Korea's major shipbuilders vying for $5.8 billion defense deal

A bird's-eye view of the Korean Next-Generation Destroyer (KDDX) [HD HYUNDAI]

Korea's major shipbuilders are competing to win a 7.8 trillion-won ($ 5.8 billion) order to build new stealth guided-missile destroyers for the Korean Navy, although the prospects for bidding participants remain uncertain.

The question is whether HD Hyundai Heavy Industries (HD HHI) will be qualified to bid for the Korean Next-Generation Destroyer (KDDX) project since its record of leaking sensitive military technology could render the bid by Korea's largest shipbuilder invalid.

The Defense Acquisition Program Administration (DAPA) convened a meeting on Tuesday to assess whether HD HHI should be disqualified from the bidding process as the agency began scrutinizing the ship maker's status as a potential ineligible contractor. The results of the assessment were not available as of the paper's closing time at 7 p.m. Tuesday.

The KDDX-class destroyer project, a joint effort between the Republic of Korea Navy and DAPA, aims to deploy six 6,000-ton mini-Aegis destroyers by 2030, with a price tag of 7.8 trillion won. Hanwha Ocean secured the conceptual design and HD Hyundai Heavy Industries the basic design.

The two are facing off for a 1 trillion-won bid for the detailed design and construction of the leading ship this year. Traditionally, DAPA has entrusted this phase to the contractor that handled the basic design, in this case HD HHI, but with potential bidding restrictions, the firm's prospects are uncertain.

The scrutiny of HD HHI stems from a decade-old incident involving leaked military secrets. Nine of its employees were convicted last year for unlawfully obtaining and disseminating 12 military documents, including crucial KDDX conceptual designs by Hanwha Ocean, then Daewoo Shipbuilding & Marine Engineering, in 2013.

Consequently, HD Hyundai Heavy Industries has incurred a 1.8-point deduction in DAPA's shipbuilding bidding process over the past three years, signaling potential repercussions for its future involvement in defense contracts.

The defense agency's stringent evaluations typically yield scores of less than 1 point, and last July, Hanwha Ocean narrowly clinched the role as the preferred bidder for the construction of the fifth and sixth ships of the FFX Batch-III program with a mere 0.1422-point score difference.

The potential designation as an "ineligible contractor" and restrictions on bidding could hand HD HHI a severe setback in defense sector contracts. DAPA can impose a bidding ban of up to five years for companies found guilty of illegally acquiring military secrets or violating integrity oaths. The company could not only squander previous investments but also hinder its prospects of securing other defense contracts for the restricted period. The special ship business unit under the nation's largest shipbuilding company boasts annual revenue of 1 trillion won and employs approximately 1,700 individuals.

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]