Will HD Hyundai sign sole-source contract for KDDX project?

An illustration of the Republic of Korea Navy’s next-generation destroyer / Courtesy of HD Hyundai Heavy Industries

Hanwha Ocean's investors and politicians from Geoje Island, where the shipbuilder is based, are increasingly concerned about the company's potential exclusion from a 7.8 trillion won ($5.6 billion) KDDX project to construct the Republic of Korea Navy's next-generation destroyers, according to industry officials, Wednesday.

Multiple media outlets reported Tuesday that the Defense Acquisition Program Administration (DAPA) will hold a meeting this month to task HD Hyundai Heavy Industries (HHI) with drafting a detailed design of the KDDX-class destroyers and constructing the first ship without any competitive bidding process.

The HD Hyundai subsidiary secured the bid in 2020 for the basic design of the destroyers, potentially enabling the Republic of Korea Navy to begin operating the warships as scheduled in 2030 through a sole-source contract.

DAPA dismissed the reports as groundless.

“We will make decisions in compliance with laws and regulations, after reviewing the project’s significance, necessity and impacts on the naval vessel industry,” the administration said in a text message sent to reporters on Tuesday night.

Hanwha Ocean's conceptual design of the KDDX-class destroyer is on display during the Korea Institute of Military Science and Technology's symposium at the International Convention Center Jeju in this June file photo. Courtesy of Hanwha Ocean

However, Hanwha Ocean’s shareholders expressed concerns over the state-run arms procurement agency’s forthcoming decisions.

Rep. Seo Il-jun of the ruling People Power Party, who represents the constituency of Geoje, issued a statement calling for a fair selection of the project's participants.

The shipbuilder also called for a competitive bidding process to select multiple companies as participants in the project.

“A sole-source contract will unfairly provide preferential treatment to a certain company, nullifying penalties imposed on that company for its illegal acquisition of our conceptual design for the KDDX project,” a Hanwha Ocean official said.

Hanwha Ocean was in charge of the conceptual design of the destroyers, when it was Daewoo Shipbuilding & Marine Engineering (DSME) before Hanwha’s acquisition.

Although former HD HHI employees were found guilty of stealing DSME’s conceptual design, DAPA allowed HD HHI to bid for the KDDX and other warship construction projects for the ROK Navy.

Last Friday, members of the Geoje City Council unanimously passed a resolution urging the central government not to sign a sole-source contract with HD HHI for the KDDX project.

“We warn that the government will face a strong backlash from Geoje residents, if it signs a sole-source contract with HD HHI,” the council said in a statement.

Geoje Mayor Park Jong-woo also said last month that it is nonsense to select HD HHI as the only company to handle the KDDX project, considering the shipbuilder’s theft of military secrets from Hanwha Ocean.

In contrast, politicians in Ulsan, which accommodates HD HHI’s shipyard, claimed that the government will suffer severe financial losses, if it asks a different company to handle the KDDX project.

“HD HHI is the nation’s leading defense systems exporter and plays a major role in the regional economy,” Ulsan Mayor Kim Doo-gyeom said in May.