until the bid proposal deadline and produce the best result."