hankyoreh

By Kim Kyu-won, staff reporter

It is becoming more likely that the bidding for the third next-generation fighter project being run by the South Korean Defense Acquisition Program Administration (DAPA) will end in failure. Sources say that all three of the companies that have taken part in the price bidding, which has been underway since June 18, submitted amounts that exceed the total budget of 8.3 trillion won (US$7.27 billion). Experts advise that, if the project is to be wrapped up successfully, the three companies must be motivated to compete with each other.

According to DAPA and the companies involved, from the start of bidding on June 18 through July 3, not a single company has bid less than 8.3 trillion won maximum. “We are planning to continue the bidding indefinitely, for as long as we deem it is necessary,” a senior offical with DAPA said on condition of anonymity.

However, it appears very unlikely that any of the bidding companies will make an offer of less than 8.3 trillion won. The biggest reason for this is the shadow cast by the F-35A.

DAPA has stated that any company that places a bid below 8.3 trillion won can be selected. However, the Republic of Korea Air Force favors the F-35A, which is produced by Lockheed-Martin. DAPA has not made it clear whether it would necessarily accept a bid by one of the other two companies if the F-35A bid is not less than 8.3 trillion won.

“If there are two companies that bid below 8.3 trillion won, the final selection will be made by the Defense Project Promotion Committee after a comprehensive assessment of the two,” the DAPA official said. “If there is only one, the committee will make the decision.”

Experts believe that if the bidding for the third next-generation fighter project is to be concluded at an appropriate price within the year, DAPA must have the ability to disregard the air force’s desire to purchase the F-35A. “There’s no reason to pin all of our hopes on the F-35A,” a national defense expert said on condition of anonymity. “The only way that we can induce price competition among the companies is going into this with the idea that it’s okay if we don’t purchase the F-35A. If it turns out we really need the F-35A, we can always buy it later.”

Another view is that the government must make clear that it will choose whichever jet manufacturer offers a bid that falls within the scope of the government’s budget.

“The thing is that all three of the companies’ fighters have the required operational capacity,” said Lee Hui-u, director of the Integrated Logistics Support Research Institute at Chungnam National University. “If the government lets it be known that it is willing to choose any one of the three that meets the budget, the companies will then have to match the price. The companies can compensate for the loss through armaments or operational and maintenance fees.”

Complicating things further is the fact that, at the moment, it cannot even be established whether a bidding price has been submitted for the F-35A. The US government placed the bid for the F-35A on behalf of Lockheed-Martin through its Foreign Military Sales program. Even if a price was submitted, this price is not related to the amount that the South Korean government will actually have to pay later down the line. The South Korean government in fact must pay the amount specified by the US government at the time of payment

“With the F-35 bid, the US government may have submitted a prediction of what the price will be after development is complete, but the other two countries offered definite prices,” a representative with one of the other companies said on condition of anonymity. “This bidding is completely unfair.”

“We have been asking the US government to provide a definite price, but we have gotten a guarantee,” a source with DAPA said.

DAPA’s ambiguity about the scope of the budget for this project is another reason the companies have not felt it necessary to engage in competitive price bidding. Lately, DAPA has been insisting that it will stick to the 8.3 trillion-won budget for the project. But until only recently, rumors were rife inside the Ministry of Defense and DAPA that the budget might be increased to 9.96 trillion won (120% of the original amount). The fact that the air force’s preferred choice the F-35 is unlikely to be below 8.3 trillion won makes it more likely that the budget will be increased by 20%.

This is why the government needs to clearly indicate whether the budget for the project is 8.3 trillion won or 9.96 trillion won. If the budget goes up to 9.96 trillion won, there will probably not be a single company that will make a bid for 8.3 trillion won.

“If they had definitely stated from the beginning that 8.3 trillion won was the final budget, the companies would have given some serious thought to this price,” said Kim Jong-dae, chief editor of Defense 21+. “Even now, it’s not too late to make clear what the final budget is.”

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