India's Defence Acquisition Process Should Not Be Aimed at Fault Finding But For Facilitating: Admiral RK Dhowan
Aerospace Maritime and Defence Studies (SAMDeS) & FICCI deliberated the vital aspect of India's defense acquisition process over 1st ever eSymposium on Negotiating Defence Contracts on June 24. Time has come to overhaul the defence contracts in India, infamously known for excruciatingly long process and cut down time & cost.
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When you take a look at the world of defence acquisitions, specific to India, it will surpass you expectations in terms of the years spent on negotiation and cost wobbling along the way. So much so-- it is widely accepted that the defence contracts in India is the emblem of the inefficiency and process messy and tardy. The scale of military technology is changing so fast. Can our military thrive on such policies of the past that by the time the acquisition process reaches at crescendo the very platform and system under negotiations become redundant? Time is the essence and so the cost.
Leaving aside the legacy of older defense acquisition of decades old, I will sight ongoing acquisition plan of acquiring 114 fighter jets under MMRCA procurement programme. In 2007, Ministry of Defence (MoD) issued a tender to purchase 126 fighter jets that was rightly visioned as perfecto; it will not only equip our air forces with advance combat fighter jets but lay the foundation and create a vibrant aerospace systems right here. As the Chief of Indian air force RKS Bhadauria recently spoke of 1000 fighter jets for the present and future operational requirements.
A dream so far is still in air except that Government nullified the process in 2015 and announced a 'new' and keeping in mind the critical operational necessity of fighter aircraft, a deal was also signed for 36 Rafale for roughly €7.87 billion in Sep 2016. A government to government deal was signed between India and France to buy 36 Rafale under a hasty decision taken during PM Modi’s visit to Paris in 2016. The Fighter jets are yet to arrive to be part of the 17 Golden Arrows’ squadron of Indian Air Force.The talk of aerospace ecosystem is still the muse of India's sole DPSU Hindustan Aeronautics (HAL). The case in point is not about Rafale but the most critical and foundational of building capability that such defence contracts present for emerging nation like India. And, how through such acquisitions, we must grab that opportunities of assimilating technology, equipment, system and platform. After all we end up paying a huge amount for importing such military equipment under the stressed military budget.
So, when the first ever eSymposium on ‘Negotiating Defence Contracts’ organised by FICCI with SAMDeS as knowledge partner on June, 24 2020 began to deliberate it received a tremendous response with participants from defence industry, services, policy makers and media. The idea was to help industry understand how to cut down time cost and effort in concluding defence contracts.
Society for Aerospace Maritime and Defence Studies (SAMDeS) took lead in focusing on such gaps, and to predict and plan future developments of the indigenous defence industrial ecosystem, which will have an impact on the policy discourse and the related implementation strategies with particular reference to a robust and responsive Acquisition procedure. SAMDeS is Chaired by Admiral RK Dhowan, the former Chief of the Naval Staff with Cmde Sujeet Samaddar who was the Principal Director Naval Plans & Senior Consultant NITI Aayog. In the past, Cmdr Sujeet has raised such critical issues objectively which are foundational to Indian defence ecosystem.
Rightly and timely, the objective the eSymposium was to address the nuances involved in the negotiating processes for acquisition of weapon systems and platforms. In negotiating defence contracts, the complexities increase manifold as negotiations are a feature of the entire acquisition process. These negotiations are necessary as they provide an opportunity to both the buyer and seller to bring clarity and transparency in the process.
Arun T Ramchandani, Co-Chair FICCI A&D Committee and EVP, Guns, Missiles, Armoured Systems BU, L&T Defence welcomed the participants and commenced the symposium.
Technological shift in military world has never been so fast paced. Though big ticket defence contracts do take time on average 3- 5 years around the world, it is about excruciatingly long process and delays beyond estimated time frame without any exception in India. The Chairperson SAMDeS, Admiral Dhowan, Former Navy Chief put forth the importance of negotiating skills especially with the added element of indigenous content, making the process even more complex today.
A perspective emerged on the complex technical issues in defence acquisition and how interactions with industry representatives provide inputs for formulating SQR’s, life cycle maintenance and spares requirements, upgrades, timelines of delivery and for indicative budgetary and cost implications. These negotiations are helpful in formulating a doable proposal and facilitate the acquisition to be finalised much faster.
The another aspect of acquisition is the bizarre concept of T1/L1 that is about the lowest bidder taking over the projects- a basic contractual elements of civil projects all across India. Having been applied in the military contracts, it mocks the very idea of buying a robust and best technology for military for their role in defending the country in the times of war. In this context, the concept of T1/L1 was also discussed in which Enhanced Performance Parameters (EPP) are prescribed.
Further, it was brought out that commercial negotiations in defence contracting are needed because the systems and platforms are complex, due to range or technologies involved, with no parallel in the market. It is a formal process which normally goes through in phases before a consensus is reached.
The ultimate objective is to have a two-way process to obtain real price discovery of complex defence systems. Since defence requirements need continued life cycle support. The negotiations should be done in an atmosphere of trust with long term partnership goals. It was stated that bench marking is the pivot around which the negotiations move and the need to ensure a system of accurate benchmarking was explained in detail.
What could Government do to overhaul the archaic defence acquisition process? Some key suggestions which emerged from the eSymposium:
- Pragmatic and verifiable data and not overstating the technical capabilities of industry at RFI stage will ensure that the QRs are realistic with achievable performance and maintenance parameters.
- Industry must be very careful in an RFP with Enhanced Performance Parameters (EPP), to accept Essential Parameters (A) which fetches a Credit Store (10%) in selection of L-1, since they will be tested during FET and are non-violate.
- Defence Procurement Procedure should be a simple and concise document and be broad based in approach to enable flexibility and the process should be aimed at facilitating acquisition of the equipment and not fault finding. It was also brought out that demand aggregation should be mandatory so that national industry can be built up.
- The example of multiple tenders for helicopters was cited which only salami sliced the huge demand leading to unviable scale and size to locate manufacturing in India. It was suggested that helicopter upto say 5 tons and more than 5 tons could be aggregated and tendered out to generate adequate demand for localising assembly and ancillary industries in India.
- There is need for specialization and to build institutional memory with a database of past acquisition cases to make acquisitions more professional.
- There was divergent views on the need for bench-marking. Industry participants felt that bench-marking was not required in competitive bidding as the process automatically leads to real price discovery and the final price differs from situation to situation, terms and conditions, quantities, sourcing plans etc. and comparisons end up between apples and oranges.
- The AK 203 bench marking case was raised which has resulted in an impasse between the OFB/Russian JV and the MoD only due to a huge difference between bench-marked and offered price. It was also opined that bench-marking must be done for all nominated projects since in the absence of competition fair value is not determined.
- There should be standardization in the methodology and parameters used for bench-marking for which detailed guidelines are needed to be formulated.
- Industry view was that once L1 vendor has been determined, there should be no further negotiation on price unless the amended terms and conditions are also offered to the other vendors to obtain their discounts.