Defence Industry

The communication gap in Defence Procurement
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Issue Vol. 26.3 July - Sept2011 | Date : 27 Oct , 2011

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.

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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.

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

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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