Defence Industry

Defence Purchases: time India asserts itself
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Issue Vol 24.4 Oct-Dec2009 | Date : 19 Jan , 2011

The deal for aircraft carrier Admiral Gorshkov is a classic case wherein Russia is exploiting Indian inability to procure an aircraft carrier in the required time frame from alternate sources.

As can be seen, both monitoring and post-contract management do not get the attention that they deserve. Vendors have understood this weakness of the system and have devised innovative ways to disregard contractual commitments. Lax monitoring allows them to get away with major irregularities with impunity.

Limited Vendors

There are very few manufacturers of defence systems in the world with cutting edge technologies. Additionally, the market for state-of-the-art defence equipment and platforms is circumscribed by denial regimes. Many countries either deny export licence or impose unacceptably stringent conditions for sale. Worse, India has been shooting itself in the foot by imposing ban on many major weapon producers for alleged indiscretions.

All the above factors combine to restrict the number of vendors to a handful. Realising their indispensability, they are emboldened to flout contractual undertakings. They feel confident that India would not dare to penalise them for any breach in the fear of jeopardising the ongoing contract. Most defaulting Russian and Israeli vendors fall in this category. The deal for aircraft carrier Admiral Gorshkov is a classic case wherein Russia is exploiting Indian inability to procure an aircraft carrier in the required time frame from alternate sources.

Lack of Feed Back and Data Bank

Perhaps India is the only country that maintains no data bank of the past track record of the vendors. There is no institutionalised arrangement to refer to the past performance of vendors to determine their suitability for newer contracts. As seen above, once a contract is signed, the case slips out of Acquisition Wing’s focus. Little attention is paid to obtaining performance details for future contracts. Taking advantage of this infirmity of the system, smart vendors remain confident in the knowledge that their indifferent past performance will never be a hindrance to their business prospect. That is the reason that regular defaulters like Rosoboronexport continue to obtain new orders.

The Way Forward

While selecting vendors for the issuance of Request for Proposals (RFP), past performance must be factored in. This can be done through two-track methodology. First, an effective post contract monitoring and feedback mechanism should be put in place. A defence procurement network, electronically connecting all concerned agencies, needs to be set up to create a comprehensive data base. Feedback on the progress of all ongoing contracts should be sought on regular basis. Thereafter, profiles of all vendors should be drawn with respect to their compliance with contractual provisions. Vendors could even be graded as per their track record. Habitual defaulters could be considered for debarment for issuance of fresh RFP for a specified period.

India should not hesitate to cancel the said contract and demand full refund. Such a step would send a strong and unambiguous message to the world arms community that India would brook no deviation from contractual obligations.

Past performance should cover the following aspects:-

  • Adherence to delivery schedules.
  • Quality of equipment and ancillaries supplied.
  • Transfer of contracted technology as per the letter and spirit of the contract.
  • Promptness of supply of spares and reasonableness of prices.
  • Quality of after sales service and warranty coverage.
  • Timely completion of turn-key projects.
  • Reasonableness (or excessiveness) of the manufacturer’s recommended quantities of spares.
  • Performance of the equipment over prolonged period vis-à-vis vendor’s claims.
  • Timely fulfillment of offset obligations, where applicable.
  • Willingness to resolve disputes in a fair manner.

The second track recommended is direct in approach, wherein all vendors are asked to provide details of all past and on-going contracts signed by them. Vendors must be apprised upfront that their past record will also be a consideration in final decision making. RFP should contain a standard form titled “Record of Previous Contracts”. It should be a comprehensive and incisive form, covering all aspects mentioned above. Vendors should be asked to submit it along with their technical proposals. Veracity of the information submitted should be got attested by the agencies concerned. During the preparation of the General Staff Report, cognizance should be taken of the report submitted by the vendors and the comments thereupon.

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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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