The communication gap in Defence Procurement
Despite repeated assertions of the Government that the huge potential of the private sector must be tapped to achieve self sufficiency in defence production, little progress has been achieved on ground. Leaving aside a handful of highly aggressive big corporate entities, most private sector companies continue to wait on the sidelines, struggling to gain entry into defence business. Whereas old players are aware of the functioning of the Ministry of Defence (MoD) and have developed close network with key functionaries, new aspirants find the whole environment highly dissuasive.
There is a total absence of an effective institutionalised interface between the MoD, its procurement agencies and the industry. On one hand, industry complains of a total lack of clarity as regards the confirmed requirements of the armed forces, procurement structures, procedures and policies. Many private sector companies who have the capability to manufacture the whole range of defence equipment do not know whom to approach for ascertaining details.
Many private sector companies who have the capability to manufacture the whole range of defence equipment do not know whom to approach...
On the other hand, procurement agencies are unaware of indigenous Indian companies that can manufacture and supply required defence hardware as the capability and potential of Indian companies has not been authentically catalogued as yet. It is easier to obtain details of foreign manufacturers than to identify Indian companies for the issuance of RFP.
Industry Needs Inputs
Before taking an investment decision, every company needs inputs regarding likely annual demand of the product over short, medium and long terms; procurement agency that is likely to issue Request for Proposals (RFP) with likely timelines; and need for vendor registration and the process thereof. Presently none of the above inputs are available to a prospective vendor, as shown below:-
- Defence Procurement Procedure - 2011 (DPP-2011) mandates that the future needs of the armed forces must be shared with the industry. For that, a public version of perspective document outlining the technology perspective and capability road map covering a period of 15 years is required to be made public. As can be appreciated, such a document can at best be of limited value. It is purely indicative in nature and does not contain concrete demand projections. Additionally, absence of assured commitment of funds and frequent changes in priorities reduce the sanctity of the perspective plans. Thus no prospective producer can bank his investment decision on it.
Every country that aspires to develop its defence industry has to provide support and incentives to local entrepreneurs.
- There are over 150 major procurement agencies under MoD that resort to large scale purchases – Acquisition Wing (MoD), the three Service Headquarters (SHQ), Coast Guard, nine defence public sector undertakings, 40 Ordnance Factories, fifty two Defence Research and Development Laboratories, Army Base Workshops and Air Force Base Repair Depots. Additionally, all Command Headquarters and subordinate formations make purchases under their delegated financial powers. All defence procurement agencies function independently. Any vendor desirous of doing business with the defence has to approach all procurement agencies separately for product-specific registration to become eligible to receive tender enquiries. It is a Herculean task and tests the perseverance of even die-hard optimists.
- As there is no system in place for centralised notification of all defence procurement tenders, prospective vendors have to learn about impending tender enquiries by direct liaison with all procurement agencies. Many tenders are not made public on security considerations; whereas others are published in papers with limited reach. Additionally, many deals are negotiated on the basis of single or limited tender enquiries on grounds of urgency. Thus, most tender enquiries tend to get restricted publicity. As per DPP-2011, no new vendor can be added to the list after the issuance of RFP. It implies that vendors have to keep in touch with all procurement agencies to ensure that they do not lose business opportunities by default. In case they fail to anticipate a proposal and contact the procurement agency prior to the issuance of tender documents, they miss the bus.
Due to the above mentioned infirmities of the system, private sector players find the environment highly dissuasive. There is no Government agency to guide prospective vendors as regards procurement processes, impending tenders and contact points for further information. New entrants face further challenges. They keep groping in the dark, not knowing how to proceed ahead. Once frustration and despondency set in, they lose heart and get forced to reconsider their decision to enter the defence sector. Absence of a genuine facilitator acts as the biggest deterrent for the new aspirants.
Bridging the Communication Gap
Every country that aspires to develop its defence industry has to provide support and incentives to local entrepreneurs. The British MoD has put in place a highly responsive and effective system to assist and support both suppliers and buyers within the defence industry by providing access to a wide variety of information at different levels. It handles a base of 1,800 buyers and 32,000 suppliers. With a view to ensure that all stakeholders remain updated with the latest developments, it publishes a fortnightly ‘Defence Contracts Bulletin’. This was introduced in 1986 to increase transparency in defence contracts and to alert potential vendors of forthcoming business opportunities. It acts as a gateway for aspiring companies to enter defence business, either directly as a prime contractor, or indirectly as a sub-contractor.
Once frustration and despondency set in, they lose heart and get forced to reconsider their decision to enter the defence sector. Absence of a genuine facilitator acts as the biggest deterrent for the new aspirants.
DCB is an exhaustive publication containing details of possible future purchases (with deadline for Expression of Interest, summary of requirements and quality assurance standards); tenders invited; contracts awarded – both competitive and single source (with date of award, name of company and price at which awarded); sub-contract opportunities; and various Government policy announcements and related reports. It also contains advertisements placed by different companies. DCB is available both in print and wire editions. All tenders of non-warlike stores in excess of GBP 93,000 and warlike stores of over GBP 500,000 are published in DCB. In addition to providing advance information, DCB contains details of contact points for further assistance.
Established in July 2004, the European Defence Agency (EDA) has been tasked to improve European defence capabilities, promote armament co-operation and develop a competitive With a view to promote mutual transparency and accountability, EDA has created an Electronic Bulletin Board (EBB) to advertise all new defence contracting opportunities in the subscribing states. The aim is to enable suppliers based in the territory of the participants to visit a single website for all defence procurement contract opportunities advertised by the subscribing member states.
The US National Defence Industrial Association disseminates information regarding the latest developments in technology, equipment and other important business issues through a monthly publication. In addition to daily announcement of all contracts valued at USD 5 million, the Department of Defence (DoD) maintains a highly informative web site. Subscribing entities can keep themselves posted of the latest business opportunities and contract notices.
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Similarly, South Korean monthly magazine ‘Defence and Technology’ and Finland’s ‘Finnish Defence Contracts Bulletin’ carry details of latest policy directives, update on emerging defence technologies and proposed acquisitions. It is only in India that despite repeated declarations of developing indigenous defence industry, no Government initiative has been taken to keep the environment informed of procurement policies/procedures, impending tenders and contact points for further information. It is left to the patience, stamina and perseverance of vendors to enter defence business.
The Way Forward
MoD must initiate two measures at the earliest. One, the Department of Defence Production should issue a periodic communiqué covering all defence industry related developments. Two, a directory of credible defence manufacturers should be compiled and issued to all procurement agencies. Both the suggested measures are elaborated below.
Defence Procurement Communiqué (DPC) should be a monthly bulletin and published both in print and electronic forms, striving to provide news, information and other inputs to prospective sellers to help them take informed business decisions. It should consist of five sections as follows:
About the author
Maj Gen Mrinal Suman is India’s foremost expert in defence procurement procedures and offsets. He heads Defence Technical Assessment and Advisory Services Group of CII.
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