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Design and Development of Equipment by DRDO, DPSUs and Ordnance Factories

Amit Cowshish is a former Financial Advisor (Acquisition), Ministry of Defence and Consultant, Institute for Defence Studies and Analyses (IDSA), New Delhi. Click here for Detailed Profile
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  • May 24, 2019

    Paragraph 72 in Chapter II of the Defence Procurement Procedure 2016 (DPP 2016) sets out the procedure for awarding design and development (D&D) projects to the Defence Research and Development Organisation (DRDO), Ordnance Factory Board (OFB) and Defence Publics Sector Undertakings (DPSUs). There are at least three issues concerning this procedure that merit attention.

    One, after professing the creation of a level-playing field (supposedly between the public and private sectors) as one of its aims, DPP 2016 goes on to carve out an exclusive preserve for the aforesaid government agencies without laying down the yardstick for adopting the procedure. This is paradoxical as it strikes at the very root of the notion of a level-playing field. Recourse to Paragraph 72 amounts to denying the same opportunity to the private sector as cases covered by this passage fall in the category of Buy (Indian Designed, Developed and Manufactured) category of procurement, which, going by its defining attribute spelt out in DPP 2016, is supposed to be open to the private sector as much as the public sector. It is not that there is no justification for awarding some D&D projects to government agencies. If, for example, a system manufactured by a government agency is to be upgraded, it may be justifiable to go back to the same agency for the upgrade. The point, however, is that this must be done in exceptional circumstances and on specific grounds that should be spelt out in the DPP in the interest of transparency. Such a step will also help the Services Headquarters (SHQ) in identifying the cases to be initiated under Paragraph 72 while substantially reducing the possibility of unnecessary discussion at the Acceptance of Necessity (AoN) stage with different stakeholders taking different views on whether the proposal should be processed under this paragraph.

    Two, Paragraph 72 (c) states that the D&D of the prototype would be done as per the internal procedures of the government agency concerned and that ‘competitive procedures shall invariably be followed’. Many experts hold that the internal procedures of government agencies are not geared to handle such projects and that the rider about the competitive process further stymies their effort. The broad procedure for the procurement of goods and services by all government agencies, including PSUs, is laid down in the General Financial Rules (GFRs), which also permit them to issue detailed supplementary instructions broadly in conformity with the general rules contained in the GFRs.

    The procedures followed by the DRDO, OFB and DPSUs have been evolved by these organisations themselves, explicitly or impliedly, under this provision in the GFRs. That being the case, there is no reason why they cannot modify their internal procedures to cater to the peculiarities of D&D projects, if so required. They could even formulate a separate procedure, customised to facilitate smoother implementation of such projects, within the broad principles of public procurement laid down in GFR 2017. The Ministry of Defence could nudge them to do so and, in fact, coordinate the exercise to make sure that their internal procedures follow the same standards and are fully in tune with the specific requirements of D&D projects. It bears recalling that there is a separate chapter in DPP 2016 on defence shipbuilding. The Defence Procurement Manual, 2009 also has several customised chapters, such as those dealing with procurement of goods and services from foreign countries, repair contracts with foreign and indigenous firms, offloading of refit and repair of naval vessels to PSUs and private shipyards. There is no reason why the DRDO, OFB and DPSUs cannot have a separate customised chapter in their internal procurement manuals to execute D&D projects. As a part of this exercise, or even independently, MoD needs to drop the stipulation in Paragraph 72 (b) that ‘competitive procedures shall invariably be followed’ as it seems to suggest that in the context of D&D projects there should be no single-source procurement. This constraining stipulation is not in conformity with the GFRs which permit single source procurement under specific circumstances.

    Three, as per Paragraph 72 (c), once the prototype is ready, the Preliminary Services Qualitative Requirements (PSQRs) are required to be frozen and a commercial request for Proposal (RfP) is to be issued to the Development-cum-Production (DP) partner of the government agency that had undertaken the D&D project or to the Production Agency (PA) nominated by them. These cases, the paragraph goes on to say, are not to be treated as single vendor cases. The next two sub-paragraphs, however, negate the notion of single source procurement after the prototype has been developed. According to Paragraphs 72 (c) and (d), after receipt of commercial bids in response to the RfP from the participating vendors, SHQs will conduct the user trials and staff evaluation, followed by commercial negotiations with the vendors declared successful after staff evaluation. The use of the word vendors in these sub-paras is confusing for it leaves the window open for participation in the tendering process by vendors other than the DP partner/PA of the government agency which had undertaken the D&D project, if other vendors have a similar product to offer under Buy (IDDM) category. This possible interpretation of sub-paragraphs 72 (c) and (d) undermines the assurance underlying paragraph 72 as a whole, though not stated explicitly, that the procurement order will be placed on the DP partner or the PA of the government agency concerned.

    There is a need to make it clear in the text of Paragraph 72 that no vendor other than the DP partner or the PA will be permitted to enter the tendering process at the post prototype development stage, unless that is not the intention, in which case government agencies may find it difficult to attract partners for the project. There has to be a reasonable assurance of orders at the end of the development phase for the DP partners/DAs to take interest in the project. Paragraph 72, as presently worded, does not seem to manifest that assurance.

    Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.

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