Indian Defence Review

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https://currenthunt.com/2020/10/defence-acquisition-procedure-dap-2020/

In a span of just two months, the Ministry of Defence (MoD) has taken out two important documents that will have a far-reaching impact in defence and aerospace industry on multiple counts.

The first of these is called the Draft Defence Production and Export Promotion Policy (DPEP 2020) released on 03 Aug 2020 while the second is the Defence Acquisition Procedure (DAP) 2020 released on 28 Sep 2020. The soul of both these documents resides in the concept of Atmanirbhar Bharat. Both of these, as the captions says, carry ‘solid provisions’ which demand ‘solid implementation’.

While detailed comments on DPEPP are contained in the author’s work titled –‘Defence Production and Export Promotion Policy 2020: Effective Implementation is the Key[1], the current article visits the second document titled DAP 2020, identifies linkages of the same with DPEPP 2020and flags many of its an enabling provisions that demand ruthless implementation.

First Winds of Welcome Change

A first look at the new document, ushers a sense of change as one sees the word ‘procurement’ replaced by ‘acquisition’ (earlier documents were called Defence Procurement Procedure or DPP, now it is named as DAP) . This is not semantics alone; it signals an ‘intention’. The intention (read will) to be more assertive, more pro-active and to have the commanding position of a ‘buyer’ out to ‘acquire’ a product of his ‘choosing’ on the ‘his terms’ rather than just trying to ‘procure’ something for fulfilling one’s needs. This intention runs right through the new document.

A Word on Linkages.

Before proceeding with DAP 2020, it will be in place to build some linkages of the same with DPEPP 2020 as the two policy documents are slated to run in unison. Some important points:-

•  DPEPP 2020 is supposed to be a macro document designed to provide a focused, structured and a significant thrust to achieve a turnover of Rs 1 Lakh 75 thousand Crore including an export target of Rs 35 thousand Crore in Defence and Aerospace sector by 2025[2].

•  Towards achieving the above targets, DPEPP, sets out certain thrust areas and lists out strategies in the form of specific action points which will be taken to achieve the desired outcomes in each thrust area.

•  Some of these areas include, carrying out procurement reforms, pushing forward indigenization efforts and supporting the Micro Small and Medium Enterprises (MSMEs), encouraging innovation and R&D, optimizing resource allocation for domestic procurement, enhancing foreign direct investment (FDI), further improving ease of doing business (EoDB) index, corporatisation of Ordnance Factoty Board (OFB), disinvestment drives for Defence Public Sector Undertakings (DPSUs), improving quality assurance (QA) and testing and enhancing export promotion etc.

•  DAP 2020 connects with DPEPP in a manner that it includes all the relevant features and provisions contained in DPEPP as related to the defence acquisition domain, for instance, procurement reforms, FDI, support to MSMEs and the like.

•  To that end, both the key documents are in harmony and complement each other. So much for the linkages.

Visiting DAP 2020[3]

A legacy document

DAP 2020 carries a legacy of nearly three decades for it was on 28 Feb 1992 when the MoD first laid down the Procedure for Defence Procurement which got further refined in Sep/Oct 2001 based on recommendations of Group of Ministers (GoM) on Reforming National Security System.

This ushered the era of DPPs starting with DPP 2002 and followed by DPPs 2003, 2005, 2006,2008,2009,2011,2013 and finally DPP 2016.Each DPP carried amendments and new provisions based on what was the experience with the preceding version.

The story continues with DAP 2020 as a long awaited successor to DPP 2016. True to the precedent, DAP 2020 is so structured as to address the anomalies that have ailed the defence procurement vertical for years and decades. Some of these are:-

•  Need to simplify the procurement procedures by reducing the number of stages in process, and number of layers of approvals.

•  Need to minimise the time delay in processing of the procurement cases end-to-end.

•  Need to remove obstacles in the procurement process by enhancing EoDB index.

•  Need to energise the domestic arms industry to achieve the goal of Atmanirbhar Bharat.

Some Enabling Provisions of DAP 2020

Encouraging FDI in defence

Open sources quoting Minister of Commerce and Industry, Mr Piyush Goyal, reported in Sep 2020 that the Govt has increased the FDI limit in the defence sector from 49% to 74% on the automatic route and beyond 74% through the Govt route; all investments being subject to scrutiny on grounds of national security. The Minister stated that this will provide a greater access to modern technologies world over and will increase self-reliance in defence production[4].

In taking forward this vision and towards implementation of the same, the DAP 2020 has the following enabling provisions:-

•  At the Request for Information (RFI) stage itself in the ‘Buy Global’ cases, a provision has been incorporated wherein, the willingness of the foreign Original Equipment Manufacturer (OEM) is sought if he is interested toset up business in India.

•  This could be for making the entire equipment, or part equipment or spares, assemblies, sub-assemblies or even setting up the maintenance and repair organization (MRO). This could be done by the OEM himself or through one of his subsidiaries.

•  For making the above possible, a new acquisition category named ‘Buy (Global- Manufacture in India) has been created.

•  It is the opinion of the author that such an arrangement will push indigenisation of whole systems or components/parts thereof in a big way. This will also be in line with the Govt’s indigenisation policy mentioned in DPEPP which has an ambitious target of indigenizing some 5000 imported items by 2025.

•  Talking of manufacturing in India, DAP also has incorporates a provision of co-production agreed upon through the vehicle of Inter-Governmental Agreement (IGA). Such arrangement is a preferred one as it not only, cuts out a lot of intermediate processing by stakeholders/middlemen, but also, promotes import substitution.

Implementation of negative import list provision.

In fact, before the release of DAP, the Defence Minister on 09 Aug 2020 announced a list of 101 items which will be banned for import progressively from the period 2020-2025[5]. Some points:-

•  The ban comes into effect staring Dec 2020 and the 101st item is banned with effect from Dec 2025[6].

•  The impact of the ban can be assessed from the fact that in the short period from Apr 2015 to Aug 2020 the armed forces imported some 3.5 lakh Cr of items included in this list[7].

•  Consequent to the above decision, there is likely to be a windfall of orders for the domestic sector amounting to Rs 4 Lakh Cr in a period of 6-7 years[8].

•  In consonance with the above thrust, the Govt has created a separate budget head with an outlay of 52,000 in the FY 2020-21 only for financing capital procurements from the domestic sector

•  DAP 2020, in implementation of the above policy has included a provision, whereby, it needs to be confirmed in writing, that the proposed capital procurement does not include any item from the negative import list.

Another positive and open-ended provision.

This is another welcome provision which actually keeps the contract open for optimization as the years roll. Salient points:-

•  As the contract is done, life-cycle support cost is estimated ab-initio and built into the contract cost.

•  The provision enables that if through the route of indigenous efforts, life cycle support costs can be optimized over the years (though indigenous spares/assemblies/sub-assemblies/upgrade/MRO etc), it will be possible to be included in the contract. This will push the overall contract cost southwards.

Addressing the ills in the user domain

Most of the delays in the capital procurement chain actually happen in the user domain. The DAP addresses the four major culprits in this context. These are enumerated:-

•  Bad managerial practices

Many delays in capital procurement happen simply because of bad management of the cases….indecisions, file processing blues, endless comments, putting cases in loops… to name a few.

It was proposed in the DPEPP that a Project Management Unit (PMU) be instituted that could bring in the best management practices to give traction and direction to procurement cases. DAP provisions implement this idea of PMU.

The only point of caution is that PMU must not only be very lean and mean, it must also pack the required management talent by having on board, suitable professionals. It will otherwise become ‘yet one more appendage’.

•  Lack of real-time awareness.

This is a long-felt void in the capital acquisition regime. In that, it is felt that at the case-processing level the knowledge on the current state of the industry and its readiness level, is not fully available in real-time. Also, sometimes the technology’s cutting-edge, world over, in a given vertical is not fully known. This comes in the way of taking procurement decisions weighed on a comprehensive knowledge base.

In order to address these, the DPEPP included the provision of instituting a Technical Assessment Committee (TAC). The TAC is tasked to continuously assess the ‘technological readiness levels’ (TRLs) of the industry categorizing the players into various levels ( full-scale system integrators/ developers and producers/only producers etc.), as also, carry out technological scans of world stage to yield specific inputs.

DAP includes the provision of the TAC and will implement the same.

•  Service Qualitative requirements (SQRs) the Do-ability Factor

Experience has it that any number of procurement cases have fallen (some after years of run-time) because of one single factor –‘SQR is not do-able’. DAP 2020 has taken a very firm view on this anomaly. It not only requires the user to state upfront that the GSQR is do-able, it requires the claim to be substantiated through an analysis of comparative equipment, world over.

•  Trials – the Achilles heel of capital procurements

If there is one activity that has hung maximum number of capital procurement cases on the hook of ‘endless waiting’ it is the field trials of equipment under procurement. The author is a witness how the trials that should have been finished in 12-24 months go on for 6 to 7 years.

The directions about trials in this DAP actually address the core anomalies and seem to pack years of ground experience. Some relevant points:-

• • Trials to only include physical evaluation of core operational parameters.
  • No duplication in conformance checking. Certifications from accredited sources to be accepted. Computer simulation, where realistically possible to be accepted.
  • Trials should be simultaneous. Erstwhile practice of serial trials (Field-MET-MToT- EMC/EMI…) was the biggest time consumer. Of course simultaneity could only be achieved to the extent that is practically feasible.
  • Vendor permitted to carry out rectification of shortcomings and undertake repairs without the need to close the trials and reboot again.
  • A new provision of seeking a Draft Acceptance Test Procedure ( ATP) from the vendor at the RFP stage itself.
  • No repeated inspections of the same equipment by multiple agencies.

•  Single stage Acceptance of Necessity (AoN)

One of the major blows to a potential time-waster has been dealt through a new provision of single-stage grant of AoN (by Defence Acquisition Committee or DAC) for cases upto 500 Crs. Experience has it that the AoN exercise itself used to take upto an year (if not more) in processing through multiple committees before reaching the DAC.

•  Not Semantics alone.

The base reference document for perspective planning prepared by HQ Integrated Defence Staff (IDS) which was called Long Term Integrated Perspective Plan (LTIPP) will now be called Integrated Capability Development Plan (ICDP).

While this change might look just semantics, the new formulation does convey a different sense of energy and pro-activism. The real change however is the time horizon. In that, while the LTIPP had a 15 year time horizon, the ICDP will have a time horizon of 10 years. This stands to good reason as 15 year is considered too long a period when it comes to technology. What is perceived to fructify after decades comes about in just a few years, thanks to the blistering pace of the march of technology.

Protection to Indian Vendors

Towards implementation of the self-reliance theme the DAP packs a lot of protection and opportunities for the Indian vendors. For instance a host of categories and schemes are reserved exclusively for them. These include the Buy Indian IDDM (Indian Design Development and Manufacture), procurements under Make1 and make 2 procedures, production agency in design and development projects, strategic partnership model and more. This is in consonance of the central theme of Atmanir bhar Bharat.

Upping the Indigenous Content (IC)

In a bid to encourage more and more use of indigenous products, the DAP has enhanced the IC % in some categories. This includes the Buy IDDM where the IC % has gone up from 40 to 50% and Buy Indian where the IC % now required is 50% when the design is Indian and 60% if it is not. Even for the new category of Buy (Global- Manufacture in India) the IC% requirement is 50%. All this will come as boon to domestic industry, where by default, opportunities will knock to provide indigenous components to meet IC criterion.

From Innovations to Products

There used to be a time when innovation activity was a stand-alone spark. It had no one-on-one connection with the acquisition cycle. The DAP has tried to forge this connection. There is now a provision for the procurement of prototypes produced as innovation projects and take them further on the product route. These innovations could either originate from initiatives like iDEX (Innovation for Defence Excellence) launched by the Govt in 2018 to promote the spirit of innovation and technology in the defence and aerospace sector, or through the Technology Development Fund set up by the Govt to enhance self-reliance in defence technology. It could also come from stand-alone events like competitions or contests organized by public/private sector (for instance Dare to Dream 2.0 by DRDO) or internal service organisations etc. In essence, an effort has been made to build a road from innovative ideas to real products.

Public Sector Products.

DRDO, DPSUs or OFB are public sector bodies which carry very huge upfront investments from the Govt. It is imperative that the products designed and developed by them do find their way into the user hands.

A separate Chapter in the DAP deals with the acquisition of such items (assumed that these are GSQR driven and developed through contracts won in an open competition). The procedures for acquisition have been simplified and an attempt has been made to dwarf timelines through a single-stage trial procedure.

Enabling provisions for development of new products through ideas like ‘spiral’ development have also been included (spiral development implies development of a whole by successive development of parts duly vetted and endorsed by user/developer/stakeholder at each stage). This is especially relevant for huge and complex systems involving multiple assemblies and multiple functions.

User side facilitation.

To facilitate the user side and allow them to procure certain essential items quickly, a new Chapter has been added titled ‘Other Capital Procurement Procedure’. This Chapter includes a simplified procedure to procure essential items in a time bound manner.

Nomination – totally a history.

The erstwhile provisions of allocation of contracts to public sector through a process of nomination are totally a history now. Not only that, following provisions in the DAP should alsocome as delight to the private players:-

•  For high value acquisition serials, the price variation clause has been allowed. This will end the erstwhile practice (read compulsion) of the sellers to give initially inflated quotes (in a hope to make good the price variation years down the line when it will be time to realize and supply the product.

•  In a bid to cut short the delays in release of payments to the vendors, provisions like parallel processing by the users and finance authorities has been included.

•  There is a provision to reward the vendors for using higher and higher indigenous material, indigenous software and so on.

Some New Chapters/Sections.

Besides the ones mentioned earlier there are some more new Chapters/sections etc. It clearly shows that a lot of experience related points have gone into evolving the DAP 2020. Some examples:-

•  Equipment related to information and communication technology (ICT) has peculiar requirement. In fact, between these two verticals (information and communication) lie about 60-70 % of all acquisitions. Besides the security aspects of data leak through dormant bugs, there are issues of inter-operability, compatibility and interference with other equipment, built-in upgradability, obsolescence and so on. All these aspects have been included in a new Chapter.

•  There is a new chapter on leasing which has been included as another category for acquisition in addition to the existing ones on Buy and Make.

Leasing will provide the option of possessing and using the asset without having to own it. Besides saving huge capital outlays, it will also cut down the time to start using the asset in response to an operational necessity. Leasing will particularly suit cases where the asset is required for a short time window or in small numbers (without having to spend administrative/maintenance cost on the same.

•  Likewise, there are separate Chapters on Post Contract Management dealing with all the aspects such as inspections, liquidated damages, contract amendments and so on

So much for the DAP 2020.

Points of Caution

This portion could appropriately be called ‘points of apprehension’ as implementation of what is desired will prove to be a tall order demanding much from the stakeholders. Some points:-

•  DAP 2020 – an intense document.

Out to simplify the procurement procedures, cut out delays and drive in multiple reforms, DAP 2020 has actually become very intense, very detailed and a multi-faceted document.

One more reason for this end-state has been the desire to pack in all the corrections garnered through decades of past experience, as also, to build new chapters and new provisions that relate to the new realities of ‘Atmanirbhar Bharat’, ‘make-in-India’ and finally, ‘an arrived private sector’.

All the above has made it a 681 page document ( DPP 2013-351 pages) What could be the implications? Probably the following:-

• • The document will demand a thorough reading and comprehension of the fine print. Suffice to say that it will be NO GO in the hands of non-experts, the uninitiated or the ‘cursorily aware’ types.
  • Lack of knowledge and awareness became one of the reason for non-exploitation of many an enabling parameters of DPP 2016 (Essential parameters A and B, Enhanced Performance Parameters or EPPs in GSQRs, flexibility provisions in offset parameters, to name a few). Similar if not greater danger of a ‘repeat,’ lurks in DAP 2020.
  • Many a proposed goodies could become traps/encumbrances if not properly thought through and ruthlessly executed (PMU, TAC, enforcing new trial provisions, steamrolling through corporatization) etc.

•  Grant of Waivers.

There is always an easy way out to push out a tough and an unforgiving provision out of the window. It is the grant of waiver. The same looks dwarfed in its menace if granted on a ‘case-to-case’ basis.

This prevalent practice so often subscribed to by various echelons in the MoD/acquisition stakeholders is a sure kill of the goodness that has been built with such painstaking effort in the DAP. The same must be avoided as far as possible while dealing with the new document.

•  On Fixing accountability and responsibility

This point has been flogged many times in the past. Inactions /wrongdoings (may be unintentional)/inordinate delays etc. continue to perpetuate and reoccur frequently (sic) simply because these are allowed to go unaccounted.

The litmus test of the DAP’s success will depend on the capability of the system to fix accountability and responsibility and take such remedial action which makes the re-occurrence of the same fault, a remote possibility (not carried further)

That the above points will remain ‘points of caution’ alone and not become points of ‘apprehension and undoing’ is the hope of the author.