AI robots, advanced tech to get public procurement fast track under new contract system

The government is moving to overhaul the national procurement contract system to generate early demand for innovative technologies, leveraging its 238 trillion won ($172 billion) annual public purchasing power.

Under the plan, companies selected through competitive bidding at the research and development stage for national strategic technologies would no longer need to go through a separate competitive tender when the government purchases the resulting products. For high-difficulty technology projects where specifications are hard to define in advance, a new contract model centered on "performance goals" — rather than deliverables — will also be introduced.

The government announced the plan, titled "National Contract System Reform to Promote Innovative Technologies," at a joint emergency economic council and economic ministers' meeting held Friday at Government Complex Seoul, chaired by Deputy Prime Minister Koo Yun-cheol, who also serves as minister of economy and finance.

Public procurement stood at 238 trillion won last year, equivalent to 9 percent of GDP. To channel that purchasing power into leading demand for innovative technologies, the government will establish three new contract tracks: a development-purchase linkage track, a performance-goal track, and a pilot special-exception track.

The development-purchase linkage track will apply to national strategic technologies. Currently, agencies must run separate competitive processes — one to select an R&D performer and another to purchase the resulting product. Under the new system, if genuine competition took place at the R&D solicitation stage, that will be deemed to satisfy the competitive requirement for the purchase stage as well. The National R&D Innovation Act will govern the R&D phase, and the National Contracts Act will apply from the point the project clears a success assessment and transitions to procurement.

Eligible technologies are those designated as national strategic or advanced technologies under the National Strategic Technology Act, the National Advanced Strategic Industries Act, and the Materials, Parts and Equipment Industry Act. A central government agency may apply, and the Ministry of Economy and Finance's procurement policy deliberation committee must approve the arrangement. Existing purchase-conditional R&D programs and the innovative-product regime, which focus on opening markets for small and medium-sized enterprises and venture firms, will continue to operate alongside the new system.

However, a successful development outcome does not automatically trigger the pre-agreed purchase. Success criteria, purchase scope and duration are set at the time of the project announcement, while actual volumes and unit prices are fixed at the time of purchase. If development targets are not met, or if demand disappears or the technology becomes obsolete in the interim, the contract may be adjusted or terminated following a review by the innovative contract deliberation committee.

The new framework would make it possible, for example, for the Ministry of Trade, Industry and Energy to conduct R&D on AI robots for public deployment while the police and the National Fire Agency participate as purchasing agencies. Under the current system, a new competitive tender is required after development is complete. Under the new system, purchase conditions would be set at the R&D solicitation stage, and once results are delivered, the agreed quantity could be procured without a re-tender.

A performance-goal contract track will be created for projects where technical complexity makes it difficult to specify detailed requirements or tasks at the ordering stage. It will not be limited to any particular industry and will apply to services as well as goods.

Whereas the existing "competitive dialogue" contract method offered flexibility only at the ordering and bidding stages, the new system extends that flexibility through the contract implementation stage.

Under the new model, a contracting agency presents performance goals rather than specific tasks, then works with companies through competitive dialogue to determine solutions. Options available include post-settlement through an estimated-cost contract, performance-linked payment, contract modification, immunity for good-faith failure, and joint ownership of intellectual property. Safeguards — including a project cost ceiling, cost verification, and review by the innovative contract deliberation committee — will accompany the expanded flexibility.

Space launch vehicle projects are a prime example of how the track would work. Korea AeroSpace Administration would set performance goals such as launch cost per mission and low-orbit transport capacity, select a contractor through competitive dialogue with bidders, and apply post-settlement and milestone-based payment arrangements. The government has in mind applying this contract model to space launch vehicle projects starting next year, provided the National Contracts Act passes this year.

The existing procurement pilot special-exception scheme will be expanded into a "procurement sandbox." Special exceptions, currently limited to matters such as how winning bids are determined, will be broadened to cover contract conclusion, implementation, and modification of contract terms. After a two-year pilot approved by the minister of economy and finance, a performance evaluation will determine whether to make the arrangement permanent.

The government plans to file an amendment to the National Contracts Act incorporating the three new contract tracks in September, with the aim of passing it into law before year-end. The bill will be pursued as part of a package of three so-called "new security laws," alongside the Ministry of SMEs and Startups' Special Act on Fostering Future New-Security Innovative Companies and the Ministry of National Defense and Defense Acquisition Program Administration's Advanced Defense Capability Projects Act.