Hello, I am Attorney Park Jong-han from Cheongchul Law Firm.

In acts performed by public institutions towards their contracting parties, there may be instances where a certain status and benefits are granted to the counterpart in accordance with relevant laws. For instance, when the Defense Acquisition Program Administration conducts quality management system certification for the counterpart, it results in the counterpart receiving a 10-point bonus to the total evaluation score at the point of cost calculation, ultimately resulting in a 1% increase in profit. Furthermore, when a research and development confirmation letter is issued, the relevant item is recognized to be in a position to enter into a defense procurement contract without competition through a negotiated contract process in relation to mass production.

The determination of whether the actions of a public institution qualify as administrative actions under the exercise of public authority can alter whether the contracting party can challenge them, necessitating an examination of the legal character of the act.

[Question]

If the status and legal benefit are granted to the counterpart due to the actions of the public institution, what is the legal character of such acts (including quality management system certification and cancellation, issuance of research and development confirmation letters, etc.)?

[Answer]

Administrative dispositions that are subject to administrative litigation refer to “the exercise of public authority as law enforcement concerning specific facts conducted by an administrative agency or its refusals and other corresponding administrative acts” (Article 2, Paragraph 1, Item 1 of the Administrative Litigation Act). Whether the act of the administrative agency can be the subject of an appeal cannot be determined abstractly or generally; instead, it must be individually determined in concrete cases by considering the contents and purposes of the relevant laws, the subject, content, form, and procedure of the act, the substantial relevance between the act and the disadvantages faced by third parties, as well as the principles of lawful administration and the attitudes of the administrative agency or interested parties regarding the act (refer to the Supreme Court ruling on November 18, 2010, case number 2008Du167 by the full bench).

If the actions of the public institution lead to the counterpart acquiring status and legal benefits, the legal nature of that act can be deemed as an exercise of public authority.

When a company is recognized to have established a quality management system that can guarantee the quality of military supplies in accordance with the quality management system certification criteria stipulated by the Ministry of National Defense, it will receive quality management system certification.

Such companies that have received quality management certification will recognize their management effort evaluation scores in the process of determining the 'profit,' one of the cost components, as set forth in the Military Cost Accounting Rules Articles 19 and 26, under the delegation of Article 46, Paragraph 3 of the Defense Acquisition Act, and Article 4, Paragraph 2 of the Regulations on Handling Contract Affairs Related to Defense Industry. This is, in essence, a prior procedure to determine the estimated price, which should be established by negotiating the contract price with the contracting party when the government enters into contracts regarding the procurement of military supplies, etc. Thus, receiving an additional 10 points at the point of cost calculation results in an ultimate increase of 1% to the profit to be determined.

Accordingly, obtaining quality management system certification grants a certain status and benefits according to the relevant laws. These statuses and benefits are legally significant benefits closely related to substantial rights of the counterpart as specified in the laws concerning the Defense Acquisition Act and relevant certification work regulations. Furthermore, the statuses and benefits altered through achieving quality management system certification may provide competitive scores or points for domestic research and development projects, general competitive bidding eligibility evaluations, or allow exemption from part of government quality assurance activities, which represent a special legal status in entering or executing general procurement contracts for military supplies.

Thus, quality management system certification corresponds to a disposition involving the exercise of public authority which occurs as a law enforcement action that dictates whether the target company meets the certification requirements according to the relevant laws and brings about other legal effects (refer to the Supreme Court ruling on April 29, 2021, case number 2021Du31122, and the Seoul High Court ruling on December 4, 2020, case number 2019Nu49894). Consequently, if disputes arise regarding the aforementioned quality management system certification or its cancellation, they must be contested through administrative litigation.

When the Defense Acquisition Program Administration or other business management agencies issue a research and development confirmation letter, this refers to an administrative act that acknowledges the development company’s eligibility as a result of successfully executing military-use appropriate judgment on the power support system research and development project under the ‘Company Investment Research and Development’ method or ‘Government and Company Joint Investment Research and Development’ method, thus allowing them to enter into a defense procurement contract without competition (this acknowledges the existence of exceptions for competitive bidding) and is regarded as a disposition involving the exercise of public authority, whereas the refusal to issue such a research and development confirmation letter corresponds to a refusal disposition arising from the rejection of the issuance of a disposition requested.

Even if the development company successfully conducted the power support system research and development project, it does not necessarily possess the right to demand the conclusion of a negotiated contract regarding the item. However, the determination made by the business management agency regarding whether to issue a research and development confirmation letter is a separate confirming administrative act conducted before deciding on concluding the negotiated contract. Therefore, if the development company meets the issuance requirements specified in Article 113-5, Paragraph 1 of the Military Power Development Directive, the confirmation letter must be issued. It should not be refused solely on the grounds that they have not received related national defense budgets or that the item may fall behind on the priority list for military supplies and thus will not enter into a negotiated contract immediately (refer to the Supreme Court ruling on January 16, 2020, case number 2019Da264700). In summary, the determination by the business management agency regarding whether to issue the research and development confirmation letter is a separate confirming administrative act conducted before concluding the negotiated contract, and if the issuance requirements are met, the agency must issue the research and development confirmation letter before considering whether to conclude a negotiated contract.

In this way, we have briefly examined whether the cancellation of supplier registration and trading restrictions imposed by public companies in accordance with their guidelines constitutes an administrative disposition and the criteria for its legality. In disputes related to national contracts and public procurement, the relevant laws are exceedingly complex and frequently amended; thus, familiarity and experience with them are essential, including both court rulings and the administrative agency’s interpretations and disposition cases. Therefore, it is highly recommended to seek the assistance of a lawyer who possesses expertise in national contract laws and experience in resolving various national contracts and procurement disputes.

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