The conflict between HD Hyundai Heavy Industries and Hanwha Ocean (formerly Daewoo Shipbuilding & Marine Engineering) over orders for the Korean next-generation destroyers (KDDX), worth a total of 8 trillion won, has reached a feverish stage. The public opinion war between the two major Korean shipbuilders is intensifying.
According to Korean media sources, South Korea’s Defense Business Agency (DBA) plans to choose the final shipyard in the second half of 2024 for the detailed design and construction contract for the KDDX project, which will deliver six 6,000-ton destroyers by 2030, with a total project cost of about 7.8 trillion won (about $5.68 billion).
This destroyer adopts Korean localized technology from the hull to the weapon system, and once it is completed, South Korea will become the sixth country in the world to fully realize the localization of destroyers. Meanwhile, South Korea has regarded the destroyer market as the country’s new engine of national defense and plans to export overseas. For this reason, HD Hyundai Heavy Industries and Hanwha Ocean are both striving to win the KDDX project.
The KDDX program is advancing in a sequence of conceptual design, basic design, detailed design, construction of the first destroyer, and construction of subsequent destroyers, with the conceptual design having been completed by Hanwha Ocean’s predecessor, Daewoo Shipbuilding & Marine Engineering, and HD Hyundai Heavy Industries has completed the basic design by the end of 2023. HD Hyundai Heavy Industries and Hanwha Ocean are currently competing for the remaining detailed design and construction contracts.
Among the yet to be completed project processes, the detailed design is the initial step to truly advance the development of the KDDX project, and it is also a critical point to determine the fate of the entire project, which is related to Korea’s future ability to improve the competitiveness of the warship market for overseas exports. Therefore, HD Hyundai Heavy Industries and Hanwha Ocean have been arguing about how to select the detailed design company.
Until now, the detailed design of the warship program has been taken over by the company responsible for the basic design. According to the past practice, HD Hyundai Heavy Industries was most likely to be awarded the detailed design contract. However, this was challenged and opposed by Hanwha Ocean, which triggered a near-heated battle between the two parties.
HD Hyundai Heavy Industries argued that the company in charge of the basic design should have been responsible for the detailed design and construction of the subsequent main ship, and claimed that there was nothing wrong with the ship procurement program procedures of the relevant Korean agencies, that is, through voluntary contracts to entrust the detailed design to the company responsible for the basic design.
Hanwha Ocean, on the other hand, argued that the KDDX project should have been carried out by competitive bidding, saying that Korea’s Defense Project Management Regulations are only an exception to the rule that it should be carried out through competitive bidding rather than voluntary contracting.
The results of the bidding showed that Hanwha Ocean, which was responsible for the basic design, was not awarded the contract for the detailed design and construction of the subsequent phases. It also means that the industry will pay more attention to the way contracts for the KDDX project will be awarded. Hanwha Ocean expressed, “The selection of the builder for the detailed design and construction contract for the KDDX project through a fair and competitive bidding process is the best way to prioritize the national interest.”
HD Hyundai Heavy Industries and Hanwha Ocean are filing criminal charges against each other to compete for the $5.68 billion.
It is understood that Hanwha Ocean filed a lawsuit against HD Hyundai Heavy Industries (formerly Hyundai Heavy Industries) executives with the South Korean police on March 4 this year, accusing them of directing, interfering in and participating in a case in which Hyundai Heavy Industries employees were convicted of collecting and leaking military secrets, demanding that Hyundai Heavy Industries executives be investigated and punished.
Hanhwa Ocean believes that the theft and disclosure of military secrets is an objective fact, which can be confirmed by the criminal judgment that will be finally confirmed and disclosed around November 2022. In September 2020, nine employees of Hyundai Heavy Industries were indicted by the prosecutors for violating the Military Secrets Protection Act, and the final verdict was completed in November 2022, in which eight of them were convicted of “probation” and other charges. The remaining one was sentenced in November 2023.
In response, HD Hyundai Heavy Industries filed a criminal lawsuit against Hanwha Ocean in May of this year, alleging falsification of facts and defamation in connection with the disclosure of military secrets.HD Hyundai Heavy Industries accused Hanwha Ocean of intentionally falsifying the facts and defaming the company by releasing “revised” investigation records to the media, according to the lawsuit documents.
HD Hyundai Heavy Industries maintains in a criminal complaint filed with the Korean police that the investigation records released by Hanwha Ocean were intentionally excerpted and “altered,” clearly contradicting their actual statements and intentions.
A company official said, “As Hanwha Ocean’s unilateral disclosure of the investigation records has caused mental anguish to the company’s employees, the company will take appropriate measures to deal with it in the future.”
The dispute between the two parts can be traced back several years. Between 2012 and 2015, Hyundai Heavy Industries’ Special Ship Division employees (9) visited the Korea Defense Acquisition Program Administration (DAPA) and the Ship Technology Department of the Korean Navy Headquarters several times for business cooperation, during which they illegally stole relevant military secrets, including the ‘KDDX Project Conceptual Design Report’ and other related information, and then converted them into PDF files, which were widely shared through the company’s internal server and used to prepare business proposals for bidding.
Despite this, DAPA allowed HD Hyundai Heavy Industries to bid on the KDDX program in February. South Korean industry insiders previously said that the dispute between HD Hyundai Heavy Industries and Hanwha Ocean is likely to affect the progress of South Korea’s KDDX destroyer program.
