HD Hyunjoong, Bid Restriction on 8 Trillion Won Project... D-1 to the Fateful Day That Could Change the Landscape of Korea's Special Ship Industry

HD Hyundai Heavy Industries, South Korea's largest shipbuilding company, faces a critical juncture ahead of the bidding for the next-generation destroyer project, which has a total project scale of 8 trillion won. HD Hyundai Heavy Industries has previously been sanctioned due to a security incident, and the review to determine whether it will be restricted from participating in the bid is just one day away. If it is unable to participate in the next-generation destroyer bidding, there is a possibility that work orders could cease starting next year.

According to industry sources on the 26th, the Defense Acquisition Program Administration (DAPA) will hold a contract review committee meeting on the 27th to discuss whether to restrict HD Hyundai Heavy Industries from participating in the bid due to sanctions related to a security incident that occurred in 2014. Nine employees of HD Hyundai Heavy Industries were finally convicted last November for violating the Military Secrets Protection Act by detecting, collecting, and leaking military secrets. It was revealed that they extracted military secrets related to the Korean next-generation destroyer (KDDX) project, prepared by Daewoo Shipbuilding & Marine Engineering (now Hanwha Ocean), more than eight times over three years from October 2012 to November 2015.

The core issue in DAPA’s review is whether the verdict explicitly states that HD Hyundai Heavy Industries violated the ‘Integrity Pledge’ submitted during the defense project bidding. The Integrity Pledge is limited to ‘executives and the CEO.’ DAPA is reportedly investigating whether there was any organizational directive from higher-ups. Even if the person is not directly subject to the Integrity Pledge, if there was an instruction from HD Hyundai Heavy Industries’ executives, cancellation of the defense contractor designation is also possible.

If the bidding restriction is enforced, HD Hyundai Heavy Industries is expected to suffer a blow in its defense sector. The KDDX project aims to deploy six 6,000-ton mini Aegis destroyers by 2030, with a budget of 7.8 trillion won. During the bidding restriction period, which is expected to last 3 to 5 years, it will be difficult to secure defense contracts, including the large-scale KDDX project. A company official said, "Some still argue that the company has a large backlog in the special ship sector, but most of the construction has already been completed, so most of the docks (shipbuilding spaces) will be empty starting next year." The annual sales of HD Hyundai Heavy Industries’ Special Ship Division are about 1 trillion won, with approximately 1,700 employees.

The KDDX project proceeds in the order of conceptual design → basic design → detailed design and initial ship construction → subsequent ship construction. Hanwha Ocean won the conceptual design contract, and HD Hyundai Heavy Industries won the basic design contract. If HD Hyundai Heavy Industries is sanctioned, the achievement of winning the basic design contract will become meaningless. HD Hyundai Heavy Industries has already received a 1.8-point security penalty deduction in DAPA bidding due to the military secret leak charges.

An HD Hyundai Heavy Industries official stated, "While we clearly acknowledge our internal mistakes, we are already under a three-year security incident penalty (1.8 points deduction) for the charges," adding, "Restricting participation in the bidding in a situation where success is decided by fractional point differences is an excessive sanction and constitutes double punishment."

However, some argue that since leaking military secrets is a serious crime, proper punishment such as bidding restrictions should be imposed. An industry insider said, "The special ship business is connected not only to the profits of private companies but also to national defense," emphasizing, "There is a need for strict punishment as a deterrent."

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