Indian Defence Review

Sluggish modernisation of the Indian armed forces has been a cause of serious concern to all who are concerned with national security. Whereas the process of modernisation is lagging behind by 10 years, the defence procurement mechanism continues to remain mired in delays and controversies. Despite the fact that India put in place a dedicated organisation to handle defence procurements in 2001 and promulgated a comprehensive procurement procedure in 2002, there has been little discernible improvement on ground. Experience over the last nine years has exposed India’s inability to conclude major defence deals in open competition. All reforms have failed to deliver and the drift continues.

The current procurement regime, consisting of the Defence Acquisition Council, the Defence Procurement Board and the Acquisition Wing, is well structured. Similarly, the defence procurement procedure has been fine-tuned through four revisions. Yet, defence procurements continue to suffer from a number of serious infirmities and are in news for all wrong reasons.

Accountability implies liability for ones acts of omission and commission in the performance of designated duties. It is a multi-dimensional concept covering disciplinary, administrative and ethical facets

Even the Defence Minister has been expressing his exasperation with the current state of affairs. A number of reasons have been advanced for the failure of the procurement mechanism.Unfortunately, the main reason i.e. a total lack of accountability has been completely overlooked.

Accountability implies liability for one’s acts of omission and commission in the performance of designated duties. It is a multi-dimensional concept covering disciplinary, administrative and ethical facets. Accountability is generally considered synonymous with answerability. It is an obligation to perform as per well established norms, conventions and charter of duties. In government service, it also refers to the obligations imposed by service rules to perform in the designated manner and deliver results accordingly.

In bureaucratic parlance, accountability and responsibility are used loosely to indicate official compulsions. However, there is a distinct difference between the two. Whereas responsibility implies obligation to act, accountability means obligation to answer for a course of action adopted. Thus, accountability is a much wider term and covers both activity and inactivity (acts of commission and omission). Additionally, accountability has an associated system of rewards and censures. Therefore, accountability is performance-centric. An official can be held accountable both for non-performance and inappropriateness of actions taken. As stated earlier, a total lack of accountability is the bane of Indian defence procurement regime. Most of the ills afflicting defence procurements can be attributed to this single factor.

Indian procurement process consists of the following critical stages:

“¦accountability is a much wider term and covers both activity and inactivity (acts of commission and omission)”¦ An official can be held accountable both for non-performance and inappropriateness of actions taken.

Formulation of SQR

SQR refer to the essential characteristics of proposed military equipment projected against a specific time period to counter an estimated enemy threat or to fill other operational voids. SQR are defined as the minimum essential military requirements, corresponding to the task or tasks to be performed by the system. The defence forces formulate these to achieve full operational exploitation of the equipment being procured. Evolution of SQR is the start point and the entire procurement process is directed towards getting the equipment which satisfies the laid down SQR.

Defence Procurement Procedure – 2008 stipulates that SQR:

As technical evaluation entails comparative performance of competing equipment, it is absolutely essential that SQR be spelt out in quantifiable terms. Terms like ‘compactness’, ‘excellent running characteristics’, ‘quick acceleration’, ’strong and sturdy’, ‘optimum mobility’ and ‘prolonged duration’ are indeterminate and subjective in nature. Despite the above mentioned comprehensive instructions, SQR continue to be imprecise, vague and unverifiable.

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Poorly conceived, formulated and drafted SQR cause immense delays, create confusion, lend themselves to misinterpretations and vitiate the environment. At times the whole process has to be aborted at an advanced stage due to infirmities of SQR. Although faulty formulation of SQR is known to be the commonest cause of non-fructification of most proposals, no sponsoring directorate has ever been held accountable for its shoddy work, resulting in wastage of time and resources.

Issuance of Request for Proposals

Service Headquarters (SHQ) prepares RFP in draft form and submits to the Acquisition Wing where it is vetted by the concerned Technical Manager, the Acquisition Manager and the Finance Manager. Thereafter, it is issued to selected vendors by the Technical Manager.

“¦technical evaluation entails comparative performance of competing equipment, it is absolutely essential that SQR be spelt out in quantifiable terms.

RFP consists of four parts. The first part elaborates the general requirement of the equipment, quantity required, time frame for deliveries, environmental parameters for functioning, conditions of usage and maintenance, requirement for training, Engineering Support Package, offset obligations (if applicable) and warranty/guarantee conditions. It spells out procedure for submission of offers. It also specifies date and time by which proposals have to be submitted. Part II incorporates SQR and describes technical evaluation methodology in detail. Part III outlines all major commercial aspects, including payment terms, performance guarantees, guarantees against warranty services and standard contract terms along with special contractual conditions, if any. In the final part, criteria for evaluation and acceptance, both in terms of technical and commercial contents are spelt out in detail.

Additionally, in cases involving Transfer of Technology (ToT), RFP spells out the requirement in range and depth of the technology required. For cases entailing ToT for maintenance infrastructure, RFP contains a list of Indian firms from which the foreign vendor has to select one to provide base repairs and spares for the entire life cycle of the equipment.

It will thus be seen that RFP is central to the procurement system as it sets out terms and conditions of the complete process at the outset. Being a government communication it carries considerable sanctity and lays down ground rules to be followed by the procurement agency and the vendors. Therefore, there should be no flaws in it. Vendors need to be absolutely clear about all terms and conditions to prepare their technical and commercial proposals, as no changes are permitted after submission.

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It has, however, been seen that inadequate attention is paid to the preparation of this most vital document. Most RFP suffer from incomplete information and imprecise statements, resulting in protracted correspondence with vendors. At times, the Ministry of Defence (MoD) is forced to retract RFP due to material incongruities. Instead of holding the concerned officials accountable for their sloppy work, SHQ is asked to submit fresh draft RFP as a matter of routine.

Technical Evaluation

The sole aim of technical evaluation is to ascertain whether a system satisfies its acceptance criteria and should be accepted for induction into service or not. It is a three stage process. In the first stage, a duly constituted committee under concerned SHQ examines all technical proposals to short list vendors who should be asked to field their equipment for field trials. The second stage entails field trials to validate performance claims made by the vendors and to ascertain compliance of parameters in actual terrain and climatic conditions. This is undoubtedly the most important part of the technical evaluation process as equipment is tested in anticipated operational environment. In the final stage, data generated during field trials is appraised for evaluation of performance and operational capability of systems, to enable ascertainment of their potential for mission accomplishment. Thus, final selection of equipment is made on the basis of results of field trials.

Quality of field trials is dependent on the formulation of a well considered Field Trial and Evaluation Plan (FT&E). FT&E should be able to provide all required inputs to the decision making general staff. It has, however, been seen that the data provided to general staff is generally incomplete with large critical gaps. Consequently, the general staff is forced to order supplementary trials to obtain missing information, resulting in wastage of time and resources. Supplementary trials have become a norm now. Most vendors resent re-fielding their equipment on account of cost considerations. Unquestionably, supplementary trials reflect very poorly on the quality of preparatory planning done by the agencies involved.

There are a number of scientific tools and techniques available to determine fair price of equipment. To start with, detailed data has to be collected and collated to facilitate development of appropriate methodology for cost estimation.

Trials are carried out as per the Trial Directive issued by SHQ. It spells out trial methodology and procedure to be followed in detail. In other words, it lays down the ground rules for inter-se evaluation of performance of competing equipment. It is prepared by the user directorate, vetted by the operations directorate and issued by the equipment directorate at SHQ. Unfortunately, most trial directives are prepared in a routine manner without any application of mind. All parameters are listed and trial units are asked to ascertain their compliance. Neither suitability of trial agency (to check a parameter) nor the sequence in which trials should be performed is given any consideration. Many tests that require controlled testing environment (temperature, humidity and so on) are assigned to field units in routine.

Some trial directives are full of generalities with directions that are imprecise and vague. Different trial teams interpret them differently, thereby introducing an element of subjectivity, inviting protests from vendors. Poorly evolved FT&E and imperfectly drafted trial directives have caused avoidable delays and dented the credibility of the procurement system. Yet, no action has ever been taken against culpable officers.

Commercial Evaluation and Contract Negotiations

A Commercial Negotiation Committee (CNC) is constituted under MoD to open commercial quotes of technically successful vendors. It prepares a ‘Compliance Statement’ to ascertain discordance, if any, between terms mentioned in RFP and the proposals submitted by vendors. Thereafter, it carries out a comprehensive analysis of the commercial offers and prepares a Comparative Statement of Tenders with a view to determine the lowest offer (L1). Once lowest bidder is identified, detailed discussions are carried out with him to ensure product support during the assured life cycle of the product. It entails assured supply of information on product improvements, modifications and upgrades, obsolescence management and life time purchases and fixation of base prices and pricing mechanism for long term.

Prior to opening commercial quotes, CNC has to establish a fair and acceptable price bracket in an internal meeting. In case the price quoted by the lowest bidder falls within the said bracket, no further price negotiations are required to be carried out. However, CNC has to negotiate judiciously to obtain best terms and hammer-out all contractual issues in unequivocal terms.

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There are a number of scientific tools and techniques available to determine fair price of equipment. To start with, detailed data has to be collected and collated to facilitate development of appropriate methodology for cost estimation. Thereafter, meaningful approximations have to be generated through techniques like analogy estimates and parametric estimating. Unquestionably, considerable skills, effort and diligence are required to develop and apply above mentioned technique to arrive at well-considered fair price. As regards determination of lowest bidder, DPP mandates that Life Cycle Cost (LCC) concept should be applied to determine cost over system’s entire life span in service, as cost of sustaining military equipment can be many times the cost of acquisition. However, no such endeavour has ever been made.

Regrettably, the performance of CNC in almost all cases has been found wanting. Fixation of fair and reasonable price is done in a highly amateurish, arbitrary and casual manner with the result that India invariably ends up paying more. For example, in the case of purchase of three AWACS from Israel, it was reported in the Israeli press that India had paid 1.1 billion dollars whereas the same aircraft had earlier been sold to China for 358 million dollars. High price paid for coffins also came under criticism.

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Similarly, contracts are negotiated in a highly cavalier manner. Inability to negotiate contracts astutely has been the biggest weakness of the entire defence procurement regime. Failure to negotiate fool-proof agreements with clearly defined provisions has caused immense damage to Indian interests. Foreign vendors exploit ambiguities and small print in the contract documents, especially with respect to price fixation, delivery schedules, warranties, after sales support and penalties for default. Russia unilaterally revised price and delivery schedule of Gorshkov aircraft carrier. There are numerous such cases. There is hardly a case in which a foreign vendor abides by the letter and spirit of the contract. Yet, they get away with impunity. Despite suffering colossal losses, India has not considered it necessary to hold concerned officials responsible for imprecise and flawed contracts.

The Way Forward

Accountability audit should be carried out in two ways. One, every acquisition proposal that either gets aborted or inordinately delayed must be subjected to detailed scrutiny to identify reasons for the same. Director General Acquisition could constitute a committee for the purpose. Two, in case of successfully signed contracts, all contentious issues that crop up during post-contract implementation stage should be investigated by MoD to fix responsibility for lapses and oversight.

Accountability Audit Matrix

Study of an acquisition case (either when a contract is signed or case aborted prematurely) should cover the following aspects:

Defence procurement is a serious business. It costs the national exchequer dearly and affects national defence preparedness. Therefore, no laxity, apathy and transgression should be disregarded.

Additionally, the committee should also look at positive and negative imperatives that affect the case. A detailed appraisal of each case would highlight all acts of omission and commission. The aim of accountability audit should neither be to find scapegoats for systemic inadequacies nor carry out witch hunt to settle scores. It should seek to penalise non-performance lest dithering officials continue to consider it judicious to play safe and let matters drift on specious grounds. Similarly, no act of commission that fails to pass the test of good faith should be condoned. Misdemeanors should never go unpunished.

Defence procurement is a serious business. It costs the national exchequer dearly and affects national defence preparedness. Therefore, no laxity, apathy and transgression should be disregarded. Every official must be made responsible for his acts of commission and omission. It is only then that a message will get conveyed to the environment that authority carries certain obligations and failure to fulfill those obligations would invite severe punitive response.