L1 concept for awarding contract to lowest bidder diluted in another major policy shift: big ticket orders to be split among shortlisted vendors willing to match lowest price bid

Photo Credit : DRDO,

India has amended its Defence Acquisition Procedure (DAP) to formalise its recent directive altogether barring import of military equipment. All Defence  procurements henceforth will be indigenously sourced. Any exceptions to the rule in case of critical operational requirements will require the explicit approval of the Defence Minister. 

India has an annual Defence Budget equivalent of $70 Billion, of which $20 Billion is earmarked for capital spending for military modernisation. The Stockholm International Peace Research Institute (SIPRI) estimates India’s Defence spend as the world’s third highest after the US and China.

Amendments to the DAP 2020, announced by the Ministry of Defence on April 25, also dilute the controversial L1 principle which swings the contract to the lowest financial bidder. Orders in mega programmes will now be split among technically compliant shortlisted vendors who are willing to match the lowest bid. Many Indian military acquisition programmes in the past have been aborted on account of no-holds-barred arms bazaar contests which have adversely impacted India’s military readiness. 

“To encourage wider participation and broad base indigenous defence manufacturing sector in the country, the total order quantities in acquisition cases are to be split between shortlisted vendors, wherever viable,” the Ministry of Defence (MoD) stated. 

The amendment to the DAP 2020 is the most serious statement of intent by India to end the traditional culture of arms imports and instead meet military requirements by building an indigenous Defence Industrial complex. 

“Going forward all modernisation requirements of the Defence Services and Indian Coast Guard are to be indigenously sourced irrespective of the nature of procurement. Import of defence equipment/sourcing from Foreign Industry of capital acquisitions should only be an exception and undertaken with specific approval of DAC/Raksha Mantri,” the MoD statement elaborated. 

Amendments to the DAP 2020 have been incorporated to implement a decision of India’s highest procurement body, the Defence Acquisition Council (DAC), which is chaired by Defence Minister Rajnath Singh. But the big policy push for the Aatmanirbharta (self-reliance) agenda has come from Prime Minister Narendra Modi himself. A spate of foreclosures of big-ticket arms imports this year has heralded the tectonic policy shift in India’s arms imports. 

The amended DAP also makes an attempt at introducing definite timelines for Defence procurement programmes which are notorious for a culture of delay. A start has been made for two categories of procurement. The maximum time for signing of contracts with start-ups and innovators under the iDEX procedure has been reduced to 22 weeks after grant of Acceptance of Necessity (AON), officialese for a go-ahead. 

In another significant concession to the Indian Defence Industry, the requirement of an Integrity Pact Bank Guarantee (IPBG) has been dispensed with. Instead, Earnest Money Deposit (EMD) will be taken as a bid security for all acquisition cases with Acceptance of Necessity (AoN) cost of more than Rs 100 Crore. EMD will be valid for the selected vendor up to the signing of contracts and will be returned to losing bidders post-declaration of selection. 

Post-contract, Integrity Pact will be covered through the Performance-Cum-Warranty Bank Guarantee (PWBG). 

For Micro and Small Enterprises (MSEs), the requirement for EMD has been done away with.