On December 22nd, South Korea’s Defense Acquisition Program Administration (DAPA) announced that after discussions at the 172nd Defense Acquisition Program Promotion Committee, it had decided to select the contractor for the detailed design and construction of the lead ship of the KDDX program through competitive bidding.
The Republic of Korea’s naval shipbuilding programs generally proceed through the stages of conceptual design, basic design, detailed design and lead ship construction, followed by the construction of follow-on vessels of the same class. Under this framework, Hanwha Ocean was responsible for the conceptual design, while HD Hyundai Heavy Industries conducted the basic design.
Under the original plan, following the completion of the basic design in 2023, detailed design and construction of the lead ship were to commence in 2024. In line with long-standing practice, DAPA initially sought to award a sole-source contract to HD Hyundai Heavy Industries, which had carried out the basic design. However, Hanwha Ocean raised objections, citing a military classified information leak case related to the KDDX program involving HD Hyundai Heavy Industries. This dispute led to significant friction between the two shipyards and, at one point, escalated into legal action.
Due to the intensity of the situation, a decision on the contract structure for the detailed design and construction of the lead ship was delayed for nearly two years. During this period, former Chief of Naval Operations Adm. Yang Yong-mo publicly expressed serious concern that the ongoing dispute was delaying the operational deployment of major naval assets, underscoring growing calls for a resolution to the issue. Previously, three options were known to be considered, a sole-source contract, competitive bidding, and joint design & construction.
Shortly before the decision was finalized, President Lee Jae-myung expressed a negative view toward awarding a sole-source contract during a town hall meeting with the public on the 5th, instructing DAPA to conduct a thorough review of the matter. This was widely interpreted within the industry as effectively ruling out the sole-source option. Meanwhile, the option of joint development with simultaneous construction of lead ships by multiple shipyards also faced criticism, particularly over potential long-term maintenance challenges and unclear accountability in the event of construction-related issues.
Ultimately, at the 172nd Defense Acquisition Program Promotion Committee meeting held on the 22nd, DAPA decided to proceed with competitive bidding between HD Hyundai Heavy Industries and Hanwha Ocean. DAPA plans to establish the basic project plan for the competitive bidding process in early next year and aims to complete contractor selection and contract signing by no later than the end of next year.
As the program will have been delayed by nearly three years by the time contractor selection is completed, the KDDX schedule has slipped beyond its original goal of acquiring six ships by 2030. Nevertheless, with the retirement of three DDH-I Gwanggaeto the Great-class destroyers approaching, DAPA is seeking to catch up with the schedule by expediting delivery of the lead ship and pursuing simultaneous orders for follow-on vessels. Total project period is from 2020 to 2036, with total project cost of 7 trillion KRW (about 4.8 billion USD).
How the competitive bidding process will ultimately play out next year remains uncertain. Recently, following an internal legal review, DAPA reassessed two court cases that had previously been treated as a single case on KDDX classified information leak issue, stating that that the types and nature of the classified information involved differed between the cases. Based on this assessment, DAPA decided to reapply the three-year security penalty, using December 2023, the point at which the most recent court ruling became final, as the reference date.
Because of this, the security penalty points applied to HD Hyundai Heavy Industries during the bidding process, which had previously been set to remain in effect until November of this year, are now expected to extend into next year. HD Hyundai Heavy Industries has reportedly objected to this decision, while DAPA has stated that it will further review whether the extended application of the penalty is appropriate.
Although HD Hyundai Heavy Industries may hold an advantage in technical evaluation as the company responsible for the basic design, in a competitive environment where the outcome is likely to be decided by a narrow margin, the impact of penalty points could prove to be a significant factor in determining the final result.
