The procedure introduced in the Defence Procurement Procedure (DPP) in 2006 to facilitate execution of the ‘Make’ projects by the Indian companies with a view to promoting indigenous design and development of defence equipment was tweaked last year when the ‘Make’ category was split into two sub-categories.
The original scheme envisaged funding of the cost of the development of prototypes to the extent of 80 per cent by the Ministry of Defence (MoD). This was increased to 90 per cent in 2016 and a new ‘Make II’ sub-category was created to let the Indian industry undertake developmental projects on its own without any funding by the MoD.
On January 16 this year, the Defence Acquisition Council (DAC), headed by the Defence Minister, decided to tweak it again to enable the MoD to accept suo-motu proposals from the industry, including the start-ups, for undertaking projects under the ‘Make II’ category.
The criteria prescribed in DPP 2016 for short listing of the Indian companies as prospective development agencies for participation in the ‘Make II’ projects has also been relaxed by removing the conditions related to credit rating and net worth.
The existing procedure requires short listing of at least two companies to develop the prototype. The DAC has
decided that henceforth all companies meeting the relaxed eligibility criteria will be allowed to participate in the prototype development process. In fact, even if a single individual or company offers innovative solutions, the Services Headquarters (SHQ) will now have the option of accepting and processing the development initiative of the proposer.
The DAC has also decided that there will be no need for the development agencies to submit a Detailed Project Report (DPR), as required under the existing procedure, before undertaking a ‘Make II’ project and that after the project has been approved by the DAC all subsequent clearances will be accorded by the SHQ.
Most importantly, there will be no foreclosure of a project after it is sanctioned, ‘except on default by the vendor, to ensure that the successful vendor has assured orders’.
It will not be surprising if these decisions have been taken based on the feedback from the industry. If so, these should ease the rigours of the existing procedures for the industry but this can happen only if the MoD is able to incorporate these decisions in the existing procedure with absolute clarity and without leaving any untied loose ends, both of which could pose a challenge to implementation of the decisions taken by the DAC.
To begin with the term suo-motu will need to be defined. As of now the need for ‘Make’ projects under both the sub-categories is supposed to be identified by the Services. Indeed, a list of several such projects, with board details of the qualitative requirement and the quantity/numbers etc that are crucial from the industry’s point of view for building a business case for undertaking the projects, is already out in the public domain and the SHQs have been interacting with the industry to take the process forward.
If seen in this context, permitting the industry to make suo-motu proposal could mean that an individual or a company can now come up with the proposal to undertake a project which does not figure in the list of potential ‘Make’ projects if in the view of the proposer such a project meets some operational requirement of the armed forces.
It could also mean that an individual or a company could pick up any project from the list of the potential ‘Make’ projects and submit a proposal without waiting for the MoD/SHQ to issue the Expression of Interest (EoI) for the project.
In either case, the proposal will have to be necessarily examined in the MoD/SHQ without the advantage of having carried out any feasibility study, drawing up the Provisional Services Qualitative Requirements (PSQRs) or preparing a Project Definition Document (PDD) which are essential steps that need to be taken before inviting the companies to express their interest in a project under the normal procedure.
That being the case, the Project Management Teams (PMUs) could get overwhelmed by a large number of proposals as with the relaxed eligibility criteria more companies, including the start-ups, will be able to participate in the ‘Make II’ projects. The task could become unmanageable unless the details to be furnished as a part of the suo-motu proposal are clearly spelt out by the ministry.
Implementation of the decision to remove the restriction on the number of companies which could undertake a project simultaneously will also need a greater clarity. In a monopsonic market, that is, a market with a single buyer and several trying to sell their products to that single entity, many of these companies could suffer if they lag behind in development of the prototype or are unable to export the product after belatedly succeeding in developing.
There is an implication of unrestricted competition even for the MoD because if the Request for Proposal (RfP) is not issued within two years of successful development of the prototype under a ‘Make II’ project, it will have to reimburse the entire cost of prototype development to all the successful developers, whose numbers could go up substantially with the removal of restriction on the number of development agencies under the normal procedure.
The provision that even if a single individual or company offers innovative solutions it could be accepted by the MOD/SHQ assumes that it will be possible to determine that the proposed solution is innovative and that other individuals or companies will not be able to come up with equally innovative, if not better, alternative solutions, if given an opportunity. More damagingly, it could potentially give rise to allegations of manipulations to favour a particular company by accepting its offer on the grounds that it is uniquely innovative.
The decision taken by the DAC that there will be no foreclosure of a project after it is sanctioned, ‘except on default by the vendor, to ensure that the successful vendor has assured orders’ is mystifying. It pre-supposes that a company can be made to foreclose a project which is not even being funded by the MoD in order to ensure that the successful developer gets the order for the assured quantity.
Some of these apprehensions may be misplaced and could possibly be the result of the fact that as of now very scanty details of the decisions taken by the DAC are known. But it will not hurt if the details are worked out with extreme caution after taking into account all possible implications of these decisions. For, after all, the devil is always in the detail.