HD Hyundai Heavy Industries is repeatedly weighing whether to take part in the Korea Destroyer Next Generation (KDDX) program. Although it is at a disadvantage in the bidding after being penalized for allegedly leaking military secrets and after information on construction methods and new technologies was disclosed to rival Hanwha Ocean, some say that if it pulls out, 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 notice, is holding last-minute internal discussions on whether to join the KDDX detailed design and lead ship construction project. Under the National Contract Act's designated competitive bidding system, if even one party fails to participate, the bid is declared void and reannounced.
The Defense Acquisition Program Administration reannounced the project on the 18th. Bid registration closes on the 28th, and proposal submission closes on the 29th.
The KDDX project is the first domestically built destroyer program to construct both the hull and the Aegis system with homegrown technology. A total of 7.8 trillion won will be invested to build six 6,000-ton(t)-class mini Aegis destroyers. The goal is to replace aging vessels reaching retirement between 2028 and 2030.
Warship projects generally 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 during the first notice last month. The reason was that when the agency disclosed the basic design data, rival Hanwha Ocean was able to obtain its information based on that, but HD Hyundai Heavy Industries did not have the competitor's information and needed time to devise a strategy.
Before issuing the first notice, the agency sent requests for proposal preparation to both companies. The request for proposals included not only simple drawings but also labor unit costs to be applied to the 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, with an eye toward the detailed design, fall under trade secrets included in the request for proposals. The company said warship projects often have the basic-design contractor also take on the detailed design, so more content was included.
A HD Hyundai Heavy Industries official said, "In the basic design process, we reflected not only KDDX but also construction know-how and technology strategies accumulated through the existing Sejong the Great-class, Jeongjo the Great-class, and frigate programs," and added, "We are at a disadvantage because the competitor is highly likely to use the materials to write its proposal."
HD Hyundai Heavy Industries filed for an injunction with the Seoul Central District Court to ban the agency from disclosing KDDX basic design data, but it was dismissed on the 8th. The court said, "It is not recognized that the materials were provided to obtain an unfair benefit or to cause harm, so 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 penalty is also cited as a reason it is at a disadvantage in the bid. Previously, nine employees of HD Hyundai Heavy Industries were convicted of violating the Military Secret Protection Act after illegally obtaining and sharing through the company's intranet 12 Navy confidential documents, including KDDX concept design drawings of Daewoo Shipbuilding & Marine Engineering, by secretly photographing them in 2013. Eight had their convictions finalized in 2022, and one in 2023.
Initially, the agency viewed the two rulings as one case and planned 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 likely to be a swing factor.
According to the defense industry, there is widespread skepticism within HD Hyundai Heavy Industries about bidding, saying it has become virtually impossible to win the KDDX project. If HD Hyundai Heavy Industries gives up bidding even after the reannouncement, the agency will have to proceed with a private contract with Hanwha Ocean.
However, in the industry, the outlook is that HD Hyundai Heavy Industries will ultimately bid to win follow-up projects. An official at a defense company said, "If the workload shrinks, skilled workers have no choice but to move to competitors," adding, "That means core technology leaks and a drop in competitiveness, so in the long term, I think HD Hyundai Heavy Industries will participate in the bid."
The agency's position is unchanged that it plans to finalize the contract within this year. An agency official emphasized, "The plan originally set must not be delayed further in order to deliver the ships to the Navy by the target time of 2032."
A HD Hyundai Heavy Industries official said, "We will think it through sufficiently until the proposal deadline and produce the best outcome."