Helicopters for VVIPs: Need to Fix Culpability

Helicopters for VVIPs: Need to Fix Culpability

Major General Mrinal Suman

India concluded a contract with AgustaWestland in February 2010 for the procurement of twelve AW-101 helicopters for the transportation of VVIPs. The Comptroller and Auditor General of India (CAG) carried out compliance audit of the deal and tabled its report (No 10 of 2013) in the Parliament on 13 August 2013. CAG has found the entire process of acquisition to have deviated from the laid down procedures. It concluded that the process posed ‘serious questions on accountability and lack of transparency in the finalization of contract, which need to be addressed’.

Allegations of bribes and payment of commission to win the contract have been dogging Finmeccanica (AgustaWestland is a division of Finmeccania) since February 2012. However, arrest of CEO Giuseppe Orsi in Italy in February 2013 drove India to suspend the contract and hand over the case to the Central Bureau of Investigation. MoD issued a fact sheet on 14 February 2013. Whereas AgustaWestland has demanded arbitration proceedings, India Ministry of Defence (MoD) has issued a show-cause notice to AgustaWestland for the cancellation of the contract.

For all intents and purposes, the deal is dead. India has already paid about 45 percent of the total cost and received three helicopters. India is unlikely to accept additional deliveries. A perusal of the CAG Report shows that the provisions of the Defence Procurement Procedure (DPP) were breached at every stage, both in letter and spirit.

Restricted Competition

The objective of issuing a fresh Request for Proposals (RFP) was to increase competition by reducing the parameter of flight ceiling from 6,000 to 4,500 meters. However, introduction of a fresh requirement of minimum cabin height of 1.8 meters on the insistence of PMO/SPG effectively eliminated all competition. It amounted to tailoring Services Qualitative Requirements (SQR) to help the chosen vendor.

For the issuance of RFP, names of vendors are proposed by the concerned Service Headquarters (SHQ). However, the Ministry of Defence (MoD) has the overriding powers to amend the list by adding or deleting names. Strangely, whereas the earlier RFP had been issued to eleven vendors, the revised RFP was issued only to six vendors. It needs to be ascertained as to who ordered elimination of certain vendors and the reasons thereof. As RFP is issued by MoD, it must explain. It is not clear whether the new RFP was issued to Eurocopter whose machine EC-225 Super Puma had emerged fully compliant in the first RFP when flight ceiling was fixed at 6,000 meters.

Field Trials

Field trials are carried out under the aegis of the concerned service headquarters and are by far the most critical aspect of the entire procedure. Performance claims of the vendors are validated by putting their equipment through extensive user trials in all conditions where the equipment is likely to be deployed. Every RFP mandates that the trials be carried out in India.

Strangely, in gross violation of the policy, the Air Headquarters (Air HQ) coerced MoD to allow it to conduct trials abroad at the vendors’ premises. More shockingly, as the helicopter offered by AgustaWestland was under development, trials were carried out on two representative helicopters and a mock up of the passenger cabin. In a first of its kind, equipment was declared fully SQR-compliant when still under development.  

It needs to be ascertained as to what compelling reasons constrained the Air Headquarters to seek such drastic deviations. Did the Air HQ know that the machine of AgustaWestland was not ready and could not be sent to India; and hence tried to bail it out by having a pretense of trials at its premises?  Equally worrisomely, contrary to the policy provisions, different methodologies were employed for the trial evaluation of helicopters of competing vendors. The Air Headquarters must clarify the issues.

Staff Evaluation Report

The Staff Evaluation Report is prepared by the service headquarters and contains recommendations regarding acceptability of evaluated equipment for introduction into service. No equipment that fails to meet all SQR can ever be considered for acceptance. According to the CAG report, AgustaWestland was recommended for procurement despite the fact that it did not satisfy all parameters.   

SQR are minimum performance characteristics that are considered essential to enable the equipment to perform its designated mission. In other words, non-compliance of any SQR implies a compromise. Why did the Air Headquarters consider it necessary to accord special dispensation to AgustaWestland and seek waiver of SQR to make it acceptable for induction?  

Technical Oversight

With a view to have an inbuilt mechanism for checks and balances, DPP mandates that a Technical Oversight Committee (TOC) be constituted for all proposals above Rs 300 crores to provide expert oversight over the complete technical evaluation process – selection of vendors, conduct of trials, compliance of SQR and identification of technically acceptable vendors. TOC comprises of three members – one service officer, one scientist from Defence Research and Development Organisation and one representative of Defence Public Sector Undertakings (preferably not involved with that acquisition). TOC has to give its ruling, based on a majority decision within 30 days.

As per the MoD fact sheet, a TOC was constituted in this case on 06 August 2013 and found the whole technical evaluation process to be in order. It will be interesting to learn as to whether the TOC report was unanimous or a majority decision. Members of TOC must be held accountable for overlooking all infirmities that the CAG report has observed.  

Commercial Evaluation

It is rather intriguing that instead of asking the vendors to extend the validity of their commercial quotes, as is the standard practice, MoD decided to seek fresh commercial bids from them. As AgustaWestland was reasonably assured of emerging as the sole technically acceptable vendor by then, revised bids provided an unwarranted opportunity to it to defray its overhead costs by inflating the bid.

The process of commercial evaluation is carried out by the Commercial Negotiation Committee (CNC) under the aegis of MoD. It is headed by a Joint Secretary level bureaucrat.

As AgustaWestland had emerged as the sole successful vendor, CNC was required to establish a benchmark and reasonableness of price in an internal meeting before opening the commercial offer. DPP mandates that if on opening of the commercial bid, the price quoted by the vendor is found to be within the benchmark fixed, no price negotiations need be carried out. Criticality of fixing a realistic benchmarked price can be gauged from the fact that an absurdly high value can provide windfall gains to a vendor. This is exactly what happened in the ibid case.

While submitting the proposal to MoD in January 2006, the Air HQ had estimated the cost to be Rs 793 crore. Amazingly, in September 2008, CNC pegged the benchmarked price at Rs 4877.5 crore – more than six times the estimated cost within a period of less than three years. Astonishingly, cost quoted by the vendor turned out to be Rs 3966 crore. Thus, the benchmarked cost was higher by 22.80 per cent. The contract was signed for a negotiated price of Rs 3726.96 crore.

With a view to maintain the sanctity of its ‘single-stage two-bid’ system, DPP prohibits any change in the configuration of equipment after the issuance of RFP. Outlandishly, the Air Headquarters demanded inclusion of additional systems while CNC proceedings were under way. Resultantly, AgustaWestland demanded the price at will. Responsibility must be fixed for failure to include the requirement of additional systems while formulating RFP.   

Offsets

An offset contract for Rs 1118.09 crore was signed along with the main contract. The Acquisition Wing and the then Defence Offset Facilitation Agency were responsible for ensuring scrupulous implementation of the contract. As per the CAG report, every single provision of the offset policy has been breached in this deal. Unauthorised programmes were allowed against offset obligations. Works which had already been completed well before the signing of the offset contract were allowed to be shown as fresh programmes to award offset credits and ineligible entities were accepted as Indian offset partners. 

Offsets do not come for free. All vendors include the anticipated expenses in their quotes. Offset cost penalty can vary between 10 to 15 percent of the value of the main contract. Culpability for slipshod, inefficient and subjective management of offset programmes that deprived India of much needed offset benefits must be fixed.

Finally

Paragraph 75 of the DPP empowers the Defence Minister to grant deviations from the laid down procedure. As observed by CAG, such powers are meant to be invoked only ‘in exceptional circumstances for certain contingencies or exigencies which may have arisen subsequent to the issue of RFP’. Therefore, CAG questions the rationale of making use of these extraordinary powers to grant deviations on eight counts.

However, the most worrisome is the fact that every deviation granted was beneficial to the vendors and detrimental to the interests of India. Acceptance of revised commercial bids, extension of delivery period, dilution of warranty conditions and reduction in the validity period of the option clause helped the vendors. It appears some decision makers were more inclined to favour the vendors rather than safeguarding Indian interests. It is for MoD to identify them and fix culpability.  

Undoubtedly, the contract for helicopters for VVIPs is an ideal subject for detailed case-study to understand nature and extent of infirmities that can afflict a major procurement case. It also demonstrates how a well evolved procurement procedure can be tweaked by knowledgeable (but insincere) officials.*****

US Offer of Co-development of Weapon Systems

US Offer of Co-development of Weapon Systems

Major General Mrinal Suman

On 18 September 2013, during his visit to India, US Deputy Secretary of Defence Ashton B. Carter, the second highest ranking official of the Pentagon, made a momentous offer of technological cooperation to India. More significantly, he announced that the US was prepared to co-develop and co-manufacture products that could be sold internationally. It was a major policy statement that reflected a keen desire of the US to improve military ties with India. The offer took many Indian observers by surprise. 

During the Cold War period, Indo-US military relations were either non-existence or lacked intensity. The US considered India to be in the Soviet camp and declined to sell any worthwhile military equipment to it. The collapse of the Soviet Union saw the end of the Cold War. Thereafter, protracted Indo-US engagement resulted in the ‘Agreement on Defence Relations’ in 1995. 

The nuclear tests of 1998 did cause a setback but all the irksome issues were sorted out through protracted meetings between Strobe Talbott and Jaswant Singh. The deal to sell AN/TPQ-37 Fire Finder counter-battery artillery radar sets to India in 2002 marked the beginning of a new chapter of strategic proportions.

Simultaneously, a Security Cooperation Group (SCG) was constituted to coordinate and expedite defence deals. In June 2005, the two countries signed the ‘New Framework for the US-India Defence Relationship’. It covered a large spectrum of activities related to transfer of sensitive technologies; defence trade; and joint research, development and co-production of new defence equipment. A number of joint initiatives were institutionalised under the Defence Policy Group to ensure regular interaction. However, progress on ground has been rather sluggish. Bureaucratic hurdles are often cited to be the primary reason. 

Notwithstanding the above, the US has emerged as a major seller of arms to India. Some of the major contracts pertain to the sale of the USS Trenton (now INS Jalashwa) amphibious troop carrier ship, P-8I maritime patrol aircraft, C-130J Hercules aircraft and C-17 Globemaster transport aircraft. In addition to some repeat orders, negotiations are under way for the purchase of 155MM Ultra Light Howitzers, Javelin antitank guided missiles and Chinook helicopters. 

The US Offer

With a view to improve mutual understanding, streamline bureaucratic processes and intensify defence trade, a Defence Trade and Technology Initiative (DTI) between the two countries was announced during the visit of the US Defence Secretary Leon Panetta to India last year. The current US offer is an offshoot of DTI and attempts to expedite the process of deepening the defence ties.  

According to Carter, India is only the third country, after the UK and Australia, to whom such an offer for co-development of newer defence products has been made. Exhorting US government and industry to overcome decades of segregation from their counterparts in India, he called for the unleashing of the ‘enormous untapped potential between the private sectors in the defence field’.

Terming the scope as ‘limitless opportunities for close cooperation’, he declared that the US was ready to offer high-end defence technologies to India. He cited the example of the new electromagnetic technology for catapulting fighter jets off aircraft carriers that the US is ready to share with India. He asked the US industry to identify more transformative co-production and co-development projects that can be undertaken with India.  

To kick-start the process, Carter suggested co-development and co-production of the next- generation Javelin anti-tank missile for international buyers. In addition, he opined that   missiles could also be specifically designed for Indian requirements. He claimed that India was the only country to whom such an offer was being made. It was reported that executives of Raytheon and Lockheed Martin (manufacturers of Javelin) have already made presentation to Indian officials on the proposed joint project.

Likely Areas of Dissonance

The US wants a deeper bonding with India to help it achieve its strategic objectives in East and South East Asia region. Defence trade is a major strategic and foreign policy tool of the US through which it seeks to develop close military-to-military relationship with other countries. For that, it aims at building interoperability between the militaries through joint development of newer weapon systems.

Cooperation proposed by Carter is going to be a handshake between two unequal partners with divergent objectives. There is total mismatch between the geostrategic objectives of the US and the defence imperatives of India:-

·         Whereas the US is the undisputed sole super power in the world, India is nowhere near the much trumpeted goal of becoming a regional power. It remains embroiled in local disputes with its neighbours.

·     There is a major divergence in the methodology of waging wars. The US war doctrine is offensive in nature. It fights wars overseas through expeditionary forces. On the other hand, Indian policy is totally defensive – the sole objective being guarding of national frontiers.

·         Most importantly, whereas the US military is a fifth generation high-tech force, the Indian armed forces are stuck with second generation equipment despite struggling desperately to graduate to the third generation.

·  Whereas US operations are technology centric, Indian defence forces are man-power intensive, relying primarily on physical ground effort.

·     Unlike India’s intractable challenges of Naxalism and terrorism, the US faces no internal threats.

Thus, variance between the military philosophy and approach of the US and India is so vast that doubts about mutual incompatibility cannot be wished away. Recurring incongruities are likely to pose considerable challenges. For example, even the determination of the parameters for the equipment to be developed will be a tricky proposition. The US would want equipment that can get seamlessly integrated in its current inventory of high-tech weaponry for world-wide deployment. India has no such compulsions. It will be happy with a stand-alone and cost-effective weapon system that can accomplish the desired mission in the prevailing climatic and terrain conditions. It is going to be a tall order to balance such divergent requirements.  

Technology Transfer and the US Licencing Regime

All US military sales and technology transfers are governed by the Arms Export Control Act and the Foreign Assistance Act. Worse, the licensing regime is not only rigid and time consuming but also considerably unpredictable.  

Every proposal is examined, reviewed and validated for its compliance with the US laws and to ascertain whether the requesting country is eligible for the receipt of the said technology or not. Each request is reviewed and validated by various wings of the US Military Department, Defence Security Cooperation Agency and the State Department.

Licencing procedure in respect of the items categorised as Significant Military Equipment (SME) is more tedious. SME is an item designated in the International Traffic in Arms Regulation that warrants special export controls because of its capacity for substantial military utility. Most proposals for joint development are likely to fall under this category.

Carter has claimed that the US was trying to remove bureaucratic hurdles impeding technology transfer between the two countries and expedite the process through seeking anticipatory approvals of some projects even before India finalised its military requirements. However, it is easier said than done. India’s experience of the last 15 years belies such hopes.

Technology is knowledge that is all-inclusive and fully caters for all requirements for product manufacture. It entails know-how to produce equipment from component and raw material level. Therefore, there can be no gaps in the knowledge. For that, technology related to every weapon system has to be broken down into sub-technologies to ascertain true range, depth and scope of knowledge being shared. Indian experience with Russia in the joint-development of Brahmos cruise missile has been far from satisfactory. Reportedly, Russia is playing truant in sharing critical sub-technologies. 

India is wary of facing similar irritants with the US. Even in the proposed joint development of Javelin missiles, it is learnt that the US is not ready to share key details pertaining to the algorithms for guidance. Thus, it will not be a fully honest and frank relationship, based on an even keel. The US will transfer only that know-how that it considers sharable. India will have to remain satisfied with what it gets. However, striking a note of optimism, Carter has recently declared that the US was changing its old culture of ‘presumptive no technology transfer’ to one of ‘presumptive yes’.

Fickleness of the US Policies and the Existing Trust Deficit 

 

It is a fact that the past track record of the US does not inspire confidence. At Aero India 2005, the then Defence Minister of India was quite candid and forthright when he mentioned lack of reliability of supplies as the primary stumbling block in enhanced Indo-US military trade. India considers the threat of unilateral abrogation of agreements to be impinging on its freedom to take decisions in its national interests.  Lack of credibility of the US commitments makes India wary of the reliability of US obligations.

Further, fickleness of the US laws injects a certain degree of uncertainty in the relationship. The US statutes are such that any congressman, under obligation of pressure groups operating in the US that are inimical to Indian interests, can move a resolution demanding imposition of sanctions even on purely commercial transactions. Further, any sub-committee of the US legislature can overrule contractual obligations entered into by the US executive. Worse, US reliability as a supplier in times of conflict is considered highly suspect, especially in cases of Indo-Pak conflicts. American penchant for appearing even-handed makes it forget its sovereign obligations. India has suffered earlier and wants to tread cautiously. 

Most US officials understand reasons for Indian apprehensions regarding assured follow-up support and try their best to allay all fears. Encouragingly, there has been a distinct realisation amongst the US law makers that unilateral abrogation of sovereign agreements harms their credibility and shows them as unreliable partners. 

Attitudinal Problems

The US is undoubtedly a technology powerhouse. Unfortunately, many US functionaries tend to hurt the sensitivities of others through their condescending attitude. They are not used to treating others as equals. They prefer the feudal system of medieval times and treat other nations as vassal states. For example, virtually every single clause of the US drafted contracts reads like an undertaking being extracted from a helpless protégé country. 

Sense of shock, hurt and incredulity that the US displayed at the elimination of F-16 and F-18 fighters from MMRCA competition is symptomatic of their haughty and somewhat disdainful mindset. It was hard for them to believe that any country can have the temerity to reject their much-vaunted machines. 

It is a historical fact that no unequal or one-sided relationship can ever be long lasting. Spirit of accommodation has to be the ruling mantra for successful promotion of Indo-US defence engagement. Both sides have to understand each other’s concerns and try to address them. Toning down its expectations, India must appreciate global concerns of the super power and be less sensitive to every policy utterance by the US. Concurrently, the US must be more responsive to Indian requirements and shed its condescending attitude. Only a mutually beneficial association based on commonality of interests and realistic expectations can prosper.

The US continues to urge India to sign ‘Logistics Support Agreement’ and ‘Communications Interoperability and Security Memorandum of Agreement’. Both the agreements are considered as essential prerequisites by the US before it agrees to share sensitive technologies. 

Although the irksome issue of End Use Monitoring appears to have been resolved satisfactorily, it is not known whether the jointly-developed equipment would also be subjected to close monitoring. 

Finally

During the recent summit meeting between Barack Obama and Manmohan Singh, both sides resolved to expedite US licensing processes and cut through the bureaucratic maze. As is well known, Indian bureaucracy is notorious for its obduracy, inertia and vacillation. It has the ominous potential to stall and kill all initiatives. 

Undoubtedly, there is an immense potential for joint ventures. With US technology and Indian software prowess, it can be a win-win situation for both the sides. Indian technical manpower with its cost advantage could make India a global hub for outsourcing of weapon systems. It will help India graduate from the present position of being a supplier of components to the level of a systems integrator.

However, building up relationships between nations is an arduous, excruciatingly slow and demanding task. In the case of Indo-US dealings, the burden of long periods of non-engagement and past misapprehensions makes the task more onerous. The proposed joint-development of high-tech weapon systems is certainly going to be a challenging proposition. India should try not to let the baggage of the past blinker its vision of the future. Old mindsets have to be shed in a spirit of understanding and accommodation.*****