India’s Defence Procurement Procedure 2008 (DPP-08) released today: A Summary

As part of the implementation of the report of the Group of Ministers on reforming the National Security System post Kargil Operations, new Defence Procurement Management Structures and Systems were set up in the Ministry of Defence(MOD) in 2001. For operationalizing these structures and systems, the procedure for Defence Procurement existing since 1992, was revised. The Defence Procurement Procedure-2002 (known as DPP-2002) came into effect from 30th December, 2002. It was applicable to procurements flowing out of ‘Buy’ decision of Defence Acquisition Council(DAC). The scope of this procedure was enlarged in June 2003 to include procurements flowing out of ‘Buy and Make’ decisions. The procedure was further reviewed and DPP-2005 came into effect from 1st July, 2005

2. The DPP-2005 was also reviewed and revised based on experience gained in its implementation, and further enlarged to include revised Fast Track Procedure and Procedure for Indigenous Warship Building. It also included procurements categorized in the ‘Make’ category for bridging the existing critical gap and provided requisite framework for increased participation of Indian Industry in the Defence Sector. The DPP-2006 thus came into effect from 1st September, 2006.

3. While promulgating DPP-2006, it was envisaged that review of the procurement procedure would be undertaken every two years. The present volume is the outcome of the experience and feedback gained in implementation of the existing procedure. The revised procedure being named as DPP-2008, will come into effect from 1st September, 2008. DPP-2008 aims to strengthen the procurement framework by making it more transparent, impartial and accountable.

SALIENT FEATURES OF DPP 2008

TRANSPARENCY

i). Vendors will be given advance information before the issue of RFP in all procurement cases excepting those for security sensitive products. This information given on MOD website will provide them a lead time for preparation of their offers in response to the RFP.

ii). All verbal communication with the vendors during the course of trials will be confirmed in writing.

iii). The result of technical/trial evaluations along with reason(s) for disqualification would also be intimated to vendors after the acceptance of technical/staff evaluation reports.

iv). Defence PSUs would be required to sign Integrity Pact with their sub-vendor(s) in all cases where the procurement value exceeds Rs.20 crores.

FIELD TRIALS

i). A trial methodology would be given in the RFP. Trial directive framed by the Services would be issued in conformity with the trial methodology. This would contribute in making evaluation process more transparent.

ii). Trial team will be broad based when equipment is being procured for more than one Service or TOT is being obtained.

iii). The Technical Oversight Committee would also provide oversight on the adopted trial methodology during trials vis-à-vis trial methodology given in the RFP and the trial directives.

CHANGES IN OFFSET POLICY

i). With a view to secure greater engagement of global industries in promotion of indigenous defence industry, Offset Policy has been revised to include offset credit banking enabling foreign vendors in creation of offset programmes in anticipation of future obligations.

ii). A vendor will be able to discharge the banked offset credits for the RFPs which are issued within two financial years of the date of approval of the banked offset credit. If a vendor is able to create more offsets than his obligations under a particular contract, the surplus offset credits can be banked and would remain valid for the period of two financial years after conclusion of the said contract.

iii). Under the existing offset guidelines, a private industry was necessarily required to have an industrial licence for being entitled to participate in offset programmes. In the revised guidelines, a private industry will be required to have an industrial licence only if so stipulated under the guidelines/licensing requirements for the defence industry issued by the Department of Industrial Policy and Promotion.

ENCOURAGING COMPETITION BY BROADENING VENDOR

i). In order to make broad based Service Qualitative Requirements(SQRs) Service Headquarters may obtain inputs by issuing Request For Information(RFI) on MOD website. To ensure that SQRs are broad based and would result in multi-vendor situation, a compliance table of SQRs, vis-à-vis technical parameters of available equipment in as much details as feasible, would be prepared at the stage of formulation/approval of SQRs.

ii). If only one vendor is found compliant to the SQR parameters after the technical evaluation stage, a review would be carried out by the Technical Evaluation Committee(TEC) to derive causes of such single vendor situation for recommending suitable corrective measures for review of the acquisition scheme.

QUALITY AND RELIABILITY

i). To ensure better reliability and quality assurance, vendors would be required to give details of reliability model and basis of reliability prediction. The efficacy of such model will be verified during technical and environmental evaluation.

ii). A seller is required to rectify any failure in the equipment during the period of warranty. The seller, however, is not required to inform the cause of such a failure. Knowledge of cause of failure may be of valuable help to the user in long term maintenance of the equipment. The new provision in the warranty clause requires that the seller shall intimate the assignable cause of the failure to the user.

ENHANCEMENT OF FINANCIAL POWERS TO SERVICES

i). The Services have been given greater delegation of financial powers for capital acquisition to enhance efficiency and expedite decision-making. Service Headquarters will now approve cases up to Rs.50 crores. Financial power delegated to the Defence Secretary has also been enhanced to Rs. 75 crores. Further, the Defence Procurement Board(DPB) would accord AON (Acceptance of Necessity) to cases up to Rs.100 crores. Only cases above Rs.100 crores are to be brought before the DAC.

ii). To cut delays, the existing provisions for grant of extension of time against RFP has been limited to only eight weeks.

iii). In multi-vendor cases, once L-1 vendor is identified, normally there would be no need for any further price negotiations.

To check long delays in issuing of RFP after AON and quantity vetting, a provision has been incorporated that the AON would lapse where RFP after approval of quantity is not issued within two years from accord of AON. In such cases, fresh AON will be considered only after re-examination of available technology and operational necessity.