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Defence Procurement Procedure 2009 to Encourage Indigenous Defence industry Print E-mail
Written by Anand   
Friday, 30 October 2009
New Delhi: The Defence Procurement Procedure (DPP) has been amended to encourage the indigenous defence industry. The amended DPP, with liberalized offset provisions and mandatory RFI for all procurement cases, will take effect from November 01, 2009.

Defence Minister Shri Antony said the twin objectives of DPP-2009 aim at promoting and facilitating wide participation of Defence Industry, while enabling transparency and integrity in all acquisitions.

In a move that has the potential to revolutionize the Indian Defence Industry, the Ministry of Defence is adding a new provision in its procurement procedure which will allow issue of Request For Proposal (RFP) to Indian industries having requisite financial and technical capabilities to absorb technology and undertake indigenous manufacture under a new category ‘Buy and Make (Indian)’.

A new category of “Buy and Make (Indian)”

Under the existing procedure, if an item is categorized as ‘Buy and Make’, a production agency is identified by the government for transfer of technology. The process requires negotiations by the Ministry of Defence (MoD) with the foreign Original Equipment Manufacturer (OEM). Negotiations are carried out both for the “Buy” component as well as the “ToT” component. Past experience has shown that this has not helped in building up higher technical capabilities. The technology transfer has been essentially transfer of engineering skills for production of some of the non critical components. The critical items are invariably obtained from the foreign OEM. This method has also not encouraged formation of Joint Ventures (JVs) or alliances for co-production with Indian companies.

The amendment in DPP-2008 introduces a new category named, ‘Buy and Make (Indian)’ to overcome the above situation. If a project is selected by the Defence Acquisition Council to be categorized as ‘Buy and Make (Indian)’, Indian firms, both public and private, will play   a   lead    role    in   negotiating    and    obtaining technology   and co-production arrangements with the foreign OEMs. As such, the RFP will be issued to the Indian firms and not to the foreign OEM.

Indian firms identified to have requisite technical and financial capabilities would be required to submit project proposals indicating detailed roadmap for development and production of the items over its life cycle. They will also be required to spell out the proposed production arrangement with the foreign OEM along with the content of the T0T. The product so manufactured and supplied by the Indian company must have 50% indigenous content.

The approach under this category is more akin to ‘Make’ procedure; albeit, the development and production would not be through indigenous R&D but through transfer of technology from the foreign OEM. This change in DPP-08 would enable pro-active participation of Indian industry in manufacturing defence products through co-production arrangements, such as JV, with foreign manufacturers and through transfer of technology.

Sharing information with private industry

A major impediment in the growth of defence industry in the country has been lack of information with the domestic industry on defence requirements. Such information has generally been treated as classified. Consequently, the indigenous industry is unable to plan R&D technology, upgradation or joint collaboration with associated foreign industries. Under Amendment 2009 to the DPP-2008, a public version of the Long Term Perspective Plan of the Armed Forces outlining technology perspective and capability roadmap covering a period of 15 years will be widely publicized and made available on MoD website. Further, to facilitate active participation of domestic industry in acquisition planning, representatives of companies and Industry Associations will be invited for presentations and consultations in procurement meetings before decisions on the source of procurement are taken.

“This would help Indian Industry to work out the technological requirements and build in-house capabilities in order to meet the future defence requirements. I am sure that the industry will respond positively to this proposal”, the defence minister said.

Role of Independent Monitors in Integrity Pact

To enhance probity in Defence procurement deals, DPP-2009 proposes to enhance the role of Independent Monitors, to scrutinize complaints with regard to violations of Integrity Pact which prohibits corruption in Defence deals.

An ‘Integrity Pact’ is presently required to be signed between government and the vendors for all procurement schemes over Rs. 100 crores. This is a binding agreement between the government department and bidders for specific contracts in which the government promises that it will not accept bribes during the procurement process and bidders promise that they will not offer bribes. The existing provision provides for appointment of Independent Monitors (IM) in consultation with the Central Vigilance Commission. The role of Independent Monitors was, however, very limited and undefined.

The Amendment-09 defines and enlarges the role of IMs to enable them to scrutinize complaints with regards to violation of Integrity Pact. The amendment explicitly authorizes IMs to peruse the relevant office records in connection with the complaints sent to them by the buyer. This amendment will enhance probity and public accountability.

Improvement in formulation of SQRs

The bedrock of a successful acquisition process is clearly identifiable and well researched Service Quantitative Requirements (SQRs). With that objective in view, following amendments have been made:-

a) The requirement of issue of Request for Information (RFI) is being made mandatory for all procurement cases. This not only provides advance information to the industry about the procurement but also helps SHQ to formulate SQRs based on readily available technology in the world.

b) SQRs must clearly express the user’s requirements in terms of essential capabilities which are transformed into minimum verifiable functional characteristics of the equipment being proposed for procurement.

c) Tabulated data of capability vis-à-vis functional characteristics and SQR vis-à-vis technical parameters of available equipment will   be appended   to   all proposals   being placed before the Defence Acquisition Council / Defence Procurement Board. In this way, all agencies involved in the procurement process will be aware of the type of equipment being sought.

Modification in Offset guidelines

It is felt that there should be greater leverage allowed to vendors in determining the manner of performing their offset obligations. The primary concern of MoD is that the vendor should be held to account for performing offset obligations undertaken by him.

Once this is ensured, our primary concern is met. To liberalize the offset provisions, it has been decided that the vendor may be permitted to change offset partner if such change would enable the vendor to fulfill offset obligation. However, no change would be allowed in respect of the offset components or its value after the offset contract is signed.

In ‘Option Clause’ cases, the terms of contract remains the same as given in the original contract. As such, if no offset is included in the main contract, it is not contractually possible to load the offset obligations. Under the Amendment-2009 to the DPP, offsets will not be applicable in ‘Option Clause’ cases where the same was not envisaged in the original contract.

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