[비즈한국] The Navy is growing increasingly concerned as the construction project for the 1st and 2nd Ulsan-class Frigate Batch-IV vessels continues to fail in attracting bidders. This has caused setbacks in force generation, making it difficult to maintain combat readiness. The defense industry, struggling with rising labor costs, general expenses, and inflation, is also expressing reluctance to participate in a project where the total budget has been set too low.
The Defense Acquisition Program Administration (DAPA) announced on August 21 that the re-tender for the construction of the Ulsan-class Batch-IV 1st and 2nd vessels failed because no companies participated. Although bid applications were accepted until the previous day, the 20th, not a single firm stepped forward. DAPA issued a new re-tender on the day of the announcement, but the prospect of a successful bid remains uncertain.
The primary reason defense companies are avoiding this project is the low total budget. The current budget for the Ulsan-class Batch-IV 1st and 2nd vessels is 757.5 billion KRW. With such a low contract value, companies find it difficult to take on the project, as financial losses are virtually guaranteed. The budget for these two frigates is even lower than the contract price for the Batch-III 5th and 6th vessels (791.73 billion KRW), which was finalized last November.
Industry experts point out that these failed bids were an expected outcome. In May, the construction project for the second logistics support ship (AOE-II) also failed to attract bidders once. DAPA opened a re-tender, and Hanwha Ocean participated alone to become the preferred bidder. Hanwha Ocean stated that it participated in the bid with a commitment to "serving the nation through business" for the sake of national defense and the safety of the people.
Defense companies complain that it is difficult to participate in projects expected to run at a loss when raw material prices, labor costs, and inflation are all rising. Moreover, they point out that while they are required to lead the research and development and make significant initial investments, recouping those costs is far from easy.
The problem is that low budgets are highly likely to continue hindering future naval projects. There are concerns that the construction of the 3rd Jangbogo-III Batch-II submarine could also face delays in deployment due to limited budget, as lengthy price negotiations with major overseas equipment suppliers could lead to missed delivery deadlines.
It is reported that DAPA has explained to industry insiders that the issue lies in the "total project cost" agreed upon with the Ministry of Economy and Finance (MOEF). Increasing the naval project budget by more than 20% would require a feasibility re-evaluation by the MOEF. DAPA is reportedly planning to reach an additional agreement on the budget for the Batch-IV 1st and 2nd vessels with the MOEF in the future.
Experts warn that if the bidding failures continue, it will disrupt military force generation and force the operation of aging ships, creating risks. Kim Min-seok, a researcher at the Korea Defense and Security Forum, explained, "The fundamental problem is that DAPA strictly verifies costs while pushing projects under the assumption that low-price bidding is always beneficial. We need to supplement and apply regulations for calculating the costs necessary to carry out these projects. Efforts are needed to move away from indiscriminate lowest-price bidding and offer sustainable prices to the companies."