The New ‘Make’ Procedure: A Retrograde Step

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Prior to the issuance of Defence Procurement Procedure – 2006 (DPP-2006), all proposals categorised by the Defence Acquisition Council (DAC) as ‘Make’ cases were handled by the Defence R&D Board (Def R&D Bd). The Department of Defence R&D had evolved a procedure that had adequate inbuilt flexibility for R&D application. Expenditure was debited to the related R&D head.

The Kelkar Committee examined the complete gamut of indigenous research, design and development of defence equipment and made the following recommendations:-

• DRDO should concentrate on projects requiring sophisticated technology of strategic, complex and security sensitive nature.
• An integrated approach involving users, Ministry of Defence (MoD) and the industry should be adopted for indigenous R&D.
• Outsourcing of R&D work of high technology to private sector should be on the lines of parallel development on cost-sharing basis. A minimum order quantity to sustain the financial viability of development within the time schedule should be spelt out to encourage private sector participation.

Consequent to the acceptance of the report of the Kelkar Committee, the Government introduced the new procedure for procurements through indigenous development in DPP-2006. All indigenous R&D projects are now required to be categorised as follows:-

Strategic, Complex and Security Sensitive Systems

These projects would be undertaken by the Defence Research and Development Organisation (DRDO) and would involve development of critical and security sensitive technologies leading to next generation weapon systems and platforms. These are the areas ‘where indigenous technologies may not be available or may cost exorbitantly to develop by the Indian industry, because of their higher research content, elaborate infrastructure requirements, long gestation periods or uncertain extent of employment by the armed forces.’

These technology driven projects necessitate higher content of R&D and would be managed through the Def R&D Bd. Development of these systems would be as per the DRDO procedure and would utilise DRDO funds for execution. DRDO would work jointly with academia, universities and other national science and technology establishments and through technology collaborations.

Low Technology Mature Systems

These projects would be categorised as ‘Buy Indian’ and must have a minimum 50 per cent indigenous  content.

High Technology Complex Systems

Projects under this category would be identified as ‘Make’ and would be based on proven or matured technologies, where fundamental research is not required. These projects would be undertaken by the Indian industry (both in public and private sectors) on a level playing field. This procedure would also be adopted for all upgrades categorised as ‘Make’.

The New ‘Make’ Procedure

The new ‘Make’ procedure endeavours to promote indigenous research, design, development and production of capabilities sought by the Armed Forces in a prescribed timeframe, while optimally utilising the potential of the Indian industry.

Respective Service Headquarters (SHQ) would forward Preliminary Services Qualitative Requirements (PSQR) in respect to all proposals included in the Long Term Integrated Perspective Plan (LTIPP) to Headquarters Integrated Defence Staff (HQ IDS). HQ IDS would order feasibility study for each project to identify projects which can be undertaken by the DRDO and others. Study group reports would indicate estimated capital expenditure, proposed sharing of developmental costs, likely development agencies and minimum order quantity envisaged.

Reports in respect of all ‘Make’ cases would be forwarded to the DAC for obtaining approval and getting ‘Acceptance of Necessity’. After approval by the DAC, cases would be processed by the Acquisition Wing who would constitute Integrated Project Management Teams (IPMT) for each project. IPMT would consist of multi-disciplinary teams, headed by service officers.

IPMT would formulate Project Definition Document (PDD) to define and develop system requirements as per PSQR. Time and cost vis-à-vis performance parameters would be analysed in depth. PDD would also define exit criteria in case progress is not satisfactory. Thereafter, IPMT would seek names of public and private industries (and consortia), empanelled by the Department of Defence Production (DDP). Empanelled entities would be invited for Expression of Interest (EoI).

On receipt of responses to EoI, IPMT would make a detailed assessment of design and manufacturing capabilities of all the industries/consortia, clearly identifying the critical technology areas of the development programme, where necessary competence is being developed, or is being obtained through the collaboration route from a foreign partner by the industry.

Normally, a minimum of two production agencies would be short listed. In case only one agency is selected, approval of the DAC is required before the project is sanctioned. IPMT would forward its reports of short listed agencies to the Acquisition Wing for approval. The Acquisition Wing after scrutiny would forward the said list to the Defence Production Board (Def Prod Bd). Def Prod Bd would then select two agencies as per the laid down criteria.

Both the short listed agencies would then be asked to prepare Detailed Project Reports (DPR). IPMT would assist them. DPR would stipulate scope of the work in terms of PSQR, development phases and time schedules. IPMT would analyse DPR and progress it to the Acquisition Wing for approval. Financial approval would be obtained by the Acquisition Wing from the Competent Financial Authority (CFA).

Monitoring of projects during design and prototype development phase would be carried out by IPMT which would periodically intimate the progress to the Def Prod Bd through the Acquisition Wing. IPMT would also assist in the conduct of research for future upgrades.

Conduct of trials and evaluation would be carried out under the aegis of the respective SHQ. After the acceptance of the staff evaluation report, commercial negotiations would be carried out by the Acquisition Wing as per the standard ‘Buy’ procedure with the lowest bidder for limited series production. DRDO personnel will remain co-opted at all stages for rendering expert advice.

Infirmities of the New Procedure

The new ‘Make’ procedure is highly convoluted and totally impractical. It defies logic as to how the complete development work has been assigned to non-DRDO personnel who possess little knowledge and competence. It will not be incorrect to state that the new procedure is a retrograde measure. It will retard the development of indigenous competence and prove detrimental to the modernisation of the armed forces. Some of the major infirmities have been discussed below.

Lack of Focus and Multiplicity of Agencies Involved

Prior to the Kargil War, there was no dedicated organisation structured specifically to handle the delicate and complex task of defence procurements. Officials held multiple re-sponsibilities, thus dividing their attention and resulting in a lack of focus. Additionally, in the absence of clear-cut responsibilities, there was a complete lack of accountability.

The Group of Ministers viewed this deficiency seriously and recommended the constitution of new procurement structures. It was a step forward. But, the new ‘Make’ procedure reverses the process. Extra responsibilities have been assigned to a number of existing agencies and they are expected to fulfill them in addition to their normal charter of duties. As many functionaries will tend to treat ‘Make’ duties as an add-on encumbrance, it will lose focus.

Every ‘Make’ case will pass through several hands, as shown below:-

• Feasibility studies will be prepared by the HQ IDS and approved by the DAC. Thereafter, the case will pass on to the Acquisition Wing and the HQ IDS will have no further role to play.
• The Acquisition Wing will constitute IPMT, but names of suitable companies for EoI will be provided by DDP after their empanelment.
• IPMT will shortlist agencies after studying their responses, but it will be the Def Prod Board that shall select two agencies for development.
• IPMT will report periodic progress to the Def Prod Bd through the Acquisition Wing.

It is a highly undesirable way of functioning. The Acquisition Wing is the executive arm of the Defence Procurement Board (DPB); but the DPB has been kept out of the ‘Make’ loop. Acquisition Wing will be required to report to two superior agencies now – DPB for procurements and the Def Proc Bd for development cases. Such an arrangement is a sure recipe for confusion, inaction, delays and lack of accountability.

Lack of Expertise with HQ IDS and SHQ

After a proposal has been included in LTIPP, SHQ concerned would be asked to evolve PSQR. PSQR must include essential parameters (based on proven state of the art technology available in India or abroad) and the desirable parameters (based on futuristic/emerging technologies and could be demonstrated at a later timeframe). It is unfair to ask SHQ to frame PSQR as they possess neither any technical competence nor any knowledge of proven/emerging technologies. Instead, they should be asked to give broad performance characteristics sought, as is done in all countries. It is for technical experts of DRDO to carry out a technology scan to translate performance characteristics into PSQR.

Feasibility studies are required to be carried out by HQ IDS, or may be delegated to SHQ. Study reports must also bring out cost benefit analysis, spin offs and indigenous competence for development. In view of the recently introduced offset clause, benefits of indigenous development, vis-à-vis loss of offset gains also have to be weighed very carefully. Feasibility study is a highly specialised task and well beyond the competence of any service organisation. Service officers can be co-opted to provide performance related inputs but it is for R&D experts to determine ‘what can be developed and by whom’ in the given time frame and with optimum cost benefits.

Acquisition Wing is Ill-equipped for ‘Make’ Responsibilities

The Acquisition Wing has been structured and organised to handle ‘Buy’ and ‘Buy and Make’ cases. Even in ‘Make and Buy’ cases, its role is limited to outright buy and contracting transfer of technology. Subsequent production with received technology is carried out under the Def Prod Board. The Acquisition Wing, therefore, has a very lean and functional organisation. It is fully loaded with its assigned responsibilities and has no spare capacity available.

The new procedure has shifted the burden of indigenous development from the DRDO to the Acquisition Wing with no increment to its organisation. The Acquisition Wing will now be required to oversee preparation of PDD, examination of EoI, and analysis of DPR. Additionally, it will have to identify the requirements of technology demonstrators, evolve risk management process, define exit criteria and determine issues pertaining to limited series production. Thereafter, it has to monitor progress during the whole development phase. The Acquisition Wing will find these additional duties beyond its technical and functional competence.

DRDO Expertise Rendered Redundant

Prior to the issuance of the new procedure, all R&D cases were progressed under the aegis of the DRDO. But by sub-categorisation, DRDO’s role has been limited to the development of strategic, complex and security sensitive systems which relate to technologies that are futuristic and sophisticated in nature. All other development cases have been taken out of its purview.

For ‘Make’ cases, DRDO has been assigned only advisory functions. Its advice may be accepted or rejected by the decision makers who have little knowledge of R&D intricacies. It is indeed strange that such minimal use is proposed to be made of the immense experience and expertise acquired by DRDO over decades. DRDO has been reduced to peripheral irrelevance.

It is agreed that the DRDO has not been able to deliver so far and all its projects suffer from cost and time overruns. But the solution lies in carrying out reforms to address underlying problems. Discarding DRDO and stripping it of most R&D activities is a very short sighted decision. Even if not fully successful, the DRDO possesses a vast reservoir of talent and experience. India cannot afford to let it go waste. Moreover, it will take decades before alternate R&D competence can be developed with SHQ, HQ IDS and MoD. And till then, the current confusion shall prevail.

Procedural and Funding Inadequacies

This vital aspect has been dealt with in a highly perfunctory manner. After a long struggle, the DRDO has been able to put a suitable procedure in place for carrying out R&D tasks. As R&D activities cannot thrive in the straitjacket of bureaucratic regulations, its procedure is highly flexible and delegates considerable discretionary powers to functionaries at all levels.

Similarly, funding pattern of R&D projects has to be need-based, prompt and with adequate latitude. Under the new procedure, funds are proposed to be provided in a manner and subject to the conditions approved by the competent authority under the Account Head ‘Make Procedure-Prototype Development Account’, which would be operated by the Acquisition Wing. Project Sanction Order (PSO) will be issued after CFA accepts DPR and accords approval to the project. Date of issue of the Government letter would deem to be the date of commencement of the project.

The above funding system suffers from two major deficiencies:-

• No funds have been provided for activities prior to the issuance of the PSO. It implies that no provision has been made for the expenditure incurred by SHQ/HQ IDS on feasibility studies and by the Acquisition Wing on formulation of PDD and subsequently in assessing DPR. Interestingly, the procedure permits engagement of consultants for all above mentioned functions, but no funds have been earmarked for their payment.
• PSO shall inter alia contain cost estimates and schedule of release of payments linked to achievement of well defined milestones. It is a rigid arrangement and most unsuited to R&D projects where cost and time overruns are commonplace and unpredictable. In case every deviation has to be referred back to the CFA/DAC, there will be considerable delays.

As seen above, the new procedure does not cater for procedural and funding peculiarities of R&D projects. This aspect appears to have been totally overlooked.

Categorisation of Indigenous Development

Under the new procedure, all ‘Low Technology Mature Systems’ would be categorised as ‘Buy Indian’ and must have minimum 50 per cent indigenous content. On the other hand, acquisitions covered under the ‘Buy’ decision have been sub-classified as ‘Buy Indian’ and ‘Buy Global’. Herein, ‘Buy Indian’ has been prescribed to have minimum 30 per cent indigenous content if the systems are being integrated by an Indian vendor. Both provisions mean the same, but have laid down different threshold limits. It appears that the chapter on ‘Make’ procedure has been drafted independently and included in the procedure subsequently, leading to such major dissonance.

‘Make’ procedure is meant for equipment to be developed based on proven or mature technologies available in India or abroad. It implies that the procedure is really meant for system integration and not development per se. If that be so, it would have been more prudent to consider it purely as a ‘buy’ case and let the concerned industry either exploit existing technology or import it under its own arrangement.

The Way Forward

In view of major infirmities of the new procedure, it will be prudent to revert to the previous system, albeit with reforms and additional controls. Involvement of users is certainly desirable, but it does not mean putting the complete process under their aegis. the DRDO must exercise overall technical control and provide continuous guidance.

The following changes are recommended:-

• All cases which need minimum 50 percent indigenous content should be dealt with as ‘Buy’ cases and not considered under ‘Make’ category at all. ‘Make’ procedure should be confined to strategic, complex and high-tech systems only.
• SHQ should be asked to indicate performance characteristics of the proposed equipment. It is for the scientific community to translate them into PSQR after detailed technology scan.
• Feasibility studies must be carried out under the aegis of the DRDO, albeit with close association of SHQ and HQ IDS. It should be for Def R&D Bd to identify cases that should be handled by the DRDO and those that should be assigned to the industry.
• After being convinced of the proposed categorisation, HQ IDS should obtain approval of DAC.
• Def R&D Bd should constitute IPMT with best talent available amongst the services, the DRDO and the public sector. As the Def R&D Bd has adequate representation of SHQ and HQ IDS, close involvement of the users through out the prototype development phase would be ensured.
• Selection of companies for EoI and short listing of development agencies should be approved by the Def R&D Bd and not the Def Prod Bd.
• IPMT should scrutinise DPR and submit its detailed recommendations to Def R&D Bd. It is for the Def R&D Bd to lay down time frame with major milestones and funding pattern. Development procedure and funding should be as per the existing DRDO rules.
• IPMT should monitor progress closely and keep the Def R&D Bd posted periodically. As the Def R&D Bd is answerable to the DAC, its performance will remain under constant scrutiny.
• The case should be handed over to the Acquisition Wing after staff evaluation of prototypes. Further action for procurement should be as per the standard ‘Buy’ procedure.

The above arrangement makes full use of DRDO competence and leaves the Acquisition Wing free to concentrate on its primary task of handling ‘Buy’ and ‘Buy and Make’ cases. If considered necessary, IPMT may be headed by a service officer but it must function under Def R&D Bd.

Conclusion

Of late, the DRDO has been coming under increasing censure for huge time and cost overruns in virtually all its projects. The Standing Committee on Defence in its report tabled in Parliament in March 2007, recommended total overhaul of the DRDO to enable it to concentrate on cutting-edge technology. It also suggested making the DRDO more accountable and open to independent auditing.

Yielding to increasing stridency of criticism, the Government appears to have decided to:-

• Restrict the domain of DRDO to strategic, complex and security sensitive systems.
• Assuage the services by assigning control of all other developmental projects to them.
• Increase the involvement of the private sector.

Regrettably, the new procedure appears to be more of an impulsive response than a well-considered policy. Having decided to curtail the role of the DRDO, the Government had to assign ‘Make’ responsibilities to the Acquisition Wing as that was the only alternative available. Apparently, this was done without reference to its technical and functional competence.

 Initial part of ‘Make’ procedure (concerning planning process) is common to all acquisition cases and should have been placed at the beginning of DPP-2006. This incongruity shows that the new ‘Make’ procedure was drafted in haste and has been included in DPP-2006 as an add-on chapter.

Reforms have turned out to be worse than the problem. The new procedure has been a non-starter and has succeeded only in compounding confusion. It was promulgated on 1st September 2006. Nearly one year has passed, but not a single case has been processed so far. Instead of reducing delays it has stalled the complete process.

Finally, if an organisation in which enormous resources have been invested fails to perform, prudence demands that its weaknesses be identified and rectified. Discarding it or curtailing its functioning will only result in wastage and delays. Development of alternate competence takes time and resources. DRDO possesses vast infrastructure and has acquired immense technical competence. It is for the Government to harness its potential by closer participation of the users, regular monitoring of its functioning and making it more accountable.