- Army Design Bureau
- FAQ: Defence Procurement
- DPP 2016
- DPP 2013
- Defence Production Policy 2011
- DPM 2009
- Amendment DPM 2009
- DPM Supplement 2009
- Related Documents
- Indian Maritime Security Strategy
- Indigenisation Roadmap - Indian Air Force
- Report of the task force on selection of strategic partners
- Dept. of Defence Production in Pursuit of Self Reliance
Army Design Bureau
FAQ: Defence Procurement
- 1. How does industry particularly the MSMEs come to know as to what is planned to be procured by Defence Forces?
MoD has uploaded Technology Perspective & Capability Roadmap (TPCR) on their website. However, that gives very little information and is of little use to Industry. There is no other formalised system in vogue for early information which can be used by the Industry to prepare itself for impending Capital Procurement. It is hoped that MoD would give more meaningful and useful information through TPCR in near future.
First indication for Capital Procurement is when RFI is uploaded on the net by the user directorate. With the issue of RFI, the process of procurement commences which involves preparation of SQR, identification of vendors for RFP and tentative decision on categorisation of the project. It may thus be assumed that RFP for the project is likely to come out sooner or later in 2-3 years time or may be in a shorter time frame.
Thus, serious players would be advised to get information from open source. A lot of information may be available on various defence portals and through participation in seminars/symposiums organised by Industry Chambers in collaboration with Service HQ and carry out personal liaison with Service HQ.
- 2. How does MoD decide as to who should get the RFP for a Project?
It is essential that desirous companies respond to RFI and offer a viable and workable proposal with as much details as possible. If they offer a good solution there is a good possibility that their solution may be used for formulating SQR. If an RFI has been responded to by a vendor he can be quite sure that he would get RFP.
- 3. If a vendor has not responded to the RFI for some reasons, can he still hope to get an RFP?
• Yes, he still has a chance. He must immediately register himself for the product he wishes to offer with Technical Manager (TM), Weapons and Equipment Directorate and User Directorate (and equivalent HQs in IAF and IN) as per the Format at Appendix E of Chapter 1 of DPP-2013.
• He should also respond to RFI giving valid reasons for the delay.
• If procurement case is at an early stage of processing, there is every chance that RFP may be given to the vendor. But the vendor has to put in adequate effort.
- 4. If an RFP has been issued and a Vendor has not got it, can he still get the RFP later?
If a vendor has responded to RFI, he should normally get RFP. If he has not, he can surely make a representation. If he figures in the vendor's list and is left out by mistake, RFP will be issued to him. If he does not figure in the vendor's list, he would not get RFP.
- 5. Is there a need for a company to register with MoD for participating in a Capital Procurement?
There is no requirement of registering with MoD or any other organization for participating in Capital Procurement. Companies need to correctly respond to RFIs to become eligible to participate in that particular procurement cases.
- 6. I am into auto-component business and I want to enter defence sector. How do I proceed?
Presuming that you are an Indian Company, entry into defence will depend on what you wish to do in the defence sector. If you simply want to sell the auto components and parts that you make, it will imply you wish to enter defence market through revenue route. You would, therefore, be advised to study DPM-2009, which can be downloaded from MoD website. You will have to register your firm with Central procurement agencies of Service HQ and HQ Commands. Unit level registration is not necessary. Please go through Chapter 3 of DPM 2009. Tenders for the products are published on Army, Navy, IAF and coast Guard websites.
If you wish to become a proper defence company and you have products to sell, then you must download DPP 2013 from MoD website and study its provisions thoroughly. To be a defence company you must ensure the following:-
- Your company must conform to DIPP Guidelines for a defence company. These guidelines can be downloaded from DIPP website
- You must apply for a Defence Industrial License (DIL) if your product requires a license to manufacture as per DIPP guidelines. List of items requiring DIL is also available at DIPP website
- You must register your product with Technical Managers as per Appendix E of Chapter 1 of DPP 2013. You must identify users of your equipment and interact with them
- First indication of Capital Procurement is through RFI published on Army, Navy and Air Force websites. You must respond to the RFI to become eligible for RFP
Capital procurement follows very tough procedures. You should be fully aware of complexities of capital procurement.
- 7. Will provisions of DPP 2015 be effective for those contracts for which RFIs have been issued, or further progress has been made in terms of issue of RFP, TEC etc?
Provisions of DPP 2015 will be applicable for those procurement cases only for which RFP has been issued after the date of DPP 2015 coming into effect. All ongoing procurement cases will be governed by the provisions of those DPPs whose provisions were applicable at the time of issue of that RFP. Para 77 of DPP 2013 refers.
- 8. Which are the areas where a foreign partner is permitted 51% ownership or more?
Government of India vide Press Note 7 of 2014 Series dated 26.08.2014 has notified revised FDI Policy in defence Sector, according to which FDI up to 49% is allowed in the sector through Government route and above 49% through approval of Cabinet Committee on Security (CCS) on a case-to-case basis wherever it is likely to result in access to modern and state-of-the-art technology in the country.
- 9. Is Acceptance of Necessity (AoN) validity period different for different categories? If so, what are the laid down AoN periods for each category?
AON is valid for a period of one year for all the categories except MAKE category where it is for two years. AON will lapse if RFP/EOI is not issued within six months of accord of AON. Para 20 of DPP 2013 refers.
- 10. Will there be retraction of RFP after the TEC should a single vendor situation develop? Please explain with reference to all categories?
RFP will be retracted if only one vendor responds to the RFP or if only one vendor qualifies after TEC. This is applicable for all categories of procurement.
- 11. In the choosing of Strategic Partners (SP) for major projects, the DPP debates various options and propagates the necessity of the SPs in turn adopting similar methodology for selection of Tier 2/3 partners. Will the government be laying down the broad guidelines for the SPs or is it entirely the prerogative of the SP concerned.
MoD has constituted a 10 member Task force under the Chairmanship of Dr Aatre, ex DRDO Chief. We will have to wait for the report of Task Force for the answers.
- 12. In the process given out for selection of SPs, the various issues to be considered. With larger Indian industrial houses striking partnerships with major global players in the field of defence equipment production, such newly formed joint ventures may not be able to present their credentials under all the heads, e.g., annual turnover, credit ratings, on schedule delivery history etc. Will it be the partners' individual capabilities that will decide the weightage to be given to an SP as a whole?
Please refer to Answer of Question 11.
- 13. Currently trial infrastructure like proof firing ranges, the ownership lies strictly with the services or DRDO. With the private industry being inducted in a major way, there is a requirement of providing these to the industry. However, the sharing of such resources may be difficult for the services and DRDO. What measures are being instituted to ensure trials are not delayed for lack of infrastructure?
At present, there is no provision to allot/provide ranges and other test facilities to the industry. Vendors participating in a procurement case are responsible to arrange for these facilities under their own arrangement and be ready to participate in user trials and evaluations as per instructions from Service HQ. However, in developmental projects under MAKE and future projects under Strategic Partnership such facilities will have to be provided.
- 14. I want to produce equipment for Defence Industry. Is there a single window available for all formalities to be processed?
There is no single window for clearances for defence products. You will have to register your company under existing Companies Act (2013) if not already registered. Apply for a defence industrial license (DIL) from DIPP, if the equipment requires a license. Undertake all other formalities that are required for manufacture of the product.
- 15. Are there any capital investment/turnover bandwidths to qualify as Micro, Small and Medium industry? Is there any other criterion to be fulfilled?
Government of India has enacted Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. As per the Act definition of MSME is as under:-
(a) Enterprises Engaged in Manufacture or Production, Processing or Preservation of Goods:-
(i) Micro Enterprise. Investment in plant & machinery does not exceed Rs. 25 lakh;
(ii) Small Enterprise. Investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore; and
(iii) Medium Enterprise. Investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore.
Note: Investment in plant & machinery is original cost excluding land, building and items specified by Ministry of Small Scale Industries vide its notification No.S.O.1722 (E) dated October 5, 2006.
(b) Enterprises Engaged in Providing or Rendering of Services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006 are specified below:-
(i) A Micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10 lakh;
(ii) A Small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh but does not exceed Rs. 2 crore; and
(iii) A Medium enterprise is an enterprise where the investment in equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore.
- 16. What are the tax incentives for MSMEs? Are there any special incentives for MSMEs in the defence sector?
As far as defence procurement is concerned, there is no special incentive except that if the contract is obtained, their payments are required to be made within one month of submission of bills.
- 17. What are the prerequisites for being classified as an Indian Vendor in the Defence Sector?
Definition of Indian Company is not given in DPP or any other procurement manual. The definition is likely to be included in DPP 2015. As per Dhirendra Singh Committee Report, recommended definition is as under:-
"For defence products requiring industrial license, an Indian entity/ Partnership firm, complying with, besides other regulations in force, guidelines / licensing requirements stipulated by Department of Industrial Policy and Promotion as applicable. For defence products not requiring industrial license, an Indian entity/ Partnership firm registered under the relevant Indian laws and complying with all regulations in force applicable to that industry”
- 18. Defence acquisition process has frequently led to major scams. What are the measures adopted to ensure integrity is not compromised?
There are enough provisions in DPP and DPM to ensure that procurement is carried out in a fair and transparent manner. In fact, these procedures have actually been written to prevent corruption.
- 19. The requirement of proceeding with single vendor situation is quite understandable given the small numbers of industries into defence equipment production, especially complex platforms and systems. How is transparency being assured in such cases?
DPP does not permit procurement in a single vendor situation except under exceptional circumstances listed in DPP. More than 90% of procurement are carried out in multivendor situation. All single vendor procurements are also carried out with due deliberations and approvals at the highest level at DAC.
- 20. What is the policy for price escalation for cases where the gap between contract negotiation and contract signing exceeds a year?
Commercial offer of a vendor is valid for a certain time period as stipulated in RFP. If validity of the offer expires before approval of Staff Evaluation Report, vendor(s) will be given the option of revising their commercial offer and they can revise their commercial offer at that stage. In all other eventualities, prices quoted by the vendor at RFP stage will remain unchanged irrespective of how much time it takes thereafter for signing of the contract. No escalation is permitted. Vendors are however entitled to exchange rate variation (ERV) on the value of imported content between opening of commercial offer and signing of contract.
- 21. I am a manufacturer who is already marketing one or more defence products. I also have linkages with the DRDO. I intend expanding my product range to include additional defence products. Do I need any additional licences, follow any procedures etc?
Yes, you would require Defence Industrial License (DIL) from DIPP if the item requires a defence license for manufacture of that product. List of items requiring DIL is available at DIPP website.
- 22. I am a defence equipment supplier. Should due to any contingencies considered to be compelling by the GoI, I am required to upscale my capacities quantitatively, what support can I expect?
None as far as procedures are concerned. However, if you are already executing a contract and government desires to reduce contracted delivery period or places orders for additional quantities in a faster timeframe, you may request for more advance with the justification that you would have to upscale capacities to meet delivery schedule in a shorter time frame.
- 23. What is Banking of Offsets?
- Whenever a Foreign Original Equipment Manufacturer (OEM) gets a contract of Rs 300 crores or more, he is required to discharge offsets obligations (which is 30% or more of the contracted value) as per the provisions of offset contract which is signed along with main contract. As per Clause 3.1 of Defence Offset guidelines given at Appx D of Chapter 1 of DPP 2013, there are six avenues to discharge offset obligations.
- FOEM can discharge offsets as per clause 3.1 well in anticipation of a future contract(s) which he can bank with Defence Offsets Management Wing (DOMW) and will be valid for seven years. Banked offset credits can be used to discharge up to 50% of total offset obligation under each procurement contract.
- 24. I am a software engineer and an innovator. Whom can I approach to find out about what are the military’s software requirements?
There is no single window in Armed forces where you can go to get Software requirements for Armed Forces. As far as Army is concerned, you can visit DDG IT and Army Software Development Centre, both at Rao Tula Ram Marg, New Delhi. But it is doubtful if you will be given any worthwhile information. Best way to track armed forces requirements of software is by keeping track of RFPs which are issued from time to time on MoD portal.
- 25. Where can I access the Negative List of Countries for exports?
Being a classified document, Negative List of Countries is not in public domain. In one of the meetings with defence industry, MEA had agreed that this list will be given to Industry Chambers such as CII, FICCI, ASSOCHAM. Whether or not it has been done is not known.
- 26. Is the Negative List of Countries drawn by MEA or MoD?
- 27. How can I access the Red, Yellow, Green list of items for various countries for exports?
This list is still under preparation. As and when it is finalised, it will be uploaded on government website.
- 28. Are there any additional checks for quality assurance for equipment being exported by Indian authorities?
Defence equipment being exported would have been evaluated and selected based on qualitative requirements (QR) given in the RFP/tender document of the importing country which would also have QA related QRs, as well. All QRs will be checked in that country before it is accepted. Indian government has no role in this.
- 29. Are benefits of Deemed Exports under the Foreign Trade Policy applicable for Offsets contracts?
- 30. What are the valid activities under which Offsets can be discharged?
There are six avenues for discharge of offset obligations as given at Clause 3.1 of Appendix D of Chapter 1 of DPP 2013. First five avenues, given at 3.1(a) to 3.1(e) can be discharged with respect to ‘Eligible Products’ and ‘Eligible Services’ (List given at annexure VI to Appendix D). Discharge of offset obligation through eligible services is held in abeyance till further orders. Offset obligations can also be discharged through Technology Acquisition by DRDO under Clause 3.1(f). List of critical technology for offsets is given at Annexure VIII of Appendix D.
- 31. What is the difference between a Strategic Partner and a Development Partner?
Strategic Partners is for capacity building whereas Developmental Partners is for capability building.
Defence Procurement Procedure DPP-2016
Defence Procurement Procedures 2013
As part of implementation of report of Group of Ministers on reforming National Security System, new defence procurement management structures and systems were set up in the Ministry of Defence (MoD) in Oct 2001. Accordingly Procedure for Defence Procurement of Feb 1992, in vogue then, was also revised resulting in a new Defence Procurement Procedure – 2002 (DPP-2002) that came into effect from 30 Dec 2002. DPP 2002 was applicable for procurements flowing out of ‘Buy’ decision of Defence Acquisition Council. Since then Defence Procurement Procedures have been revised several times and scope of each these seven DPPs has undergone a change as per details below:-
- DPP-2002 (Version Jun 2003): Scope enlarged to include procurement flowing out of ‘Buy and Make with Transfer of Imported Technology’ decision as well.
- DPP-2005: It incorporated Direct Offsets and Integrity Pact for procurement over Rs 300 crores.
- DPP- 2006: Fast Track Procedure and Procedure for Indigenous Warship Building of DPP 2001 were revised. Offsets were made mandatory for procurement over Rs 300 crores and integrity Pact was made compulsory for all procurement over Rs 100 crores. It was also decided that DPP will be reviewed every two years.
- DPP- 2008: Concept of issue of RFI was formalised so that vendors get advanced information of impending procurement. Trial procedures were streamlined. Offset banking was introduced.
- DPP-2011: Ship-building guidelines underwent comprehensive review. Revised guidelines were meant to provide a level playing field between state-owned shipyards and private shipbuilders. In defence offsets new DPP expanded the list of eligible products and services to include products for Internal Security” and “Civil Aerospace Product”.
- DPP-2013: Most important change was to accord primacy to buying equipment from Indian sources. Five categories were arranged in a descending order of priority, starting with ‘Buy (Indian)’ and followed by ‘Buy and Make (Indian)’, ‘Make (Indian)’, ‘Buy and Make’ and ‘Buy (Global)’. Another important change relates to indigenous content in equipment bought or manufactured within the country. DPP provisions relate to indigenization, such as its definition, reporting requirements, audit of self-certification and costs associated with the indigenous content. Provision has been made for withholding payments and for imposition of penalties for not achieving the required level of indigenization.
Defence Procurement Procedures provide comprehensive policy and Procedural guidelines for all Capital acquisitions for Armed Forces. Present DPP lays down policies and procedures for Capital Acquisition under following categories:-
- Acquisitions covered under the ‘Buy’ decision (Buy Indian & Buy global).
- Acquisitions covered under the ‘Buy & Make’ decision (Buy & Make (Indian) & Buy & Make with TOT.
- Acquisitions covered under the ‘Make’ decision.
- Acquisition under Fast Track Procedures.
Over the years MoD has made many important policy changes but procedural issues have not been adequately addressed. Primary objective of expeditious procurement is far from being achieved. It still takes years before a procurement concludes. Goal of achieving self-reliance in indigenous design, development and manufacture of defence equipment needs t guide us as we frame our DPP 2015.
DPP is uploaded on Ministry of Defence website (www.mod.nic.in) for enabling ease of access and increased public awareness of defence procurement procedures and processes. For vendors desirous of successfully venturing into defence procurement process, thorough knowledge of DPP is absolutely essential.
Defence Production Policy 2011
Defence Procurement Manual 2009
DPM 2009 is applicable to all Wings of MoD and the Defence Services, all organizations and units/establishments there under for procurement of goods and services for which expenditure is met from Revenue Heads of the Defence Services Estimates (DSE) or any other type of purchases to which the provisions are made specifically applicable.
The term procurement has been defined in DPM as a means of acquiring all types of goods (both scaled & non-scaled), such as equipment, stores, spares, technical literature etc, as well as all types of services including packing, unpacking, preservation, transportation, insurance, delivery, special services, leasing, technical assessment, consultancy, systems study, software development, maintenance, updates, conservancy, etc.
Since procurement of goods and services are carried out both from Capital & Revenue under existing DPP & DPM respectively, it is essential to understand the difference between the two.
• Capital Procurement. As per Rule 90 of General Financial Rules (GFR) 2005, significant expenditure incurred with the object of acquiring tangible assets of permanent nature or enhancing utility of existing assets are broadly defined as Capital Expenditure. Further, as per Rule 91 (a) of GFR 2005, Capital shall bear all charges for first construction & equipment of a project as well as charges for intermediate maintenance of the work while not yet opened for service. It shall also bear charges for such further additions & improvements, which enhance useful life of the asset. Capital Procurement, therefore, refers to procurement of all goods and services that fit the description of Capital Expenditure.
• Revenue Procurement. As per Rule 91 of GFR 2005, Revenue should bear all subsequent charges for maintenance and all working expenses, including all expenditure on working and upkeep of project and also on such renewals and replacements and such additions, improvements or extensions, etc., as under rules made by the Government are debitable to Revenue account. Revenue Procurement, therefore, implies procurement of items and equipment, including replacement equipment, assemblies/sub assemblies & components, to maintain and operate already sanctioned assets in the service, necessity of which has been established and accepted by the Government. In the context of defence procurements, what would constitute Revenue procurement is defined in Chapter 1 of DPM 2009.
Provisions of DPM 2009 are also applicable to the following:-
• Coast Guard Organization and Jammu & Kashmir Light Infantry (JAKLI) for procurement under Revenue heads for which budgetary allocation is made.
• Procurement of certain Capital items as notified by MoD.
• Procurement of medical equipment both under Revenue & Capital Heads.
• Purchases made by Defence Services from grants placed at their disposal by other Ministries/Departments like MHA, Ministry of Environment and Forests etc.
Provisions, however, are not applicable for DRDO and OFB as they have their own purchase manuals. It is however expected that their procedures are also in line with provisions of DPM 2009.
DPM 2009 contains 15 Chapters, 15 Appendices and 29 forms.
DPM procedures are being used for central procurement as well as local purchases under delegated financial powers of authorities in MoD, Service HQs & all subordinate authorities in Command HQs, lower formations, establishments and units there under.
Amendment DPM 2009
DPM Supplement 2009
- Outsourcing & Vendor Development Guidelines for DPSUs & OFBs
- Policy document on Blacklisting/Banning Defence Firms
- Delegation of Financial Powers to Defence Services: DFPDS-2015
- Exchange Rate Variation: Ammendment to DPP 2013
- Export of SCOMET Items
- Guidelines for disposal of complaints
- Guidelines for Environmental Testing at CQAE Bangalore
- List of Defense Items Requiring Industrial Licence
- Technology Perspective and Capability Roadmap
- SOP for Issue of NOC Export of Defence Stores
- Indian Naval Indigenisation Plan 2015-30
- Reinstating Services as an Eligible Avenue of Offset Discharge in Defence Offset Guidelines
- Amendment to Defence Procurement Procedure (DPP) - 2013
- Addendum to Offset Guidelines of DPP 2006, 2008 & 2011