New policy ignores life-cycle cost factor for defence deals

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The Defence Procurement Policy (DPP)-2008, announced earlier this month, seems to have overlooked a critical clause—that of life-cycle cost (LCC)—while purchasing arms and weapons. LCC finds a small space in the new policy. The only transaction where the government is taking good care to incorporate the clause is the $10-billion 126 medium multi-role combat aircraft (MMRCA) deal for the Indian Air Force (IAF). The smaller deals of a similar nature, however, are remarkably silent on this aspect.

Senior officers from the defence ministry talking to FE on condition of anonymity said, “Though the government has been talking about including LCC clause in the big deals, not much has been done to incorporate changes in the request for proposal (RFP) and include LCC in it, despite the government’s repeated commitment to do so. However, inclusion has been done on a case-to-case basis, as in case of MMRCA.”

The new procurement policy just has a couple of lines on the life cycle cost. The DPP-2008 on LCC states, “OEM shall provide all the details like operating cost, maintenance cost, overhaul cost, training cost etc per squadron of aircraft, required to estimate the life cycle cost of the aircraft.”

Infact, recently when the government sent RFP for 12 state-of-the-art attack helicopters, which were to replace the old 20-ton Mi 26 helicopters, there was no clause on the LCC.

Sources said, “We will go for the manufacturer who offers lowest price for the machine, but we fail to understand that the machines, which seem inexpensive at the time of purchase, will subsequently cost more due to high maintenance costs. “

“How does one calculate life-cycle cost? This is a new area, so we have to devise a formula. Thus, in order to get down to a consensus and to make sure it’s fair, it will take some time,” said a senior air force officer.