DAPA's Pressure Campaign on SME Company A: "Simultaneous Teardown Inspections Following Chief-Presided Meeting"

The Defense Acquisition Program Administration (DAPA) is engaging in actions toward Company A, a small and medium-sized radio manufacturer, that are somewhat difficult to comprehend. The agency has forced the company to make decisions determining its very survival within just two to three days, and has even dismantled in bulk communication equipment supplied by Company A to the military without informing the company.

The issue originated from the second-phase combatant radio project worth 4.2 billion won, which was conducted during the COVID-19 pandemic. Because the procurement of three out of roughly 800 parts was blocked in the aftermath of the pandemic, Company A applied alternative parts with equivalent or superior performance, but friction in the consultation process regarding the parts replacement became a pretext.

Even though a closer look shows that this friction was understandable, DAPA has recklessly resorted to sheer force. In particular, with DAPA Commissioner Lee Yong-cheol taking the helm, agency officials appear fully committed to bashing the company by any means necessary.

For several months, strange rumors have circulated among the telecommunications industry and the military's signal corps. The rumors claimed that "Company A would face sanctions as an improper business entity from DAPA and be barred from participating in the third-phase combatant project," and that "Company B would take over the third-phase project uncontested, while Company A's designation as a defense contractor would be revoked, leading to its bankruptcy."

Although the origin of the rumors remains unconfirmed, DAPA needed to act aggressively for these rumors to materialize like a prophecy. True to form, DAPA sprang into action. Furthermore, Commissioner Lee Yong-cheol took the lead in escalating the situation.

On the morning of September 14, DAPA Commissioner Lee Yong-cheol convened a meeting regarding the combatant radios. A DAPA official recounted, "At the meeting, the commissioner was furious, asking 'Why was the alternative parts issue of Company A's radios left unattended?'" adding, "While this is something the project team could handle on its own, Commissioner Lee overreacted, even bringing up his predecessor." Commissioner Lee was reported to have ordered a thorough investigation at the meeting.

On the afternoon of the same day, DAPA Vice Commissioner Kim Il-dong took over the baton and held another meeting concerning the combatant radio project. It is an unprecedented move for DAPA's No. 1 and No. 2 leaders to personally step in over a small 4.2 billion won project involving a small and medium-sized enterprise. The meeting presided over by Vice Commissioner Kim concretized the inspection schedule and methodology.

The conclusion of the meetings presided over by DAPA's No. 1 and No. 2 was to "dismantle all radios supplied to the military by Company A to find flaws." This response seems rather excessive for a situation where, after consulting with DAPA during the second-phase combatant radio project amid the COVID-19 pandemic when three parts were unavailable, the company inserted alternative components of equivalent or superior performance that do not allow backdoors. Even LIG D&A, which was indicted on the largest defense corruption charges in history, was not subjected to such special-investigation-level scrutiny from DAPA.

Even before being prodded by the commissioner and vice commissioner, DAPA had been taking apart the first- and second-phase deliveries of combatant radios behind Company A's back. Following the rebukes from the commissioner and vice commissioner, an emergency posture was declared. First, DAPA inspection teams were dispatched on September 15 and 16 to the plants of Hyundai Rotem and Hanwha Aerospace in Changwon, South Gyeongsang Province. They searched for defects by dismantling Company A's high-speed wireless communication devices installed on tanks and armored personnel carriers. Another inspection team visited the Army's 8th Armored Reconnaissance Battalion, the 26th Tank Battalion, and the 32nd Tank Battalion on September 16, likewise carrying out teardown inspections of the high-speed wireless communication equipment.

Next in line were the radio repeaters and special operations radios that Company A supplied under the existing force maximization project. Teardown inspections on these radios were conducted at the 22nd Division on September 17 and at a maintenance battalion in Chuncheon, Gangwon Province, on September 21. One wonders on what legal grounds DAPA, an agency acting on behalf of the buyer, can dismantle products without the manufacturer's knowledge while the military, the actual user, remains still. A DAPA official commented, "It is like Coupang taking apart and investigating a customer's Galaxy phone traded on Coupang without involving Samsung Electronics, claiming there is a problem."

Yesterday (September 29), DAPA stated, "Company A's parts replacement constitutes a breach of contract, and we will respond sternly," and "We have also confirmed the removal of markings on the components." The agency also maintained that there was no issue in demanding that the company make critical decisions within just two to three business days.

Even if DAPA's breach of contract claim holds merit, the agency has its own hurdles to clear. Prior to signing the contract on August 30, 2022, DAPA and Company A naturally conducted technical negotiations. Company A's secure computer preserves records showing that parts replacement was discussed during technical negotiations and pre-contract consultations on May 8, June 10, and August 2, 2022. It has been reported that DAPA does not have proper records of these negotiations, consultations, and reports. It was confirmed that two days ago, the DAPA commissioner ordered an audit into the Grade 5 deputy director who was in charge of the matter at the time.

In other words, DAPA itself has recognized the faults of its own staff during the parts replacement process, which lies at the core of the contract breach dispute. DAPA should reflect on whether it is focusing on the speck in someone else's eye while ignoring the log in its own. The removal of markings that DAPA is now taking issue with—namely, anti-tampering—is a measure that DAPA itself had earlier recommended to protect technical security. DAPA should examine whether it is treating the company as a violator of the law before establishing right from wrong.

There is one more point to consider. DAPA received its first information regarding this case from the police. However, the police reportedly relayed the information to DAPA over the phone. A phone notification by the police—rather than a formal notice of investigation or an official document—is unusual, and DAPA leaping into action based on just one or two phone calls without a single official document is also vastly different from its usual conduct. Amid this overall controversy, DAPA needs to keep in mind that the names of figures linked to power are beginning to surface.

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