Botched contracts have DAPA facing immense losses

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Botched contracts have DAPA facing immense losses

Korea’s main military procurement office is about to lose millions of dollars by terminating contracts with American defense companies without proper legal measures after purchasing substandard products, the Board of Audit and Inspection said Thursday.

The audit board announced its investigation into the Defense Acquisition Program Administration (DAPA) on Thursday over a series of naval procurement programs, of which the costly yet botched Navy procurement project to build three 700-ton vessels to detect and takeout sea mines was the main target.

Under the Mine Sweeper Hunter project, DAPA signed contracts with an American company in 2010 and 2011 to purchase systems to neutralize magnetic and acoustic influence mines for a cost of $44.9 million and to buy mechanical sweep systems for $25.38 million.

Both were key equipment for a minesweeping vessel.

The company, however, had no ability to build the systems. It forged documents as if it were capable and submitted the fake documents to DAPA. During the contract-signing process, DAPA reportedly discovered the forgery but still went ahead with the deals.

Products later supplied were substandard. Although the American company said in the contracts that it would build and supply the products, it had purchased the equipment from other companies.

While the systems were substandard, they were also overpriced. For the mechanical sweeping system, DAPA paid $10.38 million more than for a similar system sold in the market.

DAPA’s limit for the mechanical sweeper was $20 million, though the American contractor proposed the price tag be $25.38 million. DAPA did not object and went ahead with the deal. The procurement agency was aware that a similar product from another company was priced at $15 million, but it did not negotiate the price down or look for another supplier.

The procurement agency also signed a deal with another American company to purchase variable depth sonars for $54.9 million. The systems were later deemed to be unfit for combat.

DAPA officials visited the United States several times to sign the deal and pay the bills but never visited a production site, the audit board said.

In December 2014, DAPA decided to terminate the sonar contract with the firm due to its poor quality. In September, the DAPA also terminated its deal with the minesweeper systems supplier. Although DAPA was supposed to reclaim $40.65 million from the minesweeper supplier and $31.87 million from the sonar supplier, it did not properly safeguard the deals, and no legal recourse existed to collect most of the down payments, the audit board said.

The Board of Audit and Inspection said DAPA would lose $55.76 million total as a result of the botched contracts and demanded that one of DAPA’s project managers be punished.

Also on Thursday, the Park Geun-hye administration announced a plan to root out corruption from within defense procurement projects. The Office for Government Policy Coordination, the Ministry of National Defense and DAPA have operated a task force since July and presented its reform plan Thursday.

According to the plan, a defense project inspector will be appointed under DAPA’s leadership to monitor defense industries and major procurement programs. Workers under the inspector will be recruited externally to improve transparency.

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