With the release of the draft Defence Acquisition Procedure (DAP) 2020 on July 27, the exercise that started last August to review the existing acquisition procedure is almost complete. So is the exercise of reviewing the offset guidelines whose revised draft was released separately three days later.
Apart from the revised offset guidelines, the final version of DAP 2020 will also include a chapter on Simplified Capital Expenditure Procedure (SCEP) for recurring replenishment, repairs,and refits of in-service equipment/systems. The draft of this chapter has not been notified as of now, adding an element of suspense. The DAP 2020 will eventually replace the existing Defence Procurement Procedure (DPP) 2016.
Though the Ministry of Defence (MoD) was generous in seeking comments on revised drafts by August 10, the window is too small for the outsiders to sift through 710 pages of the two documents and make any major recommendations, more so because DAP 2020 itself is a revised and rechristened version of the draft DPP 2020 released earlier in March 2020 and takes into account the overwhelming response it elicited from ‘the entire spectrum of stakeholders’.
Apart from several procedural changes and a revamped offset policy, DAP 2020 is padded with an assortment of new ideas – such as integration of artificial intelligence with platforms and systems, use of indigenous high-end material and special alloys, and setting up of a Project Management Unit to support contract management – and as many as five new chapters, including the not-yet-notified chapter on SCEP.
The remaining four new chapters contain the procedure for procurement of defence materiel from the Defence Research & Development Organisation (DRDO), Defence Public Sector Undertakings (DPSUs) and the Ordnance Factory Board (OFB); acquisition of Information and Communication Technology (ICT) systems and products; taking platforms on the lease; and, post-contract management.
Amid these portentous changes, difficult to summarise because of the space constraint, changes made in at least four areas stand out: categorisation of defence procurement, processes linked with some of the stages in the procurement cycle, standard clauses of contract, and offsets.
The number of procurement categories is all set to increase to 11, of which six will form a distinct hierarchy. In descending order of preference, this hierarchy will comprise ‘Make (Indian – Indian Designed, Developed and Manufactured)’, ‘Buy (Indian)’, ‘Buy and Make (Indian)’, ‘Buy and Make’, ‘Buy (Global – Manufacture in India)’, and ‘Buy (Global)’.The penultimate category is proposed to be interposed in this hierarchy to encourage foreign companies to manufacture the equipment in India.
The ‘Make’ category, introduced in 2006 to promote indigenous design and development of futuristic equipment, and split into two sub-categories in 2016, will now have three sub-categories. While the first category envisages funding of the prototype development cost up to 70 per cent (reduced from the existing 90 per cent) by the government, the second category envisages self-funding by the industry. The third category now being introduced targets manufacturing of import substitutes by the Indian industry with or without collaboration with/transfer of technology from the foreign firms.
The ambit of the ‘Make’ category is being enlarged by introducing ‘Innovation’ as a separate category which would entail procurement of items developed under the Innovation for Defence Excellence (iDEX) scheme, with financing out of the Technology Development Fund (TDF), or by the Services through their internal organisations, such as the Base Workshops, Dockyards and Base Repair Depots.
The Strategic Partnership Model, introduced in 2016 ‘to encourage broader participation of the private sector, in addition to capacities of DPSUs/OFB, in manufacturing of major defence platforms’ in four areas – aircraft, helicopters, submarines, and armoured fighting vehicles/main battle tanks – has been retained, seemingly without any modification.
Leasing has been introduced as a new category as ‘an innovative technique for the financing of equipment’ to possess and operate it without owning it, thereby avoiding ‘huge initial capital outlays’. This should be useful where the asset is needed for a specific period in avoiding its under-utilisation if procured. It may also be useful to opt for leasing of equipment if it is required in limited numbers.
It is arguable whether the proliferation of the procurement categories is a move towards simplification of the procurement procedure, especially in view of the overlapping fundamental attributes of at least three categories – ‘Buy and Make (India)’, ‘Buy and Make’, and the Strategic Partnership Model – all of which envisage manufacturing in India by the Indian companies of the equipment/platform designed and developed abroad.
The requirement of indigenous content has been increased by 10 per cent and it now ranges from 50 per cent under most of the categories to 60 per cent under ‘Buy (Indian)’ category if the equipment to be procured under this category is not designed and developed indigenously. Only the Indian vendor participating in ‘Buy (Global)’ tender will be required to achieve indigenisation to the extent of 30 per cent. One will have to wait and see if the vendors are able to meet the increased levels of indigenisation.
Several changes have been made in the processes associated with various stages in the procurement cycle. Some of these do not seem to be substantive. For example, instead of the Services Capital Acquisition Plan Categorisation Higher Plan (SCAPCHC), the Acceptance of Necessity (AoN) will be accorded by the Services Procurement Board (to be set up) in respect of cases that fall under the financial powers delegated to the Vice Chiefs etc. At any rate, procedural changes can make a difference only if these are backed by quick decision-making.
Changes have been made in the Standard Contract Document by tweaking the text of a few existing clauses and introducing some new standard clauses like monitoring of projects based on contractual milestones, severability, and survival of specified clauses after termination or expiration of the contract. A new clause which aims at striking a balance between the intellectual property rights of the seller and MoD’s rights to indigenise its components, assemblies, sub-assemblies, etc., may not go down well with the foreign companies who are extremely sensitive to IPR issues.
The revamped offset guidelines envisage large scale changes in avenues available for discharging the offset obligation, list of products eligible for offsets, discontinuation of offset banking, multipliers, and many other aspects of the policy. However, procurements made under Inter-governmental Agreements or standing arrangements like the Foreign Military Sales (FMS) programme of the US Government will not entail offset obligation anymore.
Most of the procurements in the recent years being through this route, the proposed exemption – coupled with the emphasis on procurement from the Indian companies – will drastically reduce the number of contracts entailing offset obligation. It’s time MoD reconsiders the need for continuing with the policy which, in any case, has not paid the expected dividends in the last fourteen years.
The additional content included in the document seems to make it more complex. In any case, the best of policies and procedures can come to naught because of procrastination in decision-making and disregard of financial viability of the decisions. The MoD will have to improve its track record on both these counts to make this complex document work.
By Amit Cowshish
(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)