South Korea's arms agency seeks to strip LIG D&A of contractor status on a counter-drone project

South Korea's Defense Acquisition Program Administration has started moving to cancel LIG D&A's status as a designated defence contractor for a programme to counter small drones, the broadcaster MBC reported on Saturday. The step would go further than the two-year bidding ban the agency imposed on the missile maker earlier this week over a bribery case.

According to MBC, which said it had obtained the results report of a 20 October meeting of the agency's defence contract review committee, the procurement agency recently asked the trade and industry ministry to review the cancellation. That ministry holds the legal power to grant and withdraw defence-firm designations, and it is expected to hear from the parties involved before reaching a decision. The Korean outlet Hankook Jeongkyung Shinmun reported the same request later on Saturday and said neither the outcome nor the exact scope of any cancellation had yet been settled.

The project at the centre of the move is a development programme worth 22.9 billion won for a system that detects hostile small drones and jams their signals, either pushing them off course or bringing them down. MBC said the South Korean military is treating that kind of defence as essential, given how drones have been used in the war in Ukraine and the combat experience North Korean troops have gained against drone attacks.

LIG D&A employees are on trial on charges that they paid a procurement agency official several hundred million won in bribes to win favourable evaluations across six defence projects worth a combined 91.5 billion won, the counter-drone programme among them. MBC put the alleged bribes at 460 million won. Dong-A Ilbo has reported that three of those six projects are linked to technology for South Korea's planned electronic warfare aircraft.

The difference between the two penalties is significant. Under the bidding ban approved on 20 October, LIG D&A cannot enter new competitive tenders for two years but can still be awarded negotiated contracts without competition. Losing its designation for a programme would remove its standing as a recognised producer of that equipment, which MBC said would rule out even negotiated contracts and amounts to the toughest administrative sanction available.

The agency is also weighing whether to revoke the company's certification under the defence cost management system, MBC said, over allegations that bribe money was folded into subcontract payments so that it looked like ordinary development spending. If that certification goes, the agency plans to recover a 1 percent bonus margin it has paid to certified firms, a sum MBC estimated at several tens of billions of won. Hankook Jeongkyung said the committee also approved a separate six-month bidding restriction over the cost fraud.

LIG D&A told MBC it deeply regretted that sanctions were being discussed on the basis of an indictment while the trial is still under way, and said it would explain its position through the proper procedures. The company had already filed in court on 22 October for a stay of the bidding ban and for its cancellation, Yonhap reported. The ban is due to take effect on 29 October, and the firm disclosed that government and public-sector customers accounted for 64.5 percent of its consolidated sales last year.

The case lands as LIG D&A carries some of Seoul's most prominent missile work. Earlier this month the company was chosen as system integrator for a domestically developed long-range air-to-air missile for the KF-21 fighter, a contract due by the end of the year, and Dong-A Ilbo reported that some lawyers and industry figures now argue the bidding ban should also cost the firm that preferred-bidder position. TaiwanDefence reported the original bidding ban on 20 October.

According to MBC, the procurement agency changed its rules in July so that it seeks sanctions in criminal cases from the point of indictment rather than waiting for final court rulings, after some earlier penalties ran out of time before verdicts arrived. A decision from the trade ministry on the designation would test how far that tougher approach reaches.