[Edaily Reporter kim kwanyong ] Ahead of the construction project for South Korea’s first nuclear-powered submarine, the shipbuilding industry has called for improvements to the existing system for acquiring and contracting naval vessels. Given the unique nature of the project—which requires the simultaneous development of both the nuclear propulsion system and the submarine platform—the industry argues that a new project implementation method, distinct from the frameworks of competitive bidding and sole-source contracts, should be established. They also contend that the government and companies should reasonably share the burden resulting from unpredictable development costs and schedule delays.

At a seminar titled “Strategies for Introducing Nuclear-Powered Submarines and Legislative Tasks,” held on the 27th by the Institute for National Security Strategy and the Office of the Chair of the National Assembly’s Defense Committee, HD Hyundai Heavy Industries and Hanwha Ocean raised the need for institutional reforms to ensure the stable implementation of the nuclear-powered submarine project.

Choi Tae-bok, Senior Managing Director at HD Hyundai Heavy Industries, stated that since nuclear-powered submarines are a national strategic project involving limited production volumes, it is necessary to move away from the competitive bidding or direct contracting methods stipulated in the existing National Procurement Act. As an alternative, he proposed the introduction of a government-led joint procurement consortium or a new project implementation model capable of integrating domestic technology and business capabilities.

In particular, he emphasized the need to clearly define responsibilities for the system integration of the nuclear propulsion system—including the reactor—the submarine platform, and the onboard equipment. He noted that applying the existing classification standards for government-supplied and contractor-supplied equipment used in conventional naval vessel projects could place a significant burden on companies. He also pointed out the need to establish a practical “control tower” to mediate disagreements among the dedicated organizations set up within the Ministry of National Defense, the Defense Acquisition Program Administration, and the Navy.

Hanwha Ocean focused on highlighting the limitations of the current contracting system. Nam Dong-woo, a full-time advisor at Hanwha Ocean, explained that for projects—such as nuclear-powered submarines—where it is difficult to determine development and construction costs in advance, a general cost-plus contract is necessary to settle actual costs incurred after the contract is signed; however, when contracts are awarded through competitive bidding, limits are imposed on additional settlements.

Accordingly, the company proposed that a special law be enacted to establish separate provisions regarding the determination and adjustment of contract amounts, as well as cost settlements, to ensure that reasonable costs incurred during the development process can be reflected. It also stated that procedures for contract extension and the waiver of liquidated damages need to be specified in cases where the schedule is altered due to reasons beyond the shipbuilder’s control, such as delays in securing nuclear fuel or technology development.

Issues regarding investment in nuclear submarine construction facilities and insurance coverage were also raised. Based on its own review, Hanwha Ocean estimated that more than 1 trillion won would be required for dedicated construction facilities and equipment. However, the company pointed out that, given the uncertainty surrounding the volume of follow-on vessel construction, there is a possibility that the massive upfront investment costs could not be recouped.

Furthermore, the company argued that insurance coverage could be restricted or premiums could rise significantly due to the high construction risks associated with nuclear-powered submarines, and demanded that the government establish a basis for providing guarantees and premium subsidies.

These industry demands came at a time when the project implementation plan for the nuclear-powered submarines has not yet been finalized. Previously, when asked about the method for selecting a shipbuilder and responsibility for system integration, the Ministry of National Defense and the Nuclear-Powered Submarine Project Team deferred specific answers, stating, “We are currently in the process of establishing a basic strategy for project implementation.”