Reforming the Acquisition Regime to Speed-up Defence Procurements

Reforming the Acquisition Regime to Speed-up Defence Procurements

(Geopolitics October 2017)

Major General Mrinal Suman

Defence Minister Nirmala Sitaraman has rightly identified tardy progress of procurement cases to be an area of utmost concern. She chaired her first meeting of the Defence Acquisition Council (DAC), the overarching decision making body in the Ministry of Defence (MoD), on 27 September 2017. In addition to approving the procurement of upgraded indigenous sonars and missiles for the naval ships, she reviewed the status of various capital acquisition schemes and directed their meticulous monitoring for adherence to the stipulated timelines. She directed that the meetings of DAC be held fortnightly for quicker decision making to speed up the process of capability development of the armed forces.

Although the decision of the defence minister is well intentioned, it will be of limited help. The problem lies elsewhere. There are myriad impediments in the procurement process and they are deeply entrenched. Unless  they are tackled with unwavering fortitude, all procurement cases will continue to languish in the labyrinth of bureaucratic convolutions. Reforms have to be sweeping. Tinkering with a few provisions of the Defence Procurement Procedure (DPP) will be an act of self-delusion and result in complacency.   

DPP spells out ‘expeditious procurement of the approved requirements of the armed forces’ to be its primary aim. For that, it has laid down broad time frame for completion of different procurement activities. All major deviations are required to be reported to the Defence Procurement Board for corrective action. Instead of processing cases in the normal multi-layered bureaucratic routine, DPP wants decisions to be taken by all concerned functionaries in a collegiate manner. In addition, a comprehensive data base and a defence procurement network are required to be set up to electronically connect all agencies involved in defence procurements.

Although 15 years have passed since the promulgation of the current genre of DPP in 2002, there has been little discernible progress on ground. In fact, matters have been drifting from bad to worse and delays have become more pronounced. Not a single major contract has been concluded within the stipulated timelines in an open multi-vendor competitive environment. MoD had to resort to government to government deals to meet emergent requirements. Some of the major factors that cause delays have been discussed in the subsequent paragraphs.

Lack of Concurrent Activities

Defence procurements consist of a multitude of activities by a numerous agencies. The current practice of undertaking all activities in a sequential rather than simultaneous manner is a primary reason for excessive time taken for the acquisition process. Unless the preceding activity is completed and approval of the designated authority obtained, work on the next activity does not commence. For example, the Technical Evaluation Committee (TEC) gets constituted only after the technical bids are opened by the Technical Manager and sent to the Service Headquarters (SHQ) for the evaluation of the proposals.  

Steps to evolve the trial plan, prepare the trial directive and select the trial units are initiated only after the acceptance of TEC report by MoD. Similarly, the Contract Negotiating Committee (CNC) is not constituted till the Staff Evaluation Report is accepted by MoD. Considerable amount of preparatory work can be done by CNC prior to the opening of the commercial bids, including determination of fair/reasonable price and finalization of methodology to identify the lowest bidder on life-cycle cost basis. It is estimated that by resorting to concurrent activities, a saving of up to 6 months can be affected in the acquisition cycle.

Infirmities in Parameters

Formulation of Services Qualitative Requirements (SQR) is entirely the prerogative of the services. It is for them to define the  characteristics of the equipment sought as per its projected operational exploitation. They spell out users’ requirements in terms of functional characteristics in a comprehensive, structured and concrete manner, thereby defining minimum performance attributes, corresponding to the task or tasks to be performed by the system. With a view to generate maximum competition, DPP stipulates that SQR should be broad-based and relate to contemporary technology widely available in the world/indigenous market.

Unfortunately, the services have still not fully grasped the criticality of preparing judicious and achievable SQR. Often, SQR are drawn after scanning foreign publications and glossy brochures of different manufacturers. There is also a tendency to pick good characteristics of different products and incorporate them all in the equipment sought. Many SQR are expressed in vague, sketchy, unspecific and indeterminate manner. These tend to create confusion, lend themselves to misinterpretations and create considerable delays.

It is a well established fact that flawed SQR are the cause of a majority of procurement proposals that get delayed or aborted. As SQR are the starting point of India’s defence equipment philosophy, importance of their diligent formulation cannot be over-emphasized.

Lack of Mutual Cooperation

There is a need for better coordination amongst the three services. Equipment purchased by one service can be expeditiously procured by the other services on repeat order basis, thereby obviating the need to go through the whole evaluation process afresh.

Consultations must be carried out with a view to benefit from each other’s expertise. Narrow parochial mindsets not only harm national interests but also result in half-baked proposals with consequent delays. There is no reason for the Army not to discuss SQR for helicopters with the Air Force. Similarly, assistance of the Navy must be taken to draft parameters for deep-sea diving equipment. This aspect may appear very basic, but unfortunately this is exactly what is happening on ground.

Similarly, assistance of the private sector must be sought to learn about indigenous technical competence and the prevailing trends worldwide. Many times technical responses received from the vendors make the whole exercise look primordial and force initiation of a fresh case with revised parameters.

Trials and Retrials

Field trials are carried out under the aegis of the services as per their trial directive. Systems are physically tested on ground to validate the performance claims made by the manufacturers and to ascertain their suitability. It is by far the most crucial activity of the entire procurement process. Unfortunately, not adequate attention is paid to this aspect in India. Units located in different terrain are detailed to carry out trials and submit their report along with the recommendations of the intermediate commanders. Not all the trial unit commanders are knowledgeable enough to comprehend the importance of trials. Most of them take it as an additional burden, to be carried out over and above their normal commitments. It is not their fault. It is just that they have not been prepared and equipped for the task.

Nearly all trial reports suffer from major infirmities, which not only delay decision-making but even necessitate retrials. Some of the common flaws in trial reports are – final recommendations are vague and non-committal; the report is at variance with the validated characteristics of the equipment; and infructuous comments by some intermediate commanders without reference to the trial directive or the parameters against which the equipment was being tested.

Procedural Glitches

As per the charter of duties mentioned in DPP-2002, all aspects related to technical evaluation of procurement proposals are to be overseen by the Technical Managers whereas the Acquisition Managers have to handle the entire commercial process. It is a clear cut division of responsibilities without any duplication and ambiguity. However in 2005, in a retrograde step, the Acquisition Managers were asked to vet RFP as well. It allowed them to meddle in the technical evaluation process. Thus, another tier was added without any purpose whatsoever, causing additional delay. 

Similarly, recurrent reference to Defence Finance functionaries at every stage of the process is another major impediment. Each reference takes 1 to 6 months to resolve. Defence Finance thrives on raising extraneous, superfluous and even ridiculous observations to demonstrate their authority and thus stall the progress. They can contribute little as they are neither qualified nor trained to perform any advisory functions. Many consider their excessive interference to be a major cause of delays.    

Considerable delay takes place at the price negotiation stage as well. Determination of the lowest bidder is a long drawn process as there is no standard matrix against which the commercial proposals can be evaluated, more so when transfer of technology is included in the deal. Prolonged discussions are carried out to negotiate various aspects. Although DPP forbids price negotiations with the lowest bidder if his quote is within the predetermined ‘fair and reasonable’ limit, most functionaries prefer to spend months and years in negotiating prices to demonstrate their diligence.

Frequent changes in priorities and parameters also delay acquisitions. Many proposals are aborted midway as the new commanders differ with their predecessors. Fresh proposals take time to fructify. Acquisitions cannot be dependent on personal views and preferences. Evolution of well-analysed long-term plans and their diligence adherence can overcome this problem.

Irrelevant Provisions

There are a number of provisions that serve little purpose but impose additional work-load and cause delay. Integrity Pact for contracts over Rs 20 crores is a moral honour code. Functionaries who are not deterred by existing penal provisions are hardly expected to abide by this code. Thus it serves little purpose.

Similarly, the concept of nomination of Independent Monitors and the mechanism for the redressal of grievances are highly flawed. Earlier Monitors could oversee implementation of Integrity Pact of their own volition. But now     aggrieved vendor (with regard to violation of the Pact) has to appeal to the Acquisition Wing who shall refer the complaint to the Independent Monitors for a detailed report. Interestingly, it is for the Acquisition Wing to take the final decision. 

Technical Oversight Committee for contracts over Rs 300 crores consists of 3 members — a service officer, a DRDO  scientist and a Defence Public Sector Undertaking representative. It examines whether the selection of vendors, trials, compliance to SQR and trial evaluations have been done according to prescribed procedures. It is given one month’s time to submit report. It is a tall order. Detailed members know little about the complexities of procurement process and are unable to spot any infirmity. This provision means little but adds to the timelines.

The Way Forward

Expeditious decision making by DAC is certainly a welcome step. But it must be accompanied by reforms at the functional level.

To start with, officials connected with procurements must be handpicked for their knowledge, flair and experience; as any organisation or procedure is as good as the people who work it. These officials must be put through an orientation course to acquaint them with the peculiarities of defence procurement. They should also have extended tenures for continuity. Any functionary who vacillates in taking decisions as per the powers delegated should be considered unworthy of that appointment. Penchant for putting up files to senior officers and other offices to keep them in loop must be curbed. It is a major cause of delays.

The Comptroller and Auditor General of India has rightly observed, “Defence acquisition is a cross-disciplinary activity requiring expertise in technology, military, finance, quality assurance, market research, contract management, project management,  administration and policy making. The existing system of acquisitions being handled by unspecialised personnel posted for three-year tenures is simply not adequate”. Unfortunately, this aspect has not been given due importance in India.

To ensure concurrent activities, a nodal officer in the Acquisition Wing needs to be tasked to monitor movement of every procurement case – akin to the Critical Path Method.  For example, the moment he gets an indication from TEC that the criterion of more than one vendor has been met and the case is being progressed, the nodal officer should immediately inform  SHQ to start finalising the trial plan and identifying the trial units.   

SQR must be drafted with a lot of care and deliberation. They should be realistic, quantifiable and technologically broad-based. They should contain minimum number of essential parameters to obviate need to squander time on obtaining deviations subsequently. An exhaustive data bank of competent vendors must be maintained to generate maximum competition and to avoid single vendor situations that need special sanctions with resultant delays.

Adequate time should be given at the outset to the vendors for submission of their techno-commercial proposals to avoid grant of extensions subsequently. Trials should be assigned to specially selected personnel and preparation of trial report be given due attention. Orders should be issued that Defence Finance can raise observations only once in a consolidated manner. Once duly replied, they should be debarred from raising new issues. This single step will reduce time lags considerably.

Defence procurement in all countries is a highly complex and   time-consuming process. The problem gets compounded for India due to lack of application at various levels, resistance to change and attitudinal problems of the various stake holders. It is for the new defence minister to pull India’ procurement regime  out of decades of inertia and indifference.*****