Defence deals the world over are regularly subjected to intense scrutiny and investigations. Aspersions are often cast about lack of probity and underhand dealings. In Transparency International’s Global Bribe Payers Index, the defence trade appears in the top three sectors for bribery and corruption. The other two are the oil sector and major infrastructure projects. The US Government estimates that defence sector accounts for almost 50 per cent of all kickbacks in the world, although the arms trade accounts for less than 1 per cent of international trade.
India is no exception. We have had more than our share of controversies and enquiries. Questions have been raised with regard to the procurement procedure followed and commercial improprieties. Though India’s defence imports constitute a very small portion of total trade, they have come to attract disproportionate media attention due to alleged irregularities.
The US Government estimates that defence sector accounts for almost 50 per cent of all kickbacks in the world, although the arms trade accounts for less than 1 per cent of international trade. India is no exception.
It is generally suspected that interested participants can skew the whole procurement process by influencing decision makers by decadent means. What makes Indian defence acquisitions vulnerable to such undue influences? The answer to this critical question can only be obtained by understanding the nature, limitations and peculiarities of India’s arms procurement mechanism.
- India imports nearly 70 per cent of its requirement of new defence systems. Availability of limited number of vendors of high-tech defence products restricts bargaining power of the Government. Additionally, some countries impose export restrictions. The problem gets compounded where technology transfer is sought as an essential part of the package.
- National security concerns preclude open tendering. Invitations are sent to a few selected vendors. A fine balance has to be maintained between open competition and secrecy needs. Besides, there is a tendency to play safe by over-stressing security.
- Due to high level of technology, the seller always knows the product better than the buyer. He can, therefore, negotiate the contract from a position of strength as the buyer has to accept his contentions. Base or fair price determination is exceedingly difficult due to rapid technological advances. Moreover, as all arms deals are not made public, terms and conditions of previous sales to other countries are not available as guidelines.
- Modern defence systems are highly complex and most of the major vendors are in fact system integrators and not producers of complete systems as such. During negotiations, assured life cycle support for the equipment acquires criticality.
- Procurement procedure is lengthy as it entails field trials of equipment in varying terrain and climatic conditions.
- India seeks offsets equal to 30 percent of the contract value for all deals of over Rs 300 crores. Negotiation of offsets is a complex and arduous task. As only peripheral attention is paid to offset contracts, the whole process becomes vulnerable to malpractices.
- At times, the cost of life-time support may be more than the purchase price of the equipment. Whereas considerable attention is paid to the quoted purchase price, support requirements generally escape close scrutiny. This provides an opportunity to unscrupulous vendors and dishonest functionaries.
- Emergent national security imperatives may necessitate expeditious procurement of urgent operational requirements for unforeseen crisis situations. As time is of essence, certain short-circuiting of normal procedures is inevitable. It results in dilution of standard checks and balances.
Major Steps Taken
The Government is fully aware of the need to put a transparent, credible and impartial procurement system in place. It has taken a number of bold and innovative steps. Recommendations of the Parliamentary Standing Committee on Defence, Central Vigilance Commission, Comptroller & Auditor General of India and the Kelkar Committee have also been incorporated in Defence Procurement Procedure – 2006 (DPP-2006).
Some of the major provisions which demonstrate Government’s resolve to make the process fair and credible are as follows:
- As increased competition promotes transparency and reduces scope for subjectivity, commensurate with security concerns, maximum publicity is to be given to proposed procurements through print and electronic media. Single vendor procurements are to be resorted in exceptional cases only.
- Formulation of Services Qualitative Requirements (SQR) has been rationalised to ensure multi-vendor responses. SQR have to be broad-based, realistic and of widely available contemporary technology. In order to obviate the possibility of tailor-made SQR to suit a particular vendor, in case a solitary vendor submits compliant response the process is to be aborted and fresh Request for Proposals (RFP) issued with reworked SQR.
- With a view to safeguard against the possibility of a vendor increasing his commercial quote consequent to emergence of a single vendor situation after technical evaluation; all vendors are required to submit technical and commercial bids together, albeit in separate sealed envelopes. Commercial bids remain sealed in safe custody till technical evaluation is completed.
- Both technical and commercial bids are opened by duly constituted committees under Technical Managers and the Acquisition Managers respectively in the presence of vendors or their authorised representatives.
- Paper evaluation of all technical offers is carried out by Technical Evaluation Committee (TEC) constituted under the aegis of the concerned service HQ. A technical offer, once submitted, is not permitted to be changed materially subsequently.
- Field trials are carried out under the service HQ as per the trial directive formulated. After each stage of the trials, a debriefing of all vendors is carried out at the trial location itself wherein compliance or otherwise vis-à-vis SQR is specifically communicated to all the vendors in a common meeting. This provision meets a major demand of vendors.
- To confirm that the trials, trial evaluations, compliance to SQR and selection of vendors has been done according to prescribed procedures, the Defence Secretary has to constitute a Technical Oversight Committee (TOC) for selected acquisition proposals in excess of Rs 300 crores.
- As regards commercial evaluation, a ‘Compliance Statement’ is prepared to record discordance, if any. Finally, a ‘Comparative Statement’ is prepared of all compliant commercial bids to determine the lowest acceptable offer (L1 vendor).
- Once L1 vendor is identified in multi vendor cases, the contract is to be concluded with him without any further price negotiations except in exceptional circumstances. In single vendor/resultant single vendor cases, a benchmark for reasonableness of price is determined before opening the commercial offer. If vendor’s quote is found to be within the benchmark fixed, no price negotiations need to be carried out.
- An undertaking is sought from the bidder that he has not supplied/is not supplying the similar systems or subsystems at a price lower than that offered in the present bid in respect of any other Ministry/Department of the Government of India. If the similar system had been supplied at a lower price then the details regarding the cost, time of supply and quantities should be included in the commercial offer.
- An ‘Integrity Pact’ is signed between the Government department and the bidders for all procurement schemes over Rs 100 crores. It is a binding agreement between the government department and bidders for specific contracts in which the government promises that it will not accept bribes during the procurement process and bidders promise that they will not offer bribes.
Contouring Vulnerability Map
Though, the Government has taken many pioneering and far-reaching steps to make the procurement regime credible and above board, it is essential to identify stages where the system can be subjected to external influences and the degree of such vulnerability. It is only then that appropriate steps can be taken to make the system foolproof.
- Initiation of Proposal and Allocation of Priority. Services Capital Acquisition Plan (for a five year period) contains a large number of approved procurement proposals. As resources are always insufficient to cater for all proposals, only schemes which are accorded higher priority are included in Annual Acquisition Plans. Other proposals remain on paper and get eliminated due to non-availability of funds. Priorities can be skewed to accord higher precedence to a proposal in which a favoured vendor is confident of emerging successful.
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- Formulation of Vendor-Centric Qualitative Requirements. Manipulation of parameters to favour a chosen vendor effectively rules out competition. It amounts to creating a single-vendor situation.
- Field Trials. Undue influence can be brought to bear on trial teams to take subjective view of competing equipment, especially in respect of trial parameters which are descriptive in nature and cannot be quantified.
- GS Evaluation. This is the final step in determining whether equipment is technically acceptable or not. Stressing of certain characteristics of favoured equipment and highlighting of minor glitches of the rest can be an effective ploy to play favourites.
Almost all defence deals are shrouded in varying degree of secrecy. Services proclivity for secrecy aggravates the problem. This lack of transparency creates doubts about their probity.
- Determination of Lowest Bidder. It is a complex process as the total expenditure includes basic cost, support equipment, services, spare parts, warranty obligations and repair facilities. Requirement of support backup and infrastructure can be manipulated to bring down the overall quote of the favoured vendor. A smart vendor always keeps his unit cost price at competitive levels but charges exorbitantly for add-ons through small print.
- Acceptance and Implementation of Offset Obligations. Offsets present huge opportunities for unethical practices. According to Transparency International, inadequate attention is being paid to ensure probity in offsets. As regards India, the concept of offsets is in a nascent stage and the Government is still struggling to fine tune it.
- Grant of Final Approval. Once technical and commercial processes are completed, the case is forwarded to the competent financial authority (CFA) for his final approval. No contract can be signed with the successful vendor unless CFA accords sanction. CFA can holdup a proposal indefinitely or raise incessant queries. As the stakes for the successful vendor are exceedingly high at this stage, he may be tempted to resort to unfair means to expedite sanction.
The above susceptibilities should be taken as a broad indicator of areas which need closer supervision. The table below shows degree of vulnerability at different stages.
Ensuring Probity
After having identified vulnerabilities which are prone to unfair influences, it is imperative that infallible preventive measures and safeguards are put in place.
- Selection of Acquisition Staff. This is by far the most important requirement. All checks and controls can be rendered ineffective by ingenious functionaries. They can circumvent all rules and provisions with innovative dexterity. Their proclivity to invent opportunities for manipulation is disquieting. Therefore, it is of utmost importance that acquisition staff be of unimpeachable integrity.
- Enhanced Transparency. Secrecy breeds corruption. Transparency is considered to be the best bet against underhand dealings. The armed forces must curb their propensity to assign unduly high security classification to procurement proposals. Wider publicity through various media will generate competition with resultant reduced scope for favouritism.
- Strict Adherence to Acquisition Time Frame. DPP-2006 has laid down a time frame for completion of different procurement activities. It should be strictly adhered to and all undue delays duly probed. All holdups, either by delays in clearance of files or by raising of irrelevant queries must be looked at with suspicion.
- Logical Determination of Fair and Reasonable Price. Fair and reasonable price of equipment under procurement is determined prior to the commencement of commercial negotiations. A scientific methodology should be evolved lest the whole exercise gets reduced to a subjective exploit. Ingress of infructuous factors to justify higher price bracket must be vigilantly guarded against.
- Evaluation of Commercial Proposals. It is absolutely essential that a matrix for commercial quote is issued with RFP. The matrix should incorporate all facets of the deal, giving total information about what is proposed to be procured. The vendors should be asked to fill in their quote in the given format without any conditions. The aim should be to generate a comparative table of commercial bids on the basis of previously declared requirements. It shall help to select the lowest bidder in a most just, fair and transparent manner.
- Need for Regular Oversight. Defence procurements are prolonged affairs wherein functionaries are required to take major decisions. If an infirmity comes to light at an advanced stage, the whole process may have to be aborted with time and cost overruns. A well structured oversight arrangement can prove invaluable in continuous monitoring to ensure that all decisions taken are above board and in good faith.
- Effective Complaint Handling Mechanism. Every contractual arrangement must have an inbuilt mechanism for handling of complaints and redressal of grievances. As most complaints regarding alleged miscarriage of justice arise from a lack of effective communication, such an arrangement will help to clarify matters and prevent vitiation of the environment.
Conclusion
According to Transparency International, incorporation of Integrity Pact has strengthened their campaign against corruption in the world arms trade. Integrity Pacts ‘bind all the bidders and the Government together in a contract to reduce the possibility of corruption occurring both during and after the tendering’. It may, however, be incorrect to over rate their value. Pledges mean little to the insincere.
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Integrity Pacts help focus on anti-corruption crusade and supplement weak laws existing in some countries. Their efficacy in the Indian context is highly limited as India already has a number of stringent laws and service rules for deterrence. Besides, Integrity Pacts without a highly credible independent monitor are of doubtful value.
Secrecy and transparency are anti-thesis of each other. Almost all defence deals are shrouded in varying degree of secrecy. Services’ proclivity for secrecy aggravates the problem. This lack of transparency creates doubts about their probity. There is considerable scope for down-classification of many procurement proposals. Transparency can instill confidence in the environment about the uprightness of the complete process.
India must handpick procurement functionaries with unblemished record and proven integrity. Thereafter, they should be permitted complete freedom to process procurement cases with total support of the establishment. All decisions taken in good faith must be backed. Diligent, meticulous and conscientious functionaries are India’s best bet against manipulations in defence deals. Predilection for delaying files on specious grounds must always be viewed with suspicion and looked into. Additionally, close monitoring through an effective oversight mechanism is absolutely indispensable.
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