Press reports have been highlighting Russian refusal to deliver aircraft carrier Admiral Gorshkov at the contracted price and within the agreed delivery period. It is demanding more money on the plea that the Russian technicians had underestimated the quantum of work required to restore the fire-ravaged ship. The stated mistake was committed by the Russians, yet it is India that is being held to ransom. Contrary to all norms of trade, Russia wants India to pay for Russian miscalculations. It defies logic. India knows that it is being treated unfairly but finds itself coerced to acquiesce with repeated price escalations.

The above is not the solitary case of foreign vendors shortchanging India and reneging from contractual obligation without any fear of penalties and debarment. Every report submitted by Comptroller and Auditor General of India (CAG) highlights numerous defaults by foreign vendors. As a matter of fact, there is hardly a contract which gets implemented flawlessly in letter and spirit. Major defaults pertain to the following:-

Deals finalised in the wake of the Kargil war are yet to materialise fully. Russia has acquired notoriety for regular default. Israel has delayed delivery of AWACS while Scorpene contract is irretrievably heading for delivery delays.

• Most deliveries remain behind schedule. Vendors appear least concerned about honouring the contracted delivery schedules. Timely deliveries are rare. Deals finalised in the wake of the Kargil war are yet to materialise fully. Russia has acquired notoriety for regular default. Israel has delayed delivery of AWACS while Scorpene contract is irretrievably heading for delivery delays. Defence Minister A K Antony publicly expressed his anxiety over continued delays in the delivery of defence equipment while presiding over the induction ceremony of the first AWACS in New Delhi on 28 May 2009.
• Many vendors invent ingenious methods to escalate prices midway through the currency of their contracts, thereby forcing India to incur additional expenditure. They resort to delaying deliveries to pressurise India for unfair price benefits. The common excuses are unfavourable foreign exchange fluctuations and increased cost of sub-assemblies. Another common stratagem is to keep the price of main equipment stable while seeking overpricing add-ons like training expedients, jigs/fixtures and spare parts.
• In cases involving transfer of technology, most vendors disregard terms of contract and start playing truant for extracting additional benefits. Instead of transferring know-how to facilitate indigenous production, they adopt delaying tactics to get additional orders for fully built up equipment. Russia delayed providing critical technologies and vital components for the production of T-90 tank in India for the same reason. Vendors exploit India’s urgency to make up deficiencies for unethical gains.
• With confirmed supply orders in hand, many unprincipled vendors attempt to cheat by supplying sub-standard material. Russia tried to pass refurbished Tanguska air defence systems to India for new equipment. Most of Krasnopol precision ammunition sold turned out to be dud. There is hardly any equipment that fulfills promised performance parameters. Every trick is tried to dupe India. Even much touted fire control system of T-90 tanks failed to perform as per the claimed performance parameters.

Reasons for Foreign Vendors Shortchanging India

Foreign vendors have been getting away with their unscrupulous activities without any fear of punitive action by India. Their past experience has emboldened them to the extent that they violate all provisions of the contracts with impunity. Contracts cease to matter except when smart vendors refer to them to exploit small print for their benefit. Unfortunately, India has failed to discipline them by putting an effective system in place. Some of the major reasons for continuous shortchanging of India are discussed below.

Disjointed Functioning

The basic bane of Defence Ministry’s functioning is rigid compartmentalisation. Although Acquisition Wing has been created specifically to handle capital procurements, not all functions are performed by it. There are thirteen different agencies, each reporting to different functional heads, involved in the procurement process. Every functionary guards his turf with vehemence. He is reluctant to share his knowledge or information.

Also read: Anti-India mindset entrenched in Pakistan

CAG has highlighted numerous cases where the three services have purchased the same item from the same vendor at different rates. Vendors are quick to exploit such weaknesses in the system to derive undue benefits.

Lack of Professionalism

In India, acquisition functionaries are posted in routine turn over. There is no selection based on educational qualifications, demonstrated flair or past experience. Unfortunately, the services are to blame the most in this respect. They have failed to grasp the importance of staff proficiency. A number of critical acquisition functions are being performed by officers posted to New Delhi on their last-leg posting prior to superannuation. Similarly, a bureaucrat from Animal Husbandry or Panchayati Raj Department can be posted to the Acquisition Wing to negotiate advanced weapon systems worth billions of dollars. The role of defence financial advisors is performed by Defence Finance functionaries without elementary knowledge of economics and military matters.

CAG has highlighted numerous cases where the three services have purchased the same item from the same vendor at different rates. Vendors are quick to exploit such weaknesses in the system to derive undue benefits.

Worse, no training is ever provided to acquisition functionaries to enable them to discharge their duties efficiently. Lack of integral legal advice has been another major weakness of the system. To sum up, it will not be incorrect to aver that defence acquisitions in India are being handled by amateurs who are ill-equipped to carry out highly specialised functions.

Poor Contract Drafting

Before the release of Defence Procurement Procedure – 2005, India had no standard contract format. The usual practice followed was to ask the vendor to prepare and submit a draft contract document. On receipt, the draft was circulated to different agencies involved to elicit their comments. The quality of contract vetting depended solely on the diligence of the official involved. The whole exercise was thus carried out in a highly casual and perfunctory manner.

As was to be expected, vendors drafted contracts keeping their own interests in mind and small print invariably contained provisions detrimental to India’s interests. These aspects got revealed at a much later stage when nothing could be done to retrieve the situation. There are numerous instances where India has paid dearly for such lapses.

Lack of Planning

Delayed finalisation of 15-year Long Term Integrated Procurement Plan and 5-year Services Capital Acquisition Plans forces India to go for unplanned procurements. According to CAG, 28 and 43 percent of the budgets in 2004-05 and 2005-06 respectively were expended on unplanned items. CAG held unplanned procurements responsible for restricted competition amongst other ill-effects, thereby giving undue leverage to vendors to demand higher prices.

Also read: A Vision for India

Lack of planning also results in a last minute rush to conclude contracts before the end of a financial year to avoid surrendering unexpended funds. Contract Negotiation Committee for all proposals over Rs 75 crores for the services and Rs 20 crores for Coast Guard is headed by Acquisition Manager with Technical Manager and Financial Manager as members. As a financial year draws closer to closure, they get hard pressed to devote adequate time to each contract, resulting in flawed provisions.

Indifferent Monitoring and Poor Post-Contract Management

Performance of a vendor can best be gauged by the degree of earnestness with which he adheres to the various provisions of a contract. India lacks an effective system for post contract management and monitoring. Although there are a number of agencies involved, there is no single overarching authority to ensure coordination among them. To start with, while responsibility for contract administration and management is that of the Service Headquarters (SHQ) concerned, post-contract monitoring is conducted by the Acquisition Wing. In addition, Equipment Induction Cells are raised by SHQ to deal with the issues related to smooth induction of major equipment in service.