The Defense Acquisition Program Administration said it plans to apply additional security deductions to HD Hyundai Heavy Industries, which is seeking to participate in the Korea Destroyer Next Generation (KDDX) program, citing a past conviction for violating the Military Secrets Protection Act. HD Hyundai Heavy Industries is pushing back, saying the agency changed the criteria late regarding the deduction period, causing the company harm.
On the 4th, according to the defense industry and according to legal sources, the Defense Acquisition Program Administration conveyed in a brief submitted to the Seoul Central District Court's Civil Division 50, which is hearing an injunction case filed by HD Hyundai Heavy Industries, that it would apply additional security deductions to the company.
In the brief, the agency said, "In evaluating proposals for the ocean information ship program, we determined that the deduction period for the creditor's (HD Hyundai Heavy Industries) security incident is three years from Dec. 8, 2023," and added, "In light of this case, HD Hyundai Heavy Industries, which participated in this KDDX bid, falls under the subject of deduction."
KDDX is a next-generation destroyer program worth 7.8 trillion won to develop the hull, combat system, and integrated mast with domestic technology. For the first time in a domestic naval program, it will apply an integrated electric propulsion system, with the goal of building six 6,000-ton class destroyers.
On the 2012 conceptual design, Hanwha Ocean (then Daewoo Shipbuilding & Marine Engineering), and on the 2020 basic design, HD Hyundai Heavy Industries took charge. The ongoing bid is for the detailed design and lead ship construction. Because awards can be decided by decimal points, there is an outlook that if HD Hyundai Heavy Industries receives security deductions, winning the contract will become difficult.
The security deduction for HD Hyundai Heavy Industries traces back 13 years. In 2013, nine of the company's executives and employees were indicted in 2020 on charges (violation of the Military Secrets Protection Act) of illegally obtaining and sharing 12 classified Navy documents, including KDDX conceptual design drawings from Daewoo Shipbuilding & Marine Engineering. Eight were convicted in 2022.
At the time, the remaining one also received a guilty verdict, but the court found not guilty on some charges. Prosecutors appealed, and in Dec. 2023 the one person received a final guilty verdict.
In 2022, when eight were convicted, the Defense Acquisition Program Administration imposed a 1.8-point deduction on HD Hyundai Heavy Industries under rules applying security deductions for three years from the date the sentence becomes final. The agency viewed the remaining one person's conviction as part of the same case as the eight who were convicted a year earlier. Accordingly, HD Hyundai Heavy Industries judged that the security deduction was valid only through last December.
The Defense Acquisition Program Administration signaled a change in its plan to apply deductions in September last year. At a Ministry of National Defense regular briefing at the time, it said it would apply an additional 1.2-point deduction to HD Hyundai Heavy Industries through December this year. The reason was that it would treat the case of the eight convicted employees and the case of the remaining one as separate offenses.
However, at the parliamentary audit last year, Defense Acquisition Program Administration Commissioner Seok Jong-geon said, "The plan to apply additional security deductions to HD Hyundai Heavy Industries is only the opinion of a working-level department," appearing to negate what had been released at the earlier regular briefing.
Until submitting this brief, the Defense Acquisition Program Administration did not present a clear position on whether it would apply the security deduction through the end of this year. In court on the 1st, when the bench asked whether it would apply security deductions in the KDDX evaluation, the agency did not answer, saying further confirmation was needed.
Amid the agency's ambiguous stance, HD Hyundai Heavy Industries is voicing frustration. The company said it asked multiple times before the KDDX bidding began whether security deductions would be applied, but the agency did not give a definitive answer.
In April, HD Hyundai Heavy Industries also inquired about the reason security deductions were imposed in the ocean information ship basic design program, but the agency did not respond, according to reports.
A defense industry official said, "In weapons program bids, outcomes are decided by fractional differences," and added, "If the Defense Acquisition Program Administration cannot present clear standards on sensitive matters such as security deductions, companies participating in bids will inevitably face confusion, and the transparency of competition will also be undermined."