Indian Defence Review

Costing of Transfer of Technology Improbabilities

Proposals that include ToT provision for indigenous manufacture of bulk quantity of equipment pose additional problems. As per DPP, each vendor is required to submit undertaking with ‘not to exceed’ budgetary price for ToT in their commercial proposals. ‘Not to exceed’ budgetary price is used for commercial evaluation. ToT cost has to cover licence fee, documentation, technical assistance, training, materials, spares, tooling, ground support items, test equipment, programme management and other necessary facilities for indigenous production.

Notwithstanding the fact that India has been negotiating ToT for decades, there is no system in place to carry out inter-se evaluation of competing technologies and cost them accordingly. There are no set guidelines. Every CNC follows different yardsticks. Lack of objective professionalism is the main cause for all ToT contracts getting mired in controversies, invariably to India’s disadvantage.

The Way Forward

As seen, CNC consists of ‘generalist’ functionaries whereas the tasks assigned to CNC are highly technical in nature needing domain expertise. It will not be incorrect to state that CNC is a motley grouping of officeholders representing different agencies and totally devoid of the required competencies. The members are selected because of the appointments they hold and not for any expertise acquired. Worse, many agencies detail officers who can be easily spared without reference to their suitability. In some cases, a new officer represents an agency at every meeting. CNC has no financial experts well versed with international trade practices, foreign exchange transactions and contractual legalities. And these deficiencies continue to be the biggest limitation of the complete defence procurement process.

Despite repeated claims, LCC analysis has still not been adopted as the standard methodology as there is no expertise available to calculate LCC pragmatically. The problem gets compounded where technology transfer is sought as an essential part of the package and has to be compared and priced.

It is time attention is paid to rectify existing deficiencies in commercial evaluation process. First of all, all concerned organisations should ensure that their representatives in the CNC possess adequate knowledge and can participate in the deliberations in a fruitful manner. Members once nominated should not be allowed to be changed. Importantly, their mandate should not be limited to safeguarding the interests of the organisation they represent but to contribute to the provision of collective counsel for national good.

CNC should be constituted well in advance to give it adequate time to acquaint itself with the details of the equipment under procurement and understand intricacies of the procedure. Once a rough model of methodology to be followed emerges, competencies required would get identified. Thereafter, CNC should be allowed to co-opt experts as additional members to fill voids. Finally, an exhaustive data bank should be created to ensure that required inputs are readily availability to CNC.

As every single deal for major procurements is getting mired in acrimonious discordance, there is an urgent need to impart professionalism to the commercial evaluation process. Commercial evaluation culminates in signing contract with the lowest bidder. Therefore, deliberations of CNC have a profound effect on contractual provisions and poorly negotiated deals can cost the country dear. Commercial evaluation is too critical a process to be handled in an ad-hoc, unscientific and amateurish manner.