By Amit Cowshish

Of the six amendments made by the Ministry of Defence (MoD) on April 13 to various provisions of the Defence Acquisition Procedure (DAP) 2020, three relate to simplification of procedure for acquisition of products developed by the Indian companies under iDEX (Innovation for Defence Excellence) and Make-II categories.

The official Press Release of April 25 claims that with this simplification, the time taken from the stage of Acceptance of Necessity (AoN) -essentially approval in principle for issuing the tenders- to signing of the contract will reduce to 22 weeks for iDEX cases, and from the existing timeframe of 122-180 weeks to 101-109 weeks for the Make II cases.

The iDEX scheme was launched in April 2018to encourage the Indian industry including the MSMEs, start-ups, R&D institutions, individual innovators, and academia to provide solution to the technological problems identified by the armed forces and Defence Public Sector Undertakings (DPSUs) from time to time and thrown open to the interested parties by way of ‘challenges’ based on problem statements. Five rounds of challenges have been completed so far while the sixth round is open till June 6, 2022.

The Make-II category too has the analogous objective of promoting indigenous design and development of equipment and platforms, systems and sub-systems,assemblies and sub-assemblies, components, ammunition, and software, apart from upgrades of the in-service equipment, by the Indian industry, primarily for import substitution.

It is not known how many contracts have been awarded so far under the aforesaid categories, but evidently the most enthusiastic response has been from the MSMEs, start-ups, individual innovators, and the academia. They should be happy about the reduction in the overall time it would take for award of a contractifthe MoD, whose record on this count is foggy, is able to adhere to the abridged timeframe.

As an aside, the claim that these procedural changes will drastically reduce the processing time under the aforesaid categories also raises the question as to why similar magical solutions cannot found for curtailing the processing time for regular acquisition cases which, according to DAP-2020, ranges from a maximum of 98 weeks in multi-vendor cases to 118 weeks in resultant single-vendor cases. In reality, MoD has been struggling to finalise procurement proposals within this timeframe.

One of the remaining three amendments replacesIntegrity Pact Bank Guarantee (IPBG) with Ernest Money Deposit (EMD). Integrity Pact is an agreement between MoD and the vendors participating in a tender which binds the latter to refrain from adopting any corrupt means to secure a contract, and the former to ensure that none of its officials ask for bribes in any form for awarding the contract.

The bidders are required to sign a Pre-Contract Integrity Pact (PCIP)in all cases where the estimated value of procurement exceeds Rs 20 crore, and back it up with IPBG for an amount ranging from Rs 10 lakh to Rs 25 crore depending on the estimated value of procurement.

The IPBG has now been replaced with Ernest Money Deposit (EMD) in all cases where the estimated cost of procurement exceeds Rs 100 crore, with the deposit amount ranging from Rs 30 lakh to Rs 25 crore. The MSMEs are exempted from EMD, and so are the public enterprises when participating in a tender as the sole bidder.

Intended to safeguard the buyer against a bidder withdrawing or altering the offer during the bid validity period, EMDcan be submitted in the form of a bank guarantee, surety bond, demand draft, etc.

According to the amended provisions, the deposit instrument will be returned to the unsuccessful bidders after the bids are opened and the result declared. In the case of the successful bidder, however, EMD will be retained till the award of the contract, whereafter Performance-cum-Warranty Guarantee (PWG), which is required to be submitted in all cases immediately after singing of the contract, will serve as the backup guarantee for PCIP also. Discontinuation of IPBG will indeed reduce the financial burden of the vendors.

The rationale for IPBG was always questionable, as all transgressions, including breach of the integrity pact, are covered by the PWG. The practice of asking for IPBG was adopted by MoS without giving adequate thought to its efficacy. It was not a part of the Central Vigilance Commission’s recommendation based on which PCIP was adopted by various government departments, including MoD.

Another amendment relates to splitting of contracts. According to the amended provision of DAP-2020, the services are required to consider splitting of the total requirement among the successful bidders, based on ‘viable quantity / technological feasibility and sustainability factors’ and make suitable recommendations as regards the ratio in which the quantity is to be split while seeking AoN.

Though not invoked often, there has always been a provision for splitting the quantity between the first and second lowest bidders, provided the latter accepted the price and terms and conditions quoted by the former.But this could be done only where the intention to split the contract quantity was disclosed in the Request for Proposal (RfP).

The amended provision only seems to make it necessary to consider this possibility of splitting the quantity in all procurement cases as a matter of course. It could pose problems as the riders -viability, technological feasibility, and sustainability of splitting the quantity- lend themselves to subjective interpretations and result in protracted internal deliberations to resolve differences of opinion at every stage till the AoN is accorded.

The amended clause of DAP-2020 also provides that a certificate will be issued by the service headquarters concerned to other technically qualified bidders who are not awarded the contract indicating that the product had been successfully trial evaluated, to enable them to explore other markets. This is a good decision and to what extent it will help the unsuccessful bidders in making a pitch in the export market remains to be seen.

Last, but not the least, MoD has decided that no defence equipment shall be imported but if the Indian industry does not presently have the requisite capability in a particular case, steps will be initiated for development of an alternative indigenous product. However, if indigenousdevelopment and production is not feasible, ‘a categorical exception will have to be obtained’ from DAC (Defence Acquisition Council) or the Raksha Mantri (RM), as the case may be.

In simpler words, import of any defence equipment, weapon system or platform, irrespective of the value of procurement, will require DAC’s/RM’s explicit approval. Considering that the existing procurement guidelines -specifically from 2016- anyway mandate that highest priority is to be given to local sourcing, with import being the last resort, the stipulation that proposal for import will require DAC’s/RM’s approval adds a needless layer to the procurement process.

This stipulation applies to all categories of procurement including procurements under the Fast Track Procedure and emergency purchases. Subjecting these procurements to another layer of scrutiny by the DAC/RM, with no clarity about the grounds on which such proposals will be accepted or rejected, is intriguing. It seems to suggest that no one below the DAC/RM can be trusted to implement the government’s policy on indigenous sourcing of defence equipment. It also suggests that preventing imports is more important than meeting urgent operational exigencies.

(The author is Former Financial Advisor (Acquisition), Ministry of Defence. Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited).