Defence procurement process is a game of snakes and ladders

August 31, 2021 12:04 PM

It is not for nothing that the process of defence procurement in India is analogised to the age-old game of snakes and ladders -a game quite likely invented in the 2nd century BC in India when it went by the name of Mokshapat or Moksha Patamu, though some believe that it was invented much later by Saint Gyandev in the 13th century AD.

Defence procurementIn the defence procurement process, there are fewer ladders and a far greater number of snakes. (Representational image: Reuters)

By Amit Cowshish, 

It is not for nothing that the process of defence procurement in India is analogised to the age-old game of snakes and ladders -a game quite likely invented in the 2nd century BC in India when it went by the name of Mokshapat or Moksha Patamu, though some believe that it was invented much later by Saint Gyandev in the 13th century AD.

Whatever be the origins of the game, it seems to have influenced the authors of the defence procurement procedure. In both cases, the rules of the game must be strictly abided by and there is no getting away from its vicissitudes. With some luck in rolling of the dice you could reach the destination very fast, climbing one or more ladders along the way, or conversely, a bad run with the dice could push you straight into the snake’s mouth and bring you down to square one just as you thought you were about to conclude the journey.

There is a major difference, though. In the defence procurement process, there are fewer ladders and a far greater number of snakes. No wonder then that many procurement proposals remain in play for decades several years after these are initiated and, in some cases, ultimately forsaken without so much as a requiem.

In a broad sense, the procurement proposals stem from the Integrated Capability Development Plan of the services which envisages the entire range of capabilities required to discharge the multifarious operational responsibilities cast upon them. Acquisition of these capabilities may entail procurement of new equipment or platforms, or upgradation of the existing inventory.

Having identified the operational requirement, the procurement process is initiated by the services by issuing Request for Information (RfI) to the prospective suppliers to obtain all manner of information needed to formulate a composite procurement proposal.

The focus of the RfI, of course, is on soliciting information required for formulating the qualitative (QRs), or specifications, of the equipment that meets the operational requirement, and estimating the cost of procurement. It is a task that is seldom carried out to perfection, which is why in several cases, the services have to go back to the drawing board and reformulate the QRs.

Once the procurement proposal is ready, it is put in the pipeline for obtaining the Acceptance of Necessity (AoN) – the officialese for approval-in-principle to start the tendering process. The AoN is accorded by the Services Procurement Board (SPB), Defence Procurement Board (DPB), or the Defence Acquisition Council (DAC), depending on the estimated procurement cost.

The SPB is headed by the Chief of Integrated Defence Staff to the Chairman, Chiefs of Staff Committee (CISC), DPB by the Defence Secretary, and DAC by the Defence Minister, but all these committees have high ranking military and civilian officers as members. The Chief of defence Staff and all service chiefs are members of the DAC. Contrary to the popular perception this ensures that no decision is taken without inputs from, if not the consent of, the services.

The tender, or the Request for Proposal (RfP), requires the prospective bidders to submit technical and commercial bids, as well as the offset offer wherever it is applicable. The technical offers received in response to the RfP are evaluated by a Technical Evaluation Committee (TEC) and the bidders, whose technical offers are found to be compliant with the requirements given in the RfP, are asked to produce their equipment for field trials. In some cases, a Technical Oversight Committee is also constituted to make sure that there was no impropriety in the technical evaluation process.

Meanwhile, the technical part of the offset offer is also examined by a Technical Offset Evaluation Committee (TOEC), but this does not come in the way of conduct of field trials. The results of field evaluation trials (FET), conducted as per the trial methodology specified in the RfP, are subjected to Staff Evaluation at the Service Headquarters concerned.

It is at this stage that the commercial bids -submitted along with the technical bid in response to the RfP- of all those bidders whose equipment is found to be fully compliant with the requirements mentioned in the RfP are opened. The lowest bidder (L1) is then invited by the Contract Negotiation Committee (CNC), but only after a benchmark price has been internally fixed. The reasonableness of the lowest offer is assessed with reference to this benchmark and negotiations held with the lowest bidder to arrive at a mutually acceptable price and resolve other issues, if required.

The CNC report forms the basis on which financial approval is obtained from the Competent Financial Authority (CFA) to sign the contract. The authority to approve procurements up to Rs 300 crore is delegated to the vice chiefs (deputy chief in the case of IAF). The Defence Secretary is empowered to approve cases that fall between Rs 300 crore and Rs 500 crore. The Defence Minister and Finance Minister have powers up to Rs 2,000 crore and Rs 3,000 crore respectively, beyond which all proposals are approved by the Cabinet Committee on Security.

A standard contract template is prescribed by the MoD which is used for signing contracts other than those which are negotiated under Intergovernmental Agreements and the like. This standard contract document is practically a mirror image of the terms and conditions included in the RfP. Meanwhile, the offset contract of the bidder who is to be awarded the main contract is also processed parallelly and signed along with the main contract.

A small error at any stage in the procurement process could bring the proposal back to the drawing stage. Insufficient or faulty information gathered through RfI could lead to formulation of the QRs that no manufacturer can meet. Faulty RfP could pose difficulties at the time of technical evaluation, field trials and signing the contract as the RfP terms cannot be amended at any of these stages. Faulty benchmarking could create difficulties in commercial negotiations. And this, by the way, is only the proverbial tip of the iceberg.

Given this ground reality, the fact that the RfI has been issued for acquisition of some equipment, the AoN has been accorded for issuing the tenders, or the RfP has been issued inviting bids from the interested bidders, is no cause for celebration. Proposals can fall through even after successful completion of all assessments, evaluations, and negotiations. The celebratory tone of the reports concerning RfIs, AoNs, and RfPs betrays naivete.

(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.)

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