November 14, 2014 / 4:21 AM / 3 years ago

BAE sues South Korea to block claim over canceled F-16 upgrades

SAN DIEGO, Calif., Nov 13 (Reuters) - The U.S. unit of Britain’s BAE Systems Plc on Thursday filed suit in a U.S. federal court to block South Korea’s demand that the company pay $43.26 million to Seoul for costs incurred in a now-canceled program to upgrade F-16 fighter jets.

In the lawsuit, BAE asked the judge to agree that a $43.26 million bid bond it had signed earlier with Seoul was nullified when the U.S. government decided to negotiate the F-16 upgrades as a foreign military sale, rather than a direct commercial sale between South Korea and BAE.

The suit filed Thursday in U.S. District Court for the District of Maryland was the latest twist in an unusually public and increasingly heated drama about a ground-breaking weapons deal that would have been worth over $1.7 billion.

The U.S. government, at South Korea’s request, on Nov. 5 cancelled BAE’s preliminary $140 million contract to design F-16 upgrades, after Seoul balked at a proposed $800 million increase in the U.S. Air Force’s estimated cost of the program.

U.S. officials told Reuters at the time that the case was “very unusual.”

South Korean officials are now expected to negotiate with Lockheed Martin Corp, the original manufacturer of the F-16s, although those talks have not yet begun.

BAE spokesman Brian Roehrkasses said the company filed the lawsuit in response to suggestions that Seoul could take legal action against the company, but declined to comment further.

He also addressed a South Korean press report which said that BAE received special treatment when it first won the F-16 upgrade contract, because the Korean official who made the decision was the younger brother of the man who was then vice president of BAE Systems International Korea.

“BAE Systems has strict conflict-of-interest policies that it follows for all programs and activities,” Roehrkasse said. “When a potential issue with a long-standing employee in Korea was identified, appropriate action was taken to avoid any conflict of interest.” (Editing by Stephen Coates)

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