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Significant Changes in Draft DPP 2020

The Draft Defence Procurement Procedure (DPP) 2020 has been released by MoD and has been put in public domain www.mod.in for seeking the inputs by 17 April 2020. The draft relating to amendment to DPM is still awaited. Three distinct aspects of the task assigned to the committee were to review:

  • Policies that have a bearing on defence procurement and production
  • Procedures that have been evolved over the years
  • Processes followed at each stage in the procurement cycle

A committee has carried out comprehensive review of these aspects with involvement of Defence Services, Department of Defence Research and Development Organization (DRDO), the Department of Defence Production (DDP) and the Industry.

The draft of Defence Procurement Procedure (DPP) 2020 plans to have simplified the procedure and reduced the timeline to ensure probity, transparency and accountability initiative, refining of Life Cycle Support of procured equipment & platforms and hasten the defence acquisition process by further simplifying the procedures & reducing the overall procurement timelines. The major changes proposed in the new DPP are given below.

Applicability of DPP

Defence Procurement Procedure 2020 will come into effect from 1st April 2020 and will be applicable to all AoNs granted after the date it comes into effect. The cases for which AoNs have been granted under earlier versions of DPP, but RFPs have not been issued up to 1st April 2020, will be processed under the new DPP 2020.

In case the SHQ concerned wants to migrate any ongoing cases under DPP-2020, approval of the applicable AoN approving authority needs to be sought.

Acquisition Procedures for Categories under 'Buy', and 'Buy and Make' Schemes

No change in broad process. Minor tweaking in the process such as  the draft RFP need to be forwarded by SHQ to respective TMs along with a copy of the SoC being fielded in DPB/DAC for accord of AoN.

Selection of Production Agency

Subsequent to the accord of AoN, the broad details of the projects/procurement would be hosted on the MoD and SHQ websites. Additional vendors, who did not respond to the RFI, may express interest for receipt of RFP and submission of bid, within four weeks from the date of publication of details on these websites.

The appropriate Production Agency (PA) in single vendor cases involving Transfer of Technology (ToT) will be nominated by the AoN granting authority, while the PA could be selected by the foreign OEM from any of the Indian public/private firms including a joint venture company, in multi vendor cases, as per existing eligibility criteria or as  provided in the RFP.

Acquisition Procedures For Category Buy and Make (Indian)

Preliminary SQRs (PSQRs)/SQRs, shall be appended to the SoC while seeking AoN for 'Buy & Make (Indian)' cases. In this SQRs can be finalized after the issue of AoN, but prior to issue of RFP in 'Buy & Make (Indian)'. SHQ shall specify in the SoC the technologies required to be absorbed by the Indian vendor. In case of 'Buy and Make (Indian)' category, situations may arise in which all bids submitted by Indian vendors, indicate a collaboration with a single foreign vendor. Such cases have to be discussed and deliberated by the AoN according authority and if it is concluded that there is no scope for change in SQRs and other conditions of the RFP; and that retraction and re issue of RFP is not likely to increase the vendor base, then the case may be progressed with the approval of the DAC.

In case of 'Buy and Make' category, situations may arise in which all bids submitted by foreign vendors, indicate collaboration with a single Indian vendor, where foreign vendors were permitted to select an Indian PA. This may also not be treated as a single vendor situation, as techno commercial arrangement of collaboration for each foreign vendor may be different from those of other vendors.

Procedure For Procurement Under 'Make' and 'Innovation' Categories

Make-I (Government Funded). These are the projects involving design and development of equipment, systems, major platforms or upgrades thereof by the industry. For Projects under Make-I sub-category, MoD will provide fund support maximum up to 70% of the prototype development cost, based on viability gap funding method. Funding would be released in a phased manner based on the progress of the scheme, as per terms agreed between MoD and the Development Agency (ies). The final percentage of funding to be provided would vary from case to case and would be dependent upon the fund support sought by the selected Development Agencies (DAs) for development of prototype.

Make-II (Industry Funded). The projects under Make-II category will include prototype development of equipment/system/platform or their upgrades or their sub-systems/ subassembly / assemblies / components/ materials/ammunition/software, primarily for import substitution/innovative solutions by the Private industry, for which no Government funding will be provided. In Make-II cases, where innovative solutions have been offered even by a single individual or a firm, the cases would be progressed as a Resultant Single Vendor.

Make-III {Indigenously Manufactured (IM)}. These would encompass subsystems / sub-assembly / assemblies/ components/ materials / ammunition, etc, which although not designed/developed indigenously, but are being manufactured in India as import substitution for product support of weapon systems/equipment held in the inventory of the Services. Indian firms may manufacture these either in collaboration or with ToT from foreign OEMs.

The Make Projects earmarked for MSMEs include:-

  • Make I - prototype development phase < Rs 10 Crores
  • Make-II - prototype development phase < Rs 3 Crores & procurement < Rs 50 Crores based on delivery schedule

RFP in these cases to be issued without stipulation of Financial Parameters, in cases up to 150 Crores or 50 Crores/year based on delivery schedule.

Innovations for Defence Excellence (iDEX)

Besides more stress on Innovations to include iDEX & 'Open Competition', approach and institution of Technology Development Fund (TDF) Schemes to foster innovation & technology development in Defence and Aerospace should be implemented.

Acceptance of Necessity (AoN)

  • Single stage approval of AoN except DAC cases (> Rs 500 Crores)
  • Time frame laid down for obtaining AoN (one year from receipt of RFI responses)

Services Qualitative Requirement

  • Time frame for SQR laid down (six months from receipt of RFI response).
  • SQR Formulation Committee including representatives of trial agencies.
  • SQR Parameters in broad categories 'Operational', 'Technical' & 'Maintainability & Ergonomic'.
  • Amendments to SQR permitted before issue of  RFP.

Request for Proposal (RFP)

  • RFP & Standard Contract Document aligned.
  • Guidelines included ensuring correct formulation.
  • Detailed Trial Methodology.

Enhancement of Indigenous Content (IC)    

The Draft proposes increasing the Indigenous Content (IC) stipulated in various categories of procurement by about 10 per cent to support the 'Make in India' initiative.

The new procurement category, “Buy (Global-Manufacture in India)” for equipment bought from the abroad, from foreign vendors as approved during AoN, in quantities as considered necessary with the intention to subsequently build it in India with technology transfer with a minimum indigenous content of 50 per cent of the value of the contract. This will ensure only the minimum numbers would be bought in ready-built condition; and balance would be manufactured in India. This can be achieved in the manufacturing of the entire equipment or spares/ assemblies/ subassemblies/ Maintenance, Repair and Overhaul (MRO) facility for the entire life cycle support of the equipment, through its subsidiary in India. Acquisition under this category can also be carried out without any initial procurement of equipment in FF state. This category would be given a higher preference than the current “Buy Global” built abroad.

Promoting Use of Indigenous Materials, Software and Components

Incentives for use of indigenous raw materials, special alloys, software and components encouraging the development and production to facilitate greater participation of Indian Industry.

Leverage highly developed indigenous software expertise for running applications and Analysis - base applications for systems such as Fire Control System, Radars, Communications, Encryption sub systems on indigenous software in Buy (Indian  IDDM) & Buy (Indian) cases.

Enhanced Performance Parameters (EPP) for indigenous software defined with commensurate credit score in the SQRs.

Input relative to these will be sought at RFI Stage to examine platforms and other equipment/systems with substantial contribution.

Trial Directive

SHQs in consultation with shortlisted Vendors, will formulate a detailed Trial Directive in conformity with the trial methodology given in the RFP.

Timelines

There is no changes in overall time lines. Whilst DPP lays out a standard time period of 16 to 24 weeks (additional 12 weeks for winter trials) for completion of FET, in cases where it is anticipated that FET cannot be completed within the stipulated period due to nature, scope or any other factor, SHQ is to seek additional time while seeking accord of AoN along with proposed timeline.

In case the FET is not completed post commencement within the stipulated period as approved in the AoN, SHQ are to render an update to the under mentioned authorities, as follows: -

(a) DG (Acqn) (for non-delegated cases) - for slippage beyond six months

(b) VCDS/Vice Chiefs (for delegated cases) - for slippage beyond six months

(c) AoN According authority - for slippage beyond 12 months

Conduct of Trials & Quality Assurance

Trial methodology and Quality Assurance Plan will be part of RFP. Field Evaluation Trials to be conducted by specialized trial wings and the objective of trials will be to nurture competition rather than elimination for minor deficiencies.

  • User Trials by specialised agencies i.e. Trial Wings
  • Document/certification over physical trials.
  • More opportunities for in situ repairs/modifications during trials.

QA Plan (to include rejection criteria & sample size) as part of RFP .

  • Draft Acceptance Test Procedure submitted by all vendors,finalised in DGQA Evaluation.
  • No overlap of evaluation in Pre Dispatch Inspection (PDI) &Joint Receipt Inspection (JRI).
  • Third Party Inspection permitted for acceptance.

Repeat Order

  • Single stage accord of AoN by the according authority
  • No FET, limited validation if required

Product Support

Long Term Product Support to optimize life cycle support for equipment  mandatory for 3-5 yrs post warranty to include:-

  • Engineering Support Plan (ESP)
  • Annual Maintenance Contract (AMC)
  • Comprehensive Maintenance Contract (CMC)
  • Life Cycle Support Contract (LCSC)
  • Performance Based Logistics (PBL)

Reduced Timelines for Procurement

Timelines for procurement have been reduced by reworking the process for accord of Acceptance of Necessity which would be single stage for projects less than Rs 500 Crores and in case of repeat orders.

Offset Changes

Some major changes in modified offset guidelines are:-

a) Discharge through entities other than vendor/ Tier-I sub vendor for investments/ToT on case to case basis.

b) Flexibility to provide details of products and Indian Offset Partners (IOPs) at later stage even after signing of contract.

c) To bring greater transparency and accountability, post contract activities are envisaged online through offset portal.

d) Real-time disposal of offset discharge claims.

e) Timelines for disposal of offset claims/disputes.

f) To give emphasis on export of products rather than components. Higher multipliers have been proposed for procurement from MSMEs and units established in Defence Industrial Corridors.

Higher multipliers proposed for Transfer of Technology to private Companies / DPSUs / OFB and DRDO. The provision of multipliers for discharge of Offset obligations changed :-

  • Preference to complete defence products over components to facilitate greater participation of Indian Industry and develop robust defence industrial base. Multiplier for products/systems (x 1.0) and for components reduced to (x 0.5)
  • For MSMEs (x 1.5).
  • Investments incentivised through higher multipliers:-
  • In Defence Manufacturing (x 1.5)In Defence Industrial Corridors (x 2.0)
  • For ToT to Indian Enterprises (x 2.0)
  • For ToT to OFB/DPSUs (x3.0)
  • Higher Multiplier for Critical Technology (x4.0)
  • “Foreign vendors will also need to discharge offsets in all Buy (Global) cases more than 2000 crores other than Single Vendor Cases (SVC) being progressed based on IGAs including FMS”.

Commercial Terms

Some of the changes in commercial terms are:-

  • L1 determined after including all taxes and duties
  • INCOTERMS mandatory as Delivery Duty Paid (DDP) for all procurement cases
  • Bank Guarantees (BGs) based on Contract Value less taxes and duties
  • Multiple BGs permitted, from all Public Sector Banks and Private Banks authorised for Government transactions
  • Performance cum Warranty BGs  5% of contract value

Price Variation

  • Practical price fixation in projects with long delivery periods for cases ≥ Rs 1000 Crores & time period of deliverables ≥ 60 months.

Performance-cum-Warranty Bank Guarantee Clause

 A Performance-cum-Warranty Bank Guarantee (PWBG) of 5% of value of the Total Contract Price (excluding taxes and duties and Total Price of AMC/CMC/PBL), would be furnished by the Bidder in the form of a Bank Guarantee to sequentially act as Performance Bank guarantee till the delivery and as Warranty Bank Guarantee on delivery .

Liquidated Damages (LD)

In the event of the SELLER's failure to submit the Bonds, Guarantees and Documents, supply the stores/ goods, perform services, conduct trials, installation of equipment, training and MET as per schedule specified in this contract, the BUYER may, at his discretion withhold any payment until the completion of the contract.

The BUYER may also deduct from the SELLER as agreed, liquidated damages to the sum of 1/100 of the delay percentage {Delay percentage = (Period of Delay in Delivery in Weeks) x 100 / (Delivery Period in weeks as per contract)}of the contract price of the delayed/undelivered stores/services mentioned above for every week of delay or part of a week, subject to the maximum value of the Liquidated Damages being not higher than 10% of the contract price of the value of delayed stores/ services (Any extension given by the buyer for delay attributable to buyer or Force Majure Clause to be factored in delivery period).

Leasing

After due examination incorporate new concepts of leasing to save on the overall cost to offsets, huge initial capital outlays with periodical rental payments. The lease could be Lease (Indian) or Lease (Global), and likely to be preferred in cases:-

  • Procurement not feasible due to time
  • Asset needed for specific time or underutilized if procured
  • Smaller numbers needed  administrative & maintenance
  • Infrastructure expenditure high
  • Service life lease rental better than acquisition cost
  • Operational necessity

Leasing will be useful for military equipment not used in actual warfare like transport fleets, trainers, simulators, etc.

New Chapters in the Defence Procurement

 Two additional chapters added in revised draft on:-

  • Information and Communication Technology (ICT). Policy & procedures for procurement & management of integrated projects.
  • Post Contract Management in Capital procurement entails different contracting agency & contract operating agency to ensure smooth transition from pre to post contract.

Training of Procurement Personnel

The key personnel of SHQs and various departments of MoD, including MoD (Finance) will be imparted training with regards to the nuances of all procurement processes at training institutions in the country and abroad. Subsequently formalized training on the subject will be planned as part of the curriculum of Indian National Defence University (INDU).

Association of subject matter experts from the fields of academia, legal, finance or industry associations may be approached at various stages of the procurement cycle.

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