Lopholes in Indian Defence Procurement Procedure

April 10, 2012 - PRLog -- Corruption in defence procurement is high treason. The fundamental question is why, despite being the world’s largest arms importer, India’s defence forces are woefully unprepared. And a large part of the answer has to be corruption.
There are chances of corruption in any process which has multiple stages, or if the paper work goes through a number of officers and government servants for their stamp of approval. From the time a need is felt until the contract is finalised, the equipment itself has to go through a number physical tests and verifications for performance and quality. It is said that to sell any piece of equipment to the armed forces in India, you should not only have deep pockets  but also be prepared to go through the whole process twice and tire out the competition.
The Defence Procurement Procedure (currently the 2011 edition) covers all Capital Acquisitions, (except medical equipment) undertaken by the Ministry of Defence (MoD), Defence Services and Indian Coast Guard, both from indigenous sources and through import. Defence Research and Development Organisation (DRDO), Ordnance Factory Board (OFB) and Defence Public Sector Undertakings (DPSUs), however, continue to follow their own procedures for procurement.
Capital acquisitions are done under the 'Buy' decision, meaning outright purchase of equipment. Based on the source, this category is classified as 'Buy (Indian)' and 'Buy (Global)'. 'Buy Indian' must have minimum 30 per cent indigenous content. Acquisitions under the 'Buy & Make' Decision mean purchase from a foreign vendor followed by licensed production/ indigenous manufacture in the country. Acquisitions under the 'Buy & Make (Indian)' mean purchase from an Indian vendor including an Indian company forming joint venture/ establishing production arrangement with OEM followed by licensed production/indigenous manufacture in the country. 'Buy & Make (Indian)' must have minimum 50 per cent indigenous content on cost basis. Acquisitions under the 'Make' decision include high technology complex systems to be designed, developed and produced indigenously. Upgrades to in-service weapon systems and equipment are also covered by this procedure.

Acquisition Process
The acquisition process for schemes categorised as 'Buy' and 'Buy and Make' with transfer of technology (ToT), involve the following steps:
•   Formulation of the Services Qualitative Requirements (SQRs).
•   Acceptance of Necessity (AON).
•   Solicitation of offers.
•   Evaluation of Technical offers by Technical Evaluation Committee (TEC).
•   Field Evaluation.
•   Staff Evaluation.
•   Oversight by Technical Oversight Committee (TOC) for acquisitions above Rs 300 crores.
•   Commercial negotiations by Contract Negotiation Committee (CNC).
•   Approval of Competent Financial Authority (CFA).
•   Award of contract / Supply Order (SO).
•   Contract Administration and Post-Contract Management.
These steps, by themselves, do not lend to corruption. These only show that the process is a long one and explains why delays take play just because of the procedure alone.
The real loopholes and windows of corruption lie in the maze through which the files and recommendations must move during each step. Consider the text in italics below.
The capital acquisition process goes through the following:
Services Qualitative Requirements (SQRs). QR formulation is the job of the Service HQ and the Joint Staff. The Service HQ is expected to obtained inputs by issue of Request for Information (RFI) through maximum manufacturers. The list of manufacturers is itself to be made with reference to defence attaches, internet and defence journals/magazines/ exhibitions, or previously contracted cases. It's easy to miss out some manufacturers. Moreover, it is possible to 'fix' the QR, so that, like in the case of a senior officer having visited a foreign country sees a demonstration and is impressed with a particular system and wants it for the Service. On return the QR is made to tailor-fit that system.
Acceptance of Necessity. The statement of case prepared by the Service HQ is examined by the HQ Integrated Defence Staff (IDS) for interoperability and commonality of equipment for the three Services. The categorisation committee approves cases of the three Services under the delegated powers to the three Services up to Rs 50 crores and recommends cases beyond Rs 50 crores and up to Rs 100 crores to the Defence Procurement Board (DPB) and beyond Rs 100 crores to the Defence Acquisition Council (DAC) for final approval.
In cases where ToT is being sought, the appropriate Production Agency (PA) is approved by the DAC. The PA could be selected from any of the public/private firms including a joint venture company based on the inputs from Dept of Defence Production and, if required, from DRDO. While selecting private firms, sometimes the government may use its discretion.
Solicitation of Offers. After acceptance of necessity, a 'Request for Proposal' (RFP) is issued soliciting the technical and commercial offers together, in two separate sealed envelopes, from the vendors short-listed by the Service HQ. The short-listed vendors should be the Original Equipment Manufacturers (OEMs)/ Authorised Vendors/ Govt Sponsored Export Agencies.
The RFP is vetted by the Technical Manager, the Service HQ and the Integrated Financial Adviser. The RFP is issued by the Technical Manager after approval of the Deputy or Vice Chiefs or CISC.
In case of 'Buy and Make (Indian)', RFP is issued only to Indian vendors, who are assessed to have requisite technical and financial capabilities to undertake such projects. To assess that, the Service HQ prepares a Capability Definition Document, floated to Indian firms who are known to have requisite technical and financial capabilities to undertake such projects. These Indian firms are themselves short-listed on the basis of the responses to RFI and through interaction with representatives of industry association.
The list of short-listed vendors may be supplemented by the Technical Managers in Acquisition Wing for which, a data bank is maintained by them.
Based on advertisements vendors may be asked to send their request to the concerned Technical Managers. No addition of the vendors is allowed after issue of the RFP. However, it is open for the Acquisition Wing in MoD to procure 'Commercially Off the Shelf' (COTS) equipment, not available on DGS&D rate contract on the basis of open tenders.
Opening of Tenders. The offers are opened on the notified date and time, by the members of a committee chaired by the Technical Manager, in the presence of the bidders or their authorised representatives. The committee opens the envelope containing the sealed technical and commercial offers. The technical offers are sent to Service HQ for evaluation by a Technical Evaluation Committee (TEC) and the sealed envelopes containing the commercial bids are sent to the Acquisition Manager, unopened.
Single Vendor Situation. If certain state-of-the-art equipment being manufactured by only one vendor is to be procured to get qualitative edge over our adversary, then such case are debated by the DAC after proper technology scan is carried out by HQ Integrated Defence Staff in consultation with the DRDO. Of late, the government has avoided the single vendor situation by contracting the equipment, on government-to-government basis without bids, under the direct Foreign Military Sales arrangement in case of US systems.
Cases undertaken by DRDO/ Defence PSUs /OFB, as design and development projects, do not fall in the category of Single Vendor cases.
Evaluation. The evaluation of Technical Offers is done by the Technical Evaluation Committee (TEC). Field trials, where required, at No-Cost-No-Commitment basis, are carried out by the Service through their trial teams in various parts of the country. read more in the Indian Military Review....

# # #

IDYB Group publishes the monthly magazine Indian Military Review (IMR), the annual Indian Defence Yearbook and the Defence Trade Directory & Buyer's Guide.