Of Matters Military. Mrinal Suman
such credits lapsed unless discharged against tenders issued within a period of two financial years. Generation of bankable offsets required considerable infusion of resources. As no vendor could be assured of a contract within the stipulated time period, he needed a suitable exit option to recover his costs. Therefore, whenever offset banking is allowed, trade in offset credits has to be accepted. Both are intrinsically and mutually contingent. The new policy neglected this aspect.
Conclusion
India is one of the largest buyers of weapons and defence equipment in the world. It was essential that India had a dynamic and responsive procedure in place to ensure expeditious procurement by optimally utilizing allocated budgetary resources. An environment of confidence and faith in the system can be built only through probity and public accountability.
Management of offsets is a highly intricate and complex task. As regards development of high-tech complex systems, not a single project had taken off in the previous two years as the ‘Make’ procedure was highly skewed. Additionally, the Defence Research and Development Organisation should have been made accountable through external audit. DPP-2008, unfortunately, failed to correct this infirmity.
Amendments to Defence ProcurementProcedure – 2008
With a view to integrate the private sector in defence production, the Ministry of Defence (MoD) issued a set of amendments to DPP-2008 on 01 November 2008. The professed objective of these amendments was – “to provide encouragement to the indigenous defence industry to play a major role in meeting the needs of the armed forces, ensuring transparency and accountability in all procurement cases and liberalising offset provisions to enable vendors to fulfill their obligations”.
In addition to introducing a new procurement category to encourage joint ventures, the new amendments also contained certain enabling and amplificatory provisions.
Illustration 1: Categories of Procurement Proposals
Earlier, the Defence Acquisition Council (DAC) categorised all acquisition proposals as ‘Buy’, ‘Buy and Make’ and ‘Make’ cases. ‘Buy’ implies outright purchase of the complete quantity required. ‘Buy and Make’ entails initial purchase of limited quantity in fully built up form, followed by licenced production in India of the balance requirement. Finally, ‘Make’ cases refer to indigenous development of the equipment. With new amendments, the government introduced another category called ‘Buy & Make (Indian)’. See Illustration 1.
With a view to share the future needs of the armed forces with the industry, it was decided to put up a public version of perspective document outlining the technology perspective and capability road map covering a period of 15 years on MoD website. In acquisition cases where participation by Indian industry was considered probable, representatives of industry associations were to be invited by the Categorisation Committee to seek their views and clarifications, if any. However, these representatives would not be present during the decision making meetings.
‘Buy & Make (Indian)’
Based on the Capability Definition Document (CDD) prepared by the concerned Service Headquarters (SHQ), DAC could select a project under the new ‘Buy & Make (Indian)’ category. CDD would outline the requirement in operational terms and briefly describe the present capabilities determined on the basis of the existing equipment and manpower. SHQ would indicate long term requirement in terms of numbers, time schedule, immediate fund availability and the critical technologies to be absorbed by the Indian vendor, as identified by the Defence Research and Development Organisation (DRDO).
Illustration 2: Stages of ‘Buy and Make (Indian)’ Procedure
Indigenously manufactured products were to have minimum 50 percent indigenous content on cost basis. The Indian partner was to absorb the identified critical technologies, 50 percent of which would be in respect of items for which engineering and manufacturing documentation were to be provided to the Indian vendor to enable him to carry out fabrication, assembly and testing. See Illustration 2.
For acquisitions under this category, the Request for Proposals (RFP) were to be issued only to Indian public and private sector companies that were assessed to possess requisite technical and financial capabilities to undertake such projects. It was left to them to negotiate transfer of technology and finalise co-production arrangements with the foreign manufacturers.
Short-listing of Indian companies for the issuance of RFP was to be carried out on the basis of the Detailed Project Proposal submitted by them in response to CDD. Companies were required to outline the roadmap for development and production of the item either by themselves or through any production arrangement with a foreign producer. The proposal had to spell out details of the proposed work-share and transfer of technology, both in range and depth. Once RFP was issued to the selected companies, the standard procedure described for ‘Buy and Make’ category would have applied.
‘ Make (High-tech)’
The process would start with respective SHQ forwarding Preliminary Services Qualitative Requirements (PSQR) in respect of all proposals included in the Long Term Integrated Perspective Plan (LTIPP) to Headquarters Integrated Defence Staff (HQ IDS). Each project would be put through detailed feasibility study by HQ IDS with respect to estimated capital expenditure, proposed sharing of developmental costs, likely development agencies and minimum order quantity envisaged. Projects considered fit to be undertaken as ‘Make (High-tech)’ would be identified and submitted to DAC for obtaining necessary approval.
All ‘Make (High-tech)’ cases would thereafter be processed by the Acquisition Wing, with Integrated Project Management Teams (IPMT) constituted for each project. IPMT would be headed by service officers with members from different disciplines and agencies. Based on PSQR for the project, IPMT would prepare a Project Definition Document (PDD) defining system requirements in detail and spelling out anticipated time and cost requirements. It would also suggest exit criteria in case of unsatisfactory progress. Firms (both from public and private sectors) empanelled by DDP would be given PDD and invited for Expression of Interest (EoI).
Responses to EoI would be scrutinised by IPMT to make a detailed assessment of design and manufacturing capabilities of all respondents. Plans and roadmap for the development of critical technologies would also be appraised. List of short listed competent firms would be forwarded to the Defence Production Board through the Acquisition Wing. Normally, two agencies would be selected as per the laid down criteria.
Both the selected firms would prepare Detailed Project Reports (DPR) including scope of work in terms of PSQR, development phases and time schedules. Once IPMT is satisfied, it would progress DPR to the Acquisition Wing for approval. Financial approval would be accorded by the Competent Financial Authority and necessary orders issued to both the firms. IPMT would carry out regular monitoring during development phase and submits periodic reports to the Acquisition Wing, which in turn would keep the Defence Production Board duly informed.
Illustration 3: Stages of ‘Make (High-tech)’ Procedure
Once prototypes got ready, their technical evaluation, including field trials, would be carried out by the concerned SHQ. After the acceptance of staff evaluation report by MoD, commercial negotiations would be carried out as per the normal ‘Buy’ procedure. Orders for limited series production would be placed