The author, having been at the core of the endeavour to structure the new Defence Procurement Procedure – 2016 (DPP – 2016), has utilised his experience to amplify a few path breaking measures that DPP – 2016 has made provisions for. The aspects of a new category in acquisition, the Indian Designed, Developed and Manufactured (IDDM) products, the enlarged scope of private sector participation and endeavours to encourage Indigenous R&D are among the large numbers of key issues that the author dwells upon.
DEFENCE PROCUREMENT PROCEDURE – 2016: A MUCH NEEDED START
The Defence Procurement Procedure – 2016 (DPP – 2016) has been released by the Ministry of Defence, and at its core lie key aspects that will reform the defence acquisition eco-system and strengthen the domestic defence sector.
To begin with, the DPP–2016 has introduced a new category of acquisition called the Buy (Indian – IDDM), which remains the most preferred category for acquisition. Under this category, equipment that have been indigenously designed and developed, will be given preference for acquisition. This category should incentivise domestic industry to invest in in-house design and development, in addition to domestic manufacturing. While introducing this category is a step in the right direction, it will take time for it to evolve and mature.
However, the DPP–2016 ’s provision is a welcome start. Given that most OEMs are system integrators, and not necessarily component manufactures, and given the poor IP eco-system in India, proving that a design is indigenous is going to be a challenge. However, the DPP–2016 has put the onus of proving that the design is indigenous, on the vendors, who would now have to carefully document every stage of product design and development. The DRDO will also help the industry establish their claims. The Buy (Indian – IDDM) category also allows for equipment with 60% indigenous content, to be considered under this category, even if the design is not indigenous; this provision has been created to broaden the vendor base, even if only one vendor has indigenously designed an equipment.
The DPP–2016 also lays a lot of thrust on private sector participation, which can be observed in two areas of the DPP–2016 . To begin with, the DPP–2016 details the procedure for engaging private sector players as design and development partners for DRDO, DPSUs and OFB. In addition, there are specific provisions as part of the ‘Make’ chapter, which calls for greater participation of the private sector, which would be paid up to 90% of the development cost. Also, for a certain category of equipment, suitable private sector players will be chosen and entrusted with the responsibility of carrying out research at their cost, with an assurance for order and through a limited tender. However, if within 24 months, no tender is issued by the Ministry of Defence (MoD), then the entire development cost will be reimbursed. This provision clearly outlines the commitment of the Government, and also puts pressure on the system to stick to the commitment. Contracts with development costs below INR 10 crore, where 90% of the development cost would be reimbursed, and contracts with development costs below INR 3 crores, where orders are assured, are reserved only for Micro, Small and Medium Enterprises (MSME).
These provisions provide a stimulus for the entire private sector, and the MSMEs in particular. These provisions have the potential to cause a paradigm shift in the manner India approaches defence innovation, and moves towards global best practice norms where the government agencies operate more like a project management office, with huge research budget outlays and the bulk of research and development is left to private players. For instance, the US based Defence Advanced Research Projects Agency, with an annual budget of USD 2.7 billion, has only 240 employees. DARPA does not run a single research lab, but ensures that the most advanced defence equipment emerge from the American soil.
On the contrary, India’s Defence Research Development Organization (DRDO) manages a budget of USD 1.5 billion, has 30,000 employees, which includes 7,200 scientists on its rolls. The provisions of the DPP–2016 , involving private players for development activities is step towards embracing the global best practices, and the private sector innovation and efficiencies.
One of the most remarkable features of the DPP–2016 is its bold departure in the manner proposals are going to be evaluated. Parochial cost focus has plagued the defence sector, where the cheapest equipment often wins the contract. However, quality comes at a premium, which is always sacrificed at the altar of financial prudence. The DPP–2016 has provisions for paying a cost premium of up to 10%, for products that meet enhanced performance standards. The feature puts the soldier at the heart of the acquisition process.
This will further incentivise the private sector to develop high quality products, which till now enjoyed less probability in being chosen.
DPP–2016 also is very progressive on single vendor situations, which can emerge at any stage of the procurement process. The earlier versions of the DPP did not allow for bold decisions to be taken in single vendor situations, resulting in Request for Proposals (RFP) being retracted. The DPP–2016 also clearly outlines the Request for Information (RFI) process, and what all it entails. The RFI has been given its due, since this is the phase when the industry provides information based on which the MoD will have to make informed choices pertaining to the acquisition category.
DPP–2016 recognizes the need for swift implementation, and has made three key changes, in order to reduce the acquisition time frame:
- The validity period of the Acceptance of Necessity (AoN) has been reduced, which means that the RFP will have to be issued in half the time as compared to the old schedule.
- The draft RFP has to be a part of the AoN according process, further reducing the time required to issue a RFP.
- Several types of field tests, which can be carried out through simulation, or requiring certifications, can be done away with.
DPP–2016 is very pragmatic in approach and lays a lot of emphasis on swifter implementation. So much so, that the chapter on Fast Track Procedure has been amended to allow for using the provisions of the chapter, even during peace time, as and when operational exigencies so demand.
The DPP is a manual for defence acquisition, and its success lies in its implementation. By releasing the DPP–2016 with its progressive features, the much needed change in thinking within the ministry has become apparent. However, this is only half the battle won. MoD needs to back up its change in thinking, with change in commitment to implement the progressive features of the DPP–2016 . Given that the defence sector has the potential to make significant impact to the overall manufacturing sector, the manner in which the DPP–2016 is implemented, is something that will be keenly watched.
– Prasanna Karthik R
(The author is a former consultant with the Government Consulting Practice of KPMG. He was also a Consultant to the Home Ministry, on the National Intelligence Grid (NATGRID) project)
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of BharatShakti.in)