Of Matters Military. Mrinal Suman
had to be specifically communicated to all the vendors at the trial location itself.
Transfer of Technology
Production agency nominated to receive transfer of technology could be a public or private sector firm, based on the inputs received from the Department of Defence Production. If a joint venture company had participated in the tender, then the company would qualify only if it had the ability to absorb the technology as per the RFP requirements. Provision was also made for the transfer of technology for maintenance infrastructure as well.
Commercial Negotiations
In a multi-vendor situation, contract could be concluded with L1 without any price negotiations. However, negotiations might be held in exceptional circumstances where valid logical reasons existed. In single vendor cases, the Commercial Negotiation Committee was required to establish a benchmark price before opening the commercial offer. If the quoted price was found to be within the benchmark fixed, no further price negotiations were required. RFP had to mention this aspect. It was a very ingenious provision and was expected to cut down delays caused by long and protracted price negotiations.
Offsets
Detailed guidelines for the fulfillment of offset obligations, issued earlier in July 2006, were incorporated in DPP-2006. The policy was made applicable to all purchases where indicative cost was over Rs 300 crores for ‘Buy’, ‘Buy and Make with Transfer of Technology’ and ship-building projects. DAC could prescribe offsets higher than 30 percent for specific cases. For joint ventures where Indian firm was bidding, the foreign partner had to discharge the offset obligations.
Offset obligation could be discharged through any of the following routes:-
Fall Clause and Integrity Pact
Every bidder was required to give an undertaking that he had not supplied a similar item at a lower rate to any department of the Government of India. If it was found at any stage that the said item had been supplied at a lower price, then that very price with due allowance for quantities and intervening time period would be applicable to the case in hand. The vendor would be required to refund the extra amount, if already received.
For all procurements of over Rs 100 crores, a pre-contract integrity pact would be signed between the government and the vendors, wherein the government and the bidders promise not to accept and offer bribes respectively during the procurement process. The pact would be a binding agreement between the government department and the bidders for specific contracts.
The government would appoint independent monitors for the purposes of the pact, in consultation with the Central Vigilance Commission. As soon as the monitor noticed, or believed to notice, a violation of the integrity pact, he would so inform the Head of the Acquisition Wing for further action.
Private Sector
DPP-2006 did not make any distinction between foreign and Indian companies or between private and public sectors. Indian companies started expecting enormous business opportunities, especially with offsets having been made mandatory for all major defence contracts.
Subsequent to the acceptance of the Kelkar Committee Report, a scheme to accord recognition to private sector industry leaders was proposed. Those identified as “Raksha Udyog Ratnas” (RURs) were to be encouraged to assume the role of system integrators of large defence systems and producers of weapon platforms. RURs were to be treated at par with the public sector undertakings for all defence acquisition purposes, including undertaking licenced production with transfer of technology from overseas sources.
Emergent Procurements
For emergent acquisitions, the government reviewed and modified the existing fast track procedure. Fast Track Procedure – 2006 (FTP-2006) aimed at a time limit of 112 to 154 days from the date of initiation of the proposal to the date of signing the contract. Deliveries were to be completed between 3 to 12 months after the contract had been signed.
As in the previous procedure, FTP-2006 could be adopted only for those requirements that related to an imminent operational situation or a crisis without warning. The need had to emanate from the Service Chief. The proposal was required to be put up to the Defence Minister with the recommendations of the Defence Procurement Board. As time was of essence in such procurements, FTP-2006 was to be applied to items which were likely to be available within the laid down time frame.
Conclusion
DPP-2006 was a very exhaustive document which aimed at promoting transparency and competition. However, there were two issues that continued to be a cause for major concern. First, DPP-2006 had not tried to identify reasons for delays and take corrective action to affect reduction in the time taken to finalise procurement deals. Secondly, a number of features remained mired in impreciseness and uncertainty. For example, provisions relating to execution of ‘Make’ cases, implementation of integrity pact and fulfilment of offset obligations lacked clarity and left many questions unanswered. As reforms are a continuous process, future reviews of the procedure were expected to address these issues.
Defence Procurement Procedure – 2008
Defence Minister AK Antony released the much awaited updated version of the defence procurement procedure at New Delhi on 01 August 2008. The new procedure was claimed to be a major step in government’s endeavour to make the process of defence procurements more efficient. Called Defence Procurement Procedure – 2008 (or DPP-2008 in short), it was applied to all cases where the Request for Proposals (RFP) was issued after 01 September 2008.
Although DPP-2006 was a well evolved and an exhaustive policy document, it failed to address many critical issues. First, far too many procurement cases continued to result in single vendor deals despite the government’s repeated assertions that it wanted to promote competition. Even Comptroller and Auditor General of India during performance audit of import contracts for the Army between January 2003 and March 2006 noted with concern that 66 percent cases were single vendor buys.
Secondly, India’s trial and evaluation methodology was faulted for lack of transparency and adhocism. Most vendors felt that inter-se assessment of competing equipment lacked objectivity due to the ingress of extraneous factors. They also wanted to be kept informed of the performance of their equipment at every stage. Thirdly, formulation of Services Qualitative Requirements (SQR) was considered over-ambitious, impractical, imprecise and unverifiable. Although DPP-2006 mandated that user requirements should be comprehensive and given in terms of functional characteristics, it was felt that the functionaries continued to prepare SQR like a wish-list with total disregard to the equipment available in the market.
Another major concern expressed by foreign vendors related to the provisions of the newly introduced offset policy. They felt that the Indian defence industry was not developed enough to absorb anticipated quantum of offset inflows. As offset obligations had to be fulfilled co-terminus with the main contract, they were apprehensive that default by Indian partners could adversely affect the implementation of the main contract. They wanted the government to allow offset banking under which foreign vendors could undertake offset programmes in anticipation of future obligations. Acceptance of indirect offsets (in sectors unrelated to defence) and transfer of technology against offset obligations were other major demands.
Fifthly and finally,