Reasons for Proposal 

Starting with the localization of basic weapons such as rifles and mortars in the early 1970s, the Korean defense industry has made rapid progress over the past 50 years, including the localization of advanced weapon systems such as fighter jets and submarines as well as the export of defense technology, and in particular, defense exports have shown the world's highest growth rate (177%) over the past five years. Accordingly, the defense industry has grown into a promising future growth engine along with semiconductors, shipbuilding, and automobiles. 

Also, with the domestic and international security environment more threatening than ever, such as successive provocations by North Korea and the Russian-Ukrainian war, rapid deployment of state-of-the-art weapon systems is necessary to establish strong national security, and to this end, an institutional environment that encourages weapons system developers to engage in challenging research and development despite inevitable failures is desperately needed. 

However, under the current system, there are many obstacles that put a burden on companies and hinder their desire to develop, such as excessive compensation for deferment, restrictions on eligibility to participate in bidding, and complicated dispute procedures. 

In particular, the statutes governing national contracts currently applied to defense contracts do not consider the characteristics of defense contracts, which are long-term research and development that set and pursue challenging goals to secure high-level, cutting-edge technology, because they are based on application to construction, service, purchase of general materials, and simple manufacturing contracts. 

The application of such statutes without considering the specificity of defense contracts is going against the current trend of developing the defense industry as a future strategic industry and entering into the world's top four defense industries as well as rapid deployment of advanced weapon systems. 

Therefore, the enactment of this Act that reflects the specificity of defense contracts is intended to contribute to fostering the defense industry as a high-tech strategic industry that leads Korea's economic growth by creating a challenging research and development environment that supports the rapid deployment of advanced weapon systems and continuing the performance of defense exports by improving the competitiveness of defense companies at home and abroad.

Major Provisions

A. The purpose of this Act is to create a foundation for effective and stable defense projects and contribute to strengthening national defense and national security by regulating matters necessary to enhance the specificity and efficiency of defense contracts as a special case of the statutes of national contract (Article 1).

B. Establish and operate the Defense Acquisition Program Contracts Deliberation Committee to review and adjust matters such as compensation for deferment, contract changes, restrictions on eligibility to participate in bidding, and the imposition of penalty surcharges, raised by competent departments related to defense contracts (Article 4).

C. Require the submission of the written integrity pledge specified in the Defense Acquisition Program Act to increase the transparency and fairness of defense contracts, and provide grounds for action such as restrictions on eligibility to participate in bidding in case of violation (Article 5).

D. Prescribe matters related to contract conclusion such as type/method of contract suitable for the characteristics of the defense acquisition program, method of determining other successful bidders, and cost calculation (Article 6).

E. Stipulate that companies will be notified of the determination standards and methods for budget price and the standards/methods/procedures for down payment and interim payment by the Director of the Defense Acquisition Program Administration but in consultation with the Minister of Strategy and Finance (Articles 6 and 7)

F. Prescribe the matters on down payment and interim payment in correspondence with the characteristics of defense contracts to allow the down payment and interim payment to be payable for defense contracts concluded before that date even if the eligibility to participate in the bidding is restricted (Article 7).

G. Enable the provision of incentives such as giving additional points when determining a successful bidder for a contract object to which core technology, future disruptive technology, new technology, etc., are applied (Article 10).

H. Secure flexibility in contract execution by providing grounds for amending contracts or reducing compensation for deferment, and alleviate the excessive burden on defense industry businesses in case of delay in implementation due to force majeure, failure to faithfully carry out challenging research and development, or reasons attributable to the government, etc. (Articles 11 and 12).

I. Increase professionalism, security, and promptness by installing and operating an independent mediation body that reviews and mediates complaints/objections of companies related to defense contracts to enable a reduction in the excessive social costs of future litigation (Article 17).