Expediting Defence Procurement

The government has started paying some attention to the eco issues such as IL and FDI, but micro issues the procurement procedures being one of them - are equally important and needs to be addressed.

With leaders of the major defence equipment exporting countries like the US, UK and France making/about to make a quick dash to New Delhi, it is evident that the change of guard at the centre has rekindled their interest in tapping the vast potential of the Indian defence market, apart from pushing the stalled acquisition programmes in which their companies are in the fray.

With the Indian Ministry of Defence (MoD) keen on promoting indigenous production without ceding much ground on the issue of FDI in defence, the prospects may not be as rosy for them as what they would have wished for but the potential of the Indian defence market would still keep it in the reckoning for a long time to come.

The Indian industry is equally, if not more, upbeat about the prospects. Of course, all eyes are on inescapable capital acquisitions crucial for modernization of the armed forces. Assuming a conservative annual rate of growth of 10% in the capital acquisition, India may end up spending approximately US $ 120 bn in the next ten years. This fits well into the scenario projected by the British MoD of India emerging as the third largest spender on defence by 2045.

The pie is, therefore, big enough for the Indian, as well as the foreignh companies to be bullish about their prospects. There is much to be gained from synergy between the Indian and the foreign companies.
So what is holding them back? There are many things, ranging from an unfriendly industrial eco-system to the never ending woes relating to the slow moving acquisition process.

The government has started paying some attention to the eco issues, as evident from the recent notification of the list of defence items requiring industrial license and the tenacity with which it is moving to rationalize the FDI regime. But micro issues the procurement procedure being one of them - are equally important.

The long time it takes to complete the process from the Request for Information (RFI) stage to the contract signing stage is in no one's interest. This is what the then Defence Secretary had stated before the Standing Committee on Defence in 2012:

“Now what happens is that, at every stage, there are delays. The first is the formulation of GSQRs. There are cases where the GSQRs have been formulated, re-formulated, again formulated and it takes months. Then comes framing of RFPs. Now, our procedure says that normally four weeks must be taken for formulation of RFP. I have got the figures of Army. I am sorry I am not having figures in respect of Air Force and Navy. It is just an analysis which we have to make. At an average, which we have worked out, nine months have been taken for the formulation of RFP while it should not take more than four weeks. Then, Technical Evaluation should take 12 weeks, i.e., three months. I have worked it out. The average time taken at TEC is six months. Then average time taken in GS evaluation. As per procedure, it must be from 28 to 54 weeks but at an average, it is not less than 18 months. There are cases where RFPs have been issued but have been rejected. I have a figure from 1st September 2010. As many as 41 RFPs of the Army were rejected and the reasons were  faulty GSQR, stringent GSQR, faulty vendor analysis which implies that we have anticipated three vendors but only (one) responded or we may have short listed five vendors, but only two responded. Then (there) are maintenance and technology transfer issues, and other miscellaneous reasons. So, I would say that though it is an integrated procurement system, the delays are there and I cannot pinpoint who is guilty and who is not guilty.”
(GSQR = General Staff Qualitative Requirements; RFP = Request for Proposal; TEC = Technical Evaluation Committee)

This is a telling comment on the state of affairs. The situation is not very different more than two years after the statement was made by the Defence Secretary.

Not that MoD is unmindful of the need to fix the problem. The Defence Procurement Procedure (DPP), which regulates all capital procurement, has been revised several times since 2002 when the first edition was brought out. The objective of these revisions has always been to streamline the procedures.
Among other changes, the latest 2013 edition of DPP brought about two important changes in the procedure. First, it simplified the procedure for 'Buy and Make (Indian)' acquisition programmes. And, second, it reduced the validity of the Acceptance of Necessity (AoN) from two years to one year, implying that the AoN would lapse if the RFP is not issued within a year of the AoN. (Most of the other changes were related to policy.)  However, this has made little difference on ground.

This is because the changes being made in the procedure do not normally go to the root of the problem. If, for example, 41 RFPs of Army fell through because of GSQR related issues, as stated by the Defence Secretary before the Standing Committee on Defence, the remedy would be to improve the system related to formulation of GSQRs and not to mandate that the AoN would lapse if the RFP is not issued within a year.

If formulation of RFP takes nine months, instead of the stipulated four weeks, the remedy would lie in diagnosing the reasons as to why this happens and in improving the process of RFP formulation.

These issues have been discussed and debated ad nauseum but continue to defy solution. What is, therefore, needed is a more incisive dissection of the entire process from the stage of GSQR formulation to signing of the contract. This should help in pinpointing the exact problems and figuring out how to fix them.

There are two important components of the procurement procedure: the stages through which every procurement proposal must pass and the processes associated with each stage. This article focuses on the possibility of tweaking these components with a view to cutting down the time it takes to complete the procurement cycle.

The procurement procedure comprises ten stages, starting from the formulation of the services qualitative requirements (SQRs). This is followed by Acceptance of Necessity (AoN); solicitation of offers; technical, field and staff evaluations; technical oversight for acquisitions exceeding INR 300 crore in value; commercial negotiation; approval by the competent financial authority; and, lastly, signing of the contract. The entire process, according to the timeframe prescribed in DPP, should not take more than 74-137 weeks, depending on a number of factors, such as whether the final financial approval is to be accorded by the Defence Minister or the Cabinet Committee on Security (CCS). In practice, however, it takes much longer than the prescribed maximum period of 137 weeks.

Incidentally, this time frame does not include the time taken in formulation of the SQRs and journey of each procurement proposal through various committees before the AoN is accorded. If the time spent on these two activities is also taken into account, the total time taken for piloting a procurement proposal from the beginning till the end would be anywhere between 3 to 5 years, if not more. This obviously is antithetical to the need for expeditious procurement of defence equipment, platforms and weapons systems that are critical for modernization of the armed forces.

The first question, therefore, is whether any of these ten stages could be combined, gone through concurrently (in addition to the stages which are already mandated in the DPP to be gone through concurrently) or done away with. On the face of it, there seems to be no possibility of doing any of these. But a closer look shows that at least one stage may after all not be as inescapable at it appears to be.

This is the stage of technical evaluation. A total of 16 weeks are provided for completion and acceptance of the technical evaluation report, though, of course, it takes much longer in actual practice. The format of the Compliance Table required to be prepared by the technical evaluation committee is as follows:

Sr NoRequirement as per RFP Compliance/Partial Compliance of Paras/Sub Paras of the Main Technical DocumentIndicate Reference
- --- Technical Parameters as per Appendix A Technical Parameters as per Appendix A
. . . -
. . . -
-- -- Commercial Parameters as per RFP   Commercial Parameters as per RFP 
.  Performance-cum-Warranty Bond as per ___ para of RFP . -
.  Advance Bank Guarantee Bond as per Para ____ of RFP . -
.  Integrity Pact Bank Guarantee as per para ____ of RFP (indicate amount of IPBG) . -

Technical evaluation is a paper exercise which involves preparation of the compliance matrix with reference to the vendor's response. It is worth considering whether the vendor could be asked to prepare a matrix showing the RFP parameters which his offer does not comply with (fully or partially) and give a specific undertaking that except for such parameters, his offer is compliant with the requirement spelt out in the RFP in all respects.

A view could thereafter be taken jointly by all concerned whether the non-compliances/partial compliances, as mentioned by the vendor in the compliance matrix, call for his being disqualified from participating further in the procurement programme. This will save a lot of time, apart from the task of technical evaluation being simplified to a considerable extent. The vendors will naturally be more cautious in furnishing the compliance matrix because any false declaration by them would come to light at the time of field trials, leading to their disqualification.

This would also make it unnecessary to resort to technical oversight in cases exceeding INR 300 crore, for which DPP provides for 8 to 12 weeks.

Whether these stages can be done away with, or at least modified as suggested, would depend on what has been the experience so far of putting the cases through these stages. Unless, there is overwhelming empirical evidence to the contrary, such measures need to be seriously considered. This will require a certain amount of boldness in decision making but this is what 'maximum governance, minimum government' is all about.

The second component of the procurement procedure is the processes associated with each stage. There is a huge potential for improvement here because most of the delays takes place in completing those processes.

For example, if 41 RFPs of Army fell through over a period of 18 months because of SQR-related issues, as stated by the Defence Secretary before the Standing Committee of Defence, there is obviously something fundamentally wrong with the process of formulating the SQRs. Little information is available on how much time it takes to obtain the AoN, for which no timeframe is prescribed in DPP anyway. There can be no prizes for guessing that it takes ages before a proposal crosses the AoN stage, putting a question mark before the process of obtaining the AoN. If staff evaluation takes as much time as stated by the Defence Secretary, it is possible that there is something wrong with the process. Contract negotiations take months  in some cases, years.  Obviously, there is something amiss with the process.

These examples are only illustrative. If one looks closely the processes associated with each stage, similar tendency will be apparent.

The only way to find out the real reasons is to have an empirical analysis of a few actual cases carried out. Such studies by those who are a part of the procurement machinery serve little purpose, focussed as such studies are on apportioning the blame or offering explanation for delay, depending on who carries out that study. Options are available to MoD to engage officers of the Indian Defence Accounts Service to carry out such studies or ask the Institute for Defence Studies and Analyses  a think tank fully funded by MoD  to carry out the study.

Be that as it may, two things are clear. One, no dramatic improvement is possible unless this problem is tackled and, two, resolution of these problems may necessitate structural changes in the capital acquisition machinery.

Take for example, formulation of SQRs. It may be a service-specific problem but it is a problem nonetheless. Suggestions have been made in the past as to how this problem can be overcome. A professional permanent body entrusted with the responsibility of formulating SQRs could possibly be an answer but this requires shedding the prevailing prejudices and going beyond making cosmetic changes in the existing system.

Take another example. The timeframe prescribed in DPP starts only from the AoN stage but how long it takes to reach that stage depends to a considerable extent on the quality of the Statement of Case (SoC) prepared by the service headquarter concerned. Flaws in SoC result in this process getting prolonged.  It may be a bit of an exaggeration to say that the fate of a procurement proposal is sealed by the quality of the SoC, but there is no denying that the course a proposal takes depends to a large extent on how well the SoC has been prepared. Fewer the grey areas in the SoC, lesser the chances of issues being raised by the traditional bête noire, like the Finance Division. There is, therefore, a need to invest this process with greater professionalism than is the case at present.

The task becomes all the more difficult because of the multiplicity of committees that a proposal must pass through and an incredibly large number of personnel, drawn from several agencies, participating in the deliberation of those committees. Frequent rotation of personnel involved in the procurement programmes, especially in the service headquarters, makes things more difficult.

The accompanying figures would give a broad idea of the maze that every procurement proposal has to pass through. Though the existing system has served well, one will have to come out of the comfort zone and tweak the system to make it leaner and flatter.

One possible area for reform is the multiplicity of committees.  All SoCs are first taken up for consideration in the Services Capital Acquisition Plan Categorization Committee (SCAPCC), from where they go to the Services Capital Acquisition Plan Categorization Higher Committee (SCAPCHC) and finally to the Defence Procurement Board (DPB) or Defence Acquisition Council (DAC). There is also a pre-SCAPCC meeting in which the industry associations are invited to make presentation on their capability to meet the requirement. Although all these committees meet regularly and the system is, to a large extent, working fine, the possibility of reducing the number of committees needs serious consideration.

It might be possible to merge SCAPCC and SCAPCHC but this will require drastic improvement in the quality of SoCs. Presently, much of the work that SCAPCC does is geared towards having the flaws in the SoC rectified. If this problem is taken care of by the service headquarters initiating a proposal, it should be possible to bring the cases directly before SCAPCHC, which can also interact with the industry associations. This will give an opportunity to SCAPCHC to take a holistic view of the proposal and domestic industry's ability to meet the requirement. It will also save the time in preparing the minutes and agenda papers.

There is considerable overlap in the functioning of DPB and DAC. It would save a lot of time if the cases go directly from SCAPCHC to DAC with only those cases being routed through DPB where some kind of deviation from the existing procedure is required to be approved. This will also save the time in preparing the minutes and agenda papers.

The problem does not end with AoN. Issuing the RFPs is a huge problem area, which also holds a lot of potential for reform. A total of 15 weeks are provided for in the DPP for initiation of draft RFP for collegiate vetting, issuing the document, holding the pre-bid meeting, though it takes longer than that. More importantly, it has a larger implication. As it is virtually impossible to deviate from the terms of the RFP, any flaw in framing of the RFP could create difficulty at the contract negotiation stage. Similarly, Collegiate vetting of the RFP is fine but preparation of RFP has to be professionalised, which is the only way to ensure that the RFPs are free from flaws and the time taken at this stage gets drastically reduced.

There are problems with the processes associated with practically all the stages of procurement. The need to address these problems cannot be overemphasised. The suggestions made in this article are intended more to trigger a debate rather than to offer a matured solution to expedite procurement of defence equipment for modernization of the armed forces.

Amit Cowshish

Amit Cowshish

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