'Regret' over sanctions based solely on indictment

DAPA imposes maximum 24-month restriction under law

KF-21 long-range air-to-air missile project at risk

LIG Nexone's Pangyo House. [Provided by LIG Nexone]
LIG Nexone's Pangyo House. [Provided by LIG Nexone]

LIG Defense & Aerospace is preparing to challenge a two-year bidding ban imposed by the Defense Acquisition Program Administration, with the company set to seek a court injunction to suspend the sanction as concerns mount over disruptions to new contracts and ongoing development programs.

LIG Defense & Aerospace issued a statement Tuesday, shortly after DAPA announced the decision, saying it "regrets" that the agency had imposed the sanction "based solely on the fact of indictment while legal proceedings are still under way." The company said it would file for an injunction and "take all necessary measures to prevent disruptions to its projects."

Industry observers expect the company to also file a lawsuit seeking to overturn the sanction. LIG Defense & Aerospace previously pursued legal action when it received a three-month bidding suspension in 2017 over the falsification of test records.

Earlier Tuesday, DAPA convened a defense procurement contract review committee at the Government Gwacheon Complex and voted to impose the 24-month bidding ban on LIG Defense & Aerospace. The restriction is the harshest permitted under the State Contracts Act and follows prosecutors' announcement in August of bribery and cost-fraud charges against the company. DAPA said it had imposed bidding bans in all 27 previous cases involving bribery-related misconduct by defense contractors.

DAPA said it set the severity of the sanction by weighing three factors: the largest bribery amount recorded since the agency's founding, the deliberate and long-running nature of the cost fraud and other misconduct, and the damage such conduct inflicts on national security and the credibility of the defense procurement system as a whole.

DAPA said the review panel, which included multiple civilian members, heard explanations and statements from the company before conducting in-depth discussions on the form and level of sanctions — including the bidding ban and a potential fine — while examining both the illegality of the misconduct and the potential impact of the sanction on future defense procurement.

If the ban holds, LIG Defense & Aerospace's ability to win new defense contracts will be significantly curtailed for the duration of the restriction. Observers say the sanction could also affect the KF-21 long-range air-to-air missile development project, for which a contract is scheduled to be signed by year-end. LIG Defense & Aerospace had ranked first in the proposal evaluation for the systems integration component, which is central to that program.

Some analysts say the broader impact on South Korea's defense industry will be limited. Existing contracts are not automatically terminated, and the ban does not directly apply to overseas export deals. If a court grants the injunction request, the bidding restriction would be suspended, potentially allowing the company to participate in new programs.

A prolonged sanction is expected to weigh on the company's medium- to long-term earnings. LIG Defense & Aerospace has been expanding its exports, but domestic sales still account for roughly four times its overseas revenue. The possibility of additional sanctions also remains. Prosecutors investigated six defense programs in connection with the bribery allegations, including a small drone countermeasure system, but Tuesday's action covers only the small drone countermeasure project under the State Contracts Act. Further sanctions could follow for the remaining programs.

One day before the sanction was handed down, LIG Defense & Aerospace announced Monday that it had established a compliance audit office and would strengthen its system for ongoing monitoring of adherence to laws and internal regulations.


eyre@heraldcorp.com