'Strengthening Maritime Safety with High-Quality Patrol Vessels'… Coast Guard Agency Improves Shipbuilding Contract Method

Change from Lowest Price Bidding in Qualification Review to Negotiated Contract Method
Expectations for Improvement in Management Environment of the Shipbuilding Industry

The Korea Coast Guard has improved its shipbuilding contract method to secure high-quality patrol vessels. On the 15th, the Coast Guard announced that it has changed the contract method from the lowest bid based on qualification screening to a negotiation contract method, which is being applied to this year’s shipbuilding projects.

The new contract method has the advantage of selecting the preferred negotiation candidate based primarily on technical capability before finalizing the contract, thereby avoiding excessive price competition and enabling the construction of high-quality vessels.

On the other hand, the previous method decided the successful bidder by qualification screening in order of the lowest bid price, which induced excessive competition among shipbuilders with low bids close to the bid floor rate (about 80.5% for projects over 10 billion KRW), worsening the management conditions of the contracted companies and raising concerns about the deterioration of patrol vessel quality.

Patrol Vessel 3005 [Photo by Korea Coast Guard]

To improve the contract method, the Coast Guard held on-site briefings and public hearings for shipbuilders and related organizations and completed work consultations with the Public Procurement Service. Additionally, a public hearing was held with related agencies operating government vessels such as the Ministry of Oceans and Fisheries and the Korea Hydrographic and Oceanographic Agency, as well as 20 domestic defense and small-to-medium shipbuilding companies, to gather opinions on the detailed evaluation criteria for technical capability and reflect them accordingly.

Although Korea’s shipbuilding industry is a representative key industry affecting the national economy, the small and medium shipbuilding sector, which heavily depends on the domestic market centered on public vessels, has faced difficulties in fulfilling contracts due to low-price contracts. Recently, management difficulties have accelerated further due to rising raw material costs and labor expenses.

Baek Hak-seon, Director of the Equipment Technology Bureau at the Coast Guard, said, “The improvement of the contract method will improve the management environment of the shipbuilding industry and enhance the quality of vessels. The 25 vessels scheduled for construction, including 3,000-ton patrol ships and 200-ton patrol boats, are also being carried out under the new contract method.”

This content was produced with the assistance of AI translation services.