Defence Industry

A French Solution to India’s Defence Acquisition Problem
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Issue Courtesy: IDSA | Date : 31 Aug , 2016

A second notable feature of the DGA is the highly professional character of its 9,800 staff, over 51 per cent of whom are managers and professionals.19 This character has been inbuilt both in recruitment and professional satisfaction. At the top of the DGA hierarchy is the corps of Armament Engineers (a title bestowed upon project managers). They are all drawn from “one of the Grandes Écoles, preferably the most desirable of them all, the École Polytechnique”.20 The École Polytechnique, set up in 1794, is functioning under the Ministry of Defence since 1970.21

It is the technical and professional competency of the corps of Armament Engineers that has played the most significant role by way of formulating a “coherent administrative system” that paved the way for what analysts term the “golden age of the French military-industrial complex”.

It has no precise comparable institution anywhere else in the world. It may be noted in this context that the US, which has the largest number of procurement officials (more than 150,00022) in the world, is struggling to attract the best talent. As one analyst puts it by way of a caution to the US government, the recruitment from the best Grandes Écoles is something “comparable to restricting recruitment of procurement officials to the graduates of a handful of engineering schools such as MIT and Caltech”,23 two of the finest American technical universities in the world. For France, however, recruiting the best talent is not an end by itself. The DGA develops their “expertise through assignments in Industry and by appointing them to the same programme for many years.”24 On an average, a programme manager, who rises to that post after having 15 to 20 years of experience, is usually given a four-year tenure on a particular assignment.

It is the technical and professional competency of the corps of Armament Engineers that has played the most significant role by way of formulating a “coherent administrative system” that paved the way for what analysts term the “golden age of the French military-industrial complex”.25 It took only 20 years for them to set the foundation for France to establish a strong and internationally competitive defence industry. More creditably, the establishment of a vibrant industry took place under “little public opposition”,26 indicating public acknowledgement of the DGA’s integrity in handling a sector like the defence industry, which is generally riddled with many controversies. It is also to the credit of these engineers that the French government was largely successful in containing the weapons programme in the post-Cold War era of dwindling defence spending. The DGA’s spectacular success in managing the weapons programme within the stipulated budget in the aftermath of the Cold War is something that deserves special mention.

At the height of the Cold War, the defence departments of many countries such as the US and France had moved away from Fixed Price (FP) contracting to Cost-Plus (C+) contracting. In an FP contract, the vendor agrees to supply specified goods in certain quantity and quality at a predetermined price. In a C+ contract, in contrast, the vendors’ profit margins are directly proportional to the production-related costs. Despite its many advertised “benefits”, in the C+ system the vendors have little incentive to control the production cost or have the incentive to inflate it so as to maximise profit. In the French experience, this led to cost overruns of many a weapons programme, seriously cutting into the overall procurement budget. The problem of cost overruns was compounded in the aftermath of the Cold War by a sharp reduction in defence expenditure.

Between 1990 and 1997, the French procurement budget fell by more than 20 per cent, with the government halting several programmes and reducing the budget of some others.27 Faced with the tightening budgetary situation, DGA officials devised an innovative solution to arrest cost overruns in many high-profile programmes. Instead of C+ contracts, the DGA returned to FP contracting but with a “distinct Gallic twist”.28 The new method of contracting came to be defined as “Responsibility Principle”.29 In essence, it “means that those who are responsible for failing to meet contractual obligations, whether government or industry, must generally pay the costs.”30

The DGA’s success in limiting cost overruns can be attributed to the project managers’ technical capability in anticipating the risks ex-ante and devising the contract suitably.

This required a great deal of investment on understanding the complexities of the projects and mitigating the risk factors ex-ante. The new model was a great success in limiting cost overruns. As clearly brought out by Kapstein and Oudot, in 48 contracts31signed during 1994-2005 by the DGA with 18 firms, the average cost overrun was a mere 4.5 per cent. The significance of this cost overrun is gauged by the authors by contrasting it with an average cost overrun of 26 per cent as reported in several weapons programmes undertaken by the US Department of Defense.32

The DGA’s success in limiting cost overruns can be attributed to the project managers’ technical capability in anticipating the risks ex-ante and devising the contract suitably. The robustness of the contracts can be seen from the very few changes made to them after they were signed. In total, 133 deviations were reported in 48 contracts, representing, on an average, 2.5 deviations per contract.33

A third feature of the French system is its mature and robust procurement process. The procurement process gets its direction and overall guidance from the national security objectives as enunciated in the defence white paper, which has been periodically announced since 1972. The fourth of the series was announced in 2013 by the administration of President Hollande. The latest white paper sets out the three clear strategic priorities (protection, deterrence and response) besides laying down the force structure and quantum of resources that would be available.34

From the defence white paper follows the Projet de Loi de Programmation Militaire (LPM), the six-year military expenditure plan. The LPM is approved by the National Assembly and Senate and therefore enjoys a degree of legislative sanctity. The latest LPM for the years 2014 to 2019, announced in August 2013, envisages a total expenditure of €190 billion, of which €102.7 billion is earmarked for the French defence industry.35 The LPM also covers new programmes to be launched and the priorities for the defence procurement authorities.36

The biggest lesson that India can borrow is France’s integrated and centralised procurement structure, which has the dual responsibility of arms acquisition and defence industrial development.

The procurement projects included in the LPM are selected through a rigorous process undertaken under the supervision of the Chief of Defence Staff (CDS). The projects are selected keeping in view the country’s budgetary constraints and defence requirements as a whole. The individual services are nevertheless invited to articulate their requirements, but the final decision rests with the CDS. For instance, in a recent development, the air force’s projected requirement of 20 multi-role tanker aircraft was reduced to 14 by the CDS through a scientific calibration that took into account the threat scenario and the superior capability of the new platform over the ones being replaced.37 In its assessment of final requirements, the CDS was amply supported by the designated DGA-owned laboratories which are used for simulation purposes.

In the French scheme of things, the operational requirements are expressed by the CDS. Once those requirements are expressed, the DGA constitutes an Integrated Programme Team (IPT), which then becomes responsible for the acquisition tasks that include defining technical specifications and managing contracts with the industry for realisation and eventual deployment into active service. In its acquisition task, however, the DGA/IPT is assisted by the Ministry Investment Board (MIB), a high-level decision-making body chaired by the Defence Minister. In discharging its functions, the MIB is assisted by two sub-committees, one consisting of members from the armed forces and the other specialists from the DGA. The former is “charged with advising on capability needs”, whereas the DGA committee is responsible for “commenting upon whether programmes can be delivered in the timescales and the budget available”.38 This arrangement makes the minister-led MIB responsible for “trading off aspirational objectives against practical concerns”.39

A typical equipment acquisition process goes through six distinct stages, as shown in Figure 3. The MIB is responsible for taking decisions at five different stages, beginning with a decision to select from among various alternatives to meet a particular capability gap. Post vetting of Orientation (in which a feasibility study is undertaken to identity the right solution to a particular capability gap), the IPT assumes full responsibility for project delivery. It is the IPT which is at the heart of the DGA’s success in effective project management. Being a multi-disciplinary body, the IPT draws its technical, contractual and management experts from the vast pool of expertise both from DGA and the armed forces. For military personnel, entry into the IPT is not an ordinary posting to be determined by the services themselves. Every entry is based on merit and through a rigorous competitive process. Although uniformed personnel do not stay longer, unlike the DGA’s own staff, they are nonetheless encouraged to stay and even granted in-situ promotion while remaining in the DGA. The whole approach is to manage the weapons programmes with upmost professionalism, the hallmark and secret of the French defence acquisition system.

What Can India Learn from the French System?

France’s success in devising a sound domestic-industry-driven procurement system has much to offer to a country like India, which has been struggling for long to achieve the same objectives. Some of the lessons that India can borrow from the French system are elaborated below.

The biggest lesson that India can borrow is France’s integrated and centralised procurement structure, which has the dual responsibility of arms acquisition and defence industrial development. The French understood the crucial linkage between these two functions and combined them by creating the DMA/DGA in 1961, which proved its mettle by establishing a robust procurement structure and an internationally competitive arms industry. 

Creating a DGA-like structure in India would mean combining several functions currently undertaken by different agencies such as the service headquarters (responsible for defining the technical features of weapon systems and undertaking trial evaluation), Director General Quality Assurance (quality assurance), the office of DG (Acq) (contract negotiation) and Department of Defence Production (industrial development) and DRDO (sponsoring research on futuristic technology) under one administrative head. Creating such an agency is, however, likely to face stiff resistance, as happened in France. Overcoming such resistance, however tough, is necessary for the long-term benefit of expeditious acquisition while promoting defence industrial development holistically.

Unlike France, India does not produce a defence white paper nor does it have a CDS as an arbitrator of the military requirements of the nation as a whole.

An equally important lesson is about the professionalism of the acquisition cadre. Unlike France, India does not have any dedicated engineering colleges under the control of the MoD nor does it have a system of hiring outside experts to deal with acquisition. Functionaries are drawn from the civil bureaucracy and from the armed forces. More often than not, they lack experience in acquisition matters, let alone an opportunity to develop an in-depth understanding of the complex legal, contractual and technical matters because of their short tenure in office. Such lack of professionalism may prove a big hurdle in spearheading the Make in India initiative, under which the MoD intends to award big contracts to the local industry under preferential terms and under the crucial “Make” procedures. Unlike the direct purchase contracts (which was the norm till recently), the contracts on preferential terms and of “Make” nature would involve a lot more risk assessment ex-ante, which can only be undertaken if the functionaries involved are real professionals. Keeping this in view, the government may consider the creation of a dedicated acquisition cadre in the various acquisition disciplines.

Last but not least, India has a lot to learn from France’s robust procurement process which is characterised by a clear articulation of national security objectives, approved procurement and investment plans, and avoidance of wasteful and costly procurement. Unlike France, India does not produce a defence white paper nor does it have a CDS as an arbitrator of the military requirements of the nation as a whole. This has resulted in individual services articulating their own versions of threat perceptions and devising their own procurement plans without giving much attention to the other services’ requirements. The lack of jointness among the plans has resulted in ad hocprocurement and at times duplication of capability creation. This is undesirable not only from the point of view defence preparedness but also from the perspective of managing scarce resources.

In the light of the foregoing discussion, the following need to be considered:

  • Integrate the procurement and acquisition functions under one administrative head.
  • Create a dedicated professional acquisition cadre to bridge the knowledge asymmetry between government and industry.
  • Create the post of CDS as the focal point for drawing up a consolidated procurement plan for the defence and security forces.

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1.CAG, Union Government (Defence Services): Army and Ordnance Factories, Report No. 4 of 2007, pp. 1-25.

2.Reforming the National Security System, Recommendations of the Group of Ministers, February 2001, p. 105.

3.The controversial procurement deal of 12 AgustaWestland helicopters is the latest illustration of the many perennial weaknesses of India’s defence acquisition system. For a review of the deal, see CAG, Acquisition of Helicopter for VVIPs, Report No. 10 of 2013.

4.These measures include a prioritised procurement category favouring local industry over foreign companies; and a dedicated set of procedures to incentivise design, development and manufacture by the domestic industry.

5.Nearly two years after the announcement of the Make in India initiative, the Indian private sector is yet to get a single major defence contract. See Sushant Singh, “Defence procurement: The mystery of missing deals,” Indian Express, 26 July 2016.

6.For a critical review of the Indian defence industry, see Laxman Kumar Behera, Indian Defence Industry: An Agenda for Making in India, Pentagon, New Delhi, 2016.

7.GlobalSecurity.org, “France: Military Industry

8.DGA, Activity Report 2011, p. 3. DGA officials also boast that with a procurement budget similar to that of the UK, France buys a lot more defence capability than the UK. This point was mentioned to the author during his visit to DGA in November 2013.

9.Martin Lundmark and Laurent Giovachini, The Development of the French Defence Industry in the 20th Century, Swedish Defence Research Agency, p. 16.

10.Ibid.

11.Edward A. Kolodziej, Making and Marketing Arms: The French Experience and its Implications for the International System, Princeton University Press, Princeton, 1987, p. 241.

12.DGA, Activity Report 2011, p. 04.

13.Ibid

14.Nathalie Lazaric, Valérie Mérindol and Sylvie Rochhia, “Changes in the French defence innovation system: new roles and capabilities for the government agency for defence,” Industry and Innovation, Vol. 18, No. 5, 2011, pp. 509-30.

15.French White Paper on Defence and Security, 2013, p. 118.

16.Kolodziej, Making and Marketing Arms,Note 11, pp. 240-41.

17.Ethan B. Kapstein and Jean-Michel Oudot, “Reforming defence procurement: lesson from France,” Business and Politics, Vol. 11, Issue 2, 2009, p. 10.

18.U.S. Congress, Office of Technology Assessment, Lessons in Restructuring Defense Industry: The French Experience – Background Paper, OTA-BP-ISC-96, June 1992, p. 11.

19.DGA, “The DGA Missions,” http://www.defense.gouv.fr/dga/la-dga2/missions/presentation-de-la-direction-generale-de-l-armement.

20.Kapstein and Oudot, “Reforming defence procurement: lesson from France”, Note 17.

21.École Polytechnique, “Key Dates,” https://www.polytechnique.edu/en/1958totoday. In addition to École Polytechnique, the DGA also supervises three other engineering schools: ENSTA Paritech, ISAE and ENSTA Bretagne. See DGA Activity Report 2011, p. 19.

22.Defence Acquisition University, “Fast Facts,” http://www.dau.mil/aboutdau/pages/fastfacts.aspx

23.Ethan B. Kapstein, “Smart defence acquisition: learning from French procurement reform”, Center for a New American Security, Policy Brief, December 2009.

24.Ibid.

25.Lundmark and Giovachini, “The development of the French defence industry in the 20th Century”, Note 9.

26.Ibid.

27.Kapstein and Oudot, “Reforming defence procurement: lesson from France”, Note 17.

28.Ibid

29.Ibid

30.Ibid

31.Ibid. These 48 contracts were for 47 major weapons programmes (two contracts pertained to one programme), costing, on an average, €134.7 million each. The contracts varied from development of new hardware to upgrades of existing platforms.

32.Ibid

33.Ibid

34.French White Paper on Defence and National Security 2013.

35.The spending plan has further been revised upward by an addition €3.8 billion. See Guy Anderson, “French Senate Committee clears revised Plan,” Jane’s Defence Industry, 24 June 2015.

36.Nicholas de Larrinaga, “France outlines Eur190 billion in defence spending,” Jane’s Defence Industry, 2 August 2013.

37.Interview with a French defence official who had earlier worked in DGA, New Delhi, August 2016.

38.Review of Acquisition for the Secretary of State for Defence: An independent Report by Bernard Gray, p. 222

39.Ibid, p. 223.

Courtesy: http://www.idsa.in/idsacomments/french-solution-india-defence-acquisition-problem_lkbehera_290816

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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

Laxman K Behera

is Research Fellow at Institute for Defence Studies and Analyses, New Delhi.

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4 thoughts on “A French Solution to India’s Defence Acquisition Problem

  1. Dear Sir,
    I read with interest your article. But I think you seem to ignore important points that can explain the specificity of the administrative organization of defense in France. First at the DGA there is a high concentration of highly skilled engineers coming from the best engineering schools in France. Last but not least, at the level of Army in France there is an integral Staff which is not the case in India. This is may be one of the great weaknesses of the organization of Defence in India.
    Administration to be effective must be well organized. This is not the case in the context you mention. The DGA was founded in the 60s, so she has a good expertise of the equipment problems, related to the French Army. In the Indian context, we have no overall reflection related to defense issues. We have misused skills and all this lack of coordination.
    Of course we must study the models of organization of defense administrations (although this should have been done long ago!). But we must first become interested in the place of the defense in the context of India .It would be useful to re-read THUCIDIDE or KAUTILYA. The concerns related to defense, security should be taught at school where we learn to become citizens!
    What does it profit to have on paper a good organization of the defense, if it does not gather both men and women motivated?
    Sougoumar Mayoura from Paris

  2. In my view the comparison of France and India in defence matters is unwarranted. France being part of Europe benefits enormously from the entire European industrial setup and expertise, which present India cannot match. Serge (not Marcel) Dassault has designed and fabricated some unique signal processing circuitry true, then again many other parts of French military electronics come from other sources around. The avionics to my information has been a joint development with the British. I fail to see how any benchmark can be set for the procurement process in any nation. Each has its own threat environment and perception and forward planning, and “procurement” needs to be tailored for that purpose. Hence what structure could be “good” for one cannot be “good” for the other, whatever that “good” criterion may be.

  3. Nice analysis. However the Indian Army is huge. The people who tenant appointments at various levels are poorly selected. It’s not that we do not have the professional calibre. The system may be an issue but the implementation is a bigger one. Also the number of links needs to be lesser. We have a long supply chain and are diseased by the Bull Whip Effect due to the above.

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