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Review of DPP and DPM: An opportunity for far-reaching reforms

Improvement in the policy, procedure and processes on defence procurement will help, but the tardy decision-making is real bottleneck, which is beyond purview of the review committee.

A committee, set up by the Ministry of Defence (MoD) in August this year, is currently reviewing the Defence Procurement Procedure (DPP) 2016 and Defence Procurement Manual (DPM) 2009 which govern the revenue and capital procurements respectively. While the ultimate objective of the exercise is to ensure seamless flow from acquisition of assets to their life cycle support, the terms of reference of the committee are very wide.

The terms of reference include removal of procedural bottlenecks to hasten defence acquisitions; simplification of the policies and procedures to facilitate greater participation by the Indian industry and promotion of start-ups and research and development; introduction of new concepts like life-cycle costing, performance-based logistics, lease contracting, codification and standardisation; and, indeed any other aspect which may contribute to refinement of the acquisition process and promotion of the 'Make in India' initiative.

There are three distinct aspects of the task assigned to the committee: the policies that have a bearing on defence procurement and production, the procedures that have been evolved over the years, and the processes followed at each stage in the procurement cycle. A comprehensive review covering all these aspects would require involvement of not just the armed forces and the industry, but also the Department of Defence Research and Development Organisation (DRDO) and the Department of Defence Production (DDP).

Presently, DRDO has an almost exclusive monopoly over research and development and manages various programmes, including the Defence Technology Fund (DTF), that have a bearing on strengthening of the defence industrial base in India. The DDP, on the other hand, administers 41 Ordnance Factories and 9 Defence Public Sector Undertakings (DPSUs) which collectively account for the bulk of the defence production infrastructure in the country. The objectives of Make in India and indigenisation  whichever way one chooses to describe them - cannot be achieved without the involvement of their involvement.

Review of the existing policies

The review committee will need to look beyond the DPP and DPM if a much-needed comprehensive policy framework is to be evolved for defence procurement and production in India. To be sure, a Defence Production Policy is already in place, but it is a parochial policy that looks at the larger issue only from the point of view of defence production. What is needed is a comprehensive policy which recognises that the primary function of the MoD is to equip the armed forces with the capabilities that they need to meet the security challenges. The focus of any comprehensive policy would, therefore, must be on defence acquisition/procurement as the primary objective, with research and development and defence production playing supplementary role in this endeavour.

As the things stand, the review committee neither has the mandate nor the time to consider how such a comprehensive policy could be formulated. The next best option it has is to cull out the policies that are unrecognisably intertwined with the procedure in the DPP and the DPM and review their impact on defence procurement and production. There are several such policies: offsets, dealing with instances of transgressions in defence contracts, incentivisation of indigenous design and development through the 'Make' procedure (and indeed DTF), price preference to local vendors, strategic partnership model, just to name a few.

The review committee (including its several sub-committees) is probably looking at these policies, but primarily from the point of view of the procedures associated with implementation of these policies. This should help, though it would have been ideal to carry out a zero-based review of the policies at the conceptual level. For example, the offset policy serving the purpose for which it was introduced more than a decade back. A study of the ongoing offset contracts carried out by the Institute of Defence Studies and Analyses some time back would come in handy if any such zero-based review is to be carried out.

Apart from subjecting all procurement and production policies to zero-based review, it is also important to synchronise various policies and schemes, such as the DTF, that are being administered by departments other than the Department of Defence (DoD) in the MoD. If, for example, development and production of raw material that goes into manufacturing of aircrafts and ships is to be encouraged with a view to minimising dependence on foreign sources, the Capital Acquisition Wing (under the DoD) has to function in tandem with the DRDO which must play a key role in development of specialised defence material through its Defence Metallurgical Research Laboratory (DMRL) and by encouraging private entrepreneurs through the DTF scheme. Such an effort will also require coordination with the DDP, which administers Mishra Dhatu Nigam (MIDHANI) the premier DPSU involved in production of specialized metals and metal alloys manufacturing facility in India.

Review of the existing procedures

A joint review of the DPP and DPM  has many advantages. Several procedures, such as solicitation of information through Request for Information (RFI), tendering, contract negotiation, etc. are common to both these documents. A joint review will ensure procedural uniformity as well as uniformity of various formats and standard conditions of contract, all of which are common to all types of revenue and capital contracts.

A question before the review committee is whether the DPP and DPM should be combined into one document. Though there are string reasons for doing so, it would be impractical to combined them. Only the MoD and the Services Headquarters are involved in capital procurement. They are the only ones who will need to refer to the DPP. The DPM, on the other hand, contains the procedure for revenue procurement which is meant to be adopted by all procuring agencies from MoD down to the farthest units, formations and establishments of the armed forces and the Indian Coast Guard. On the balance, there seems to be little justification for combining these two into one single document, which will inevitably become voluminous.

There is, in any case, a need to edit the text of these documents  more so if these are to be combined  to remove redundancy, bring about textual clarity and ensure proper sequencing of the contents. A lot of material in the procurement manual, especially in the DPM, is not of immediate relevance, though it may have good educative value. Such material can be culled out from both the documents and included in a Defence Procurement Primer for education and training and of the procurement of officials. Possibility of laying down standard formats - and combining them wherever they already exit  also needs to be explored with all instructions being incorporated in those formats. The use of standard formats does not take away the flexibility to customise its contents, except for the standard clauses.

Just to illustrate, there are 15 chapters in DPM 2009 which could be reduced to six as follows:

Chapters

(A) Introduction

(B) Procurement Procedure (stages)

(C) Repair and Maintenance Contract

(D) ICT Contracts

(E) Consultancy Contracts

(F) Non-consultancy (outsourcing) Contracts

[The chapter on Design, Development and Fabrication Contracts can be combined with the chapter on Make Procedure in the DPP.]

Formats with all related instructions

(A) Statement of Case

(B) Request for Information

(C) Request for Proposal

(D) Contract/Supply Order

[The Request for Proposal and Contract/Supply Order formats could also be combined in a single Tender Document]

Annexures

  • Instructions on Rate Contracts
  • Guidelines for selection of the mode of tendering
  • Orders on product reservation and price/purchase preference

The content in DPM 2009 that describes the legal aspects of a contract, variety of banking instruments, procedure for opening of letters of contract, registration of vendors, etc., can go into the Defence Procurement Primer as it would be of interest to all officials who are involved in procurement, whether under the revenue of capital stream.

The illustration given above is only to give an idea of the possibility that exists to make the procurement manuals not only lean and thin, but more precise and user-friendly. Similar possibilities can be explored in relation to the DPP also, with the focus on issues that are common to both the manuals, of which the existing system of registration of vendors and agents is a burning example. There is considerable ambiguity on these issues. The committee would do well to evolve a simple procedure for registration, if considered necessary (which too is an issue that merits consideration).

One more point needs to be made in the context of review of the existing procedures, which concerns the stages in the procurement cycle. It is not uncommon to hear the criticism that there are far too many stages that all procurement proposals, especially those related to capital acquisition, have to go through in what at times is sardonically described as a game of snakes and ladder. The procurement stages given in DPP 2016 are as follows:

(A) Request for Information

(B) Services Qualitative Requirements

(C) Acceptance of Necessity

(d) Solicitation of offers

(E) Evaluation of Technical Offers by the Technical Evaluation Committee

(F) Field Evaluation

(G) Staff Evaluation

(H) Oversight by Technical Oversight Committee, if required

(I) Commercial Negotiations by the Contract Negotiation Committee

(J) Approval of the Competent Financial Authority

(K) Award of Contract/Supply Order

(L) Contract Administration and Post-contract management

These stages have been identified based on experience and have remained unchanged for some time. It is difficult to imagine which one (or more) of these stages can be dispensed with. The committee could quickly ask for suggestions from various stakeholders as regards dispensability of any of these steps and take a considered view on this as well as on the possibility of bringing about some sort of commonality with the stages in revenue procurement.

It is tempting to reiterate that it would have been ideal to carry out a comprehensive review of not just the DPP and the DPM but also the procurement procedures promulgated by the DRDO and the Ordnance Factory Board (OFB).

Review of the existing processes

This is the third and the most crucial aspect of the ongoing review. There is a process associated with every stage in the procurement cycle. Absence of Standard Operating Procedures (SOP) or Standing Instructions (SI) or any ambiguity in them can delay or derail the proposal at any stage. Let us take the example of the very first stage at which a Request for Information is to be issued. The process laid down in Chapter II of DPP 2016 does not envisage involvement of all the Services Headquarters at the initial drafting stage. Nor does it envisage collegiate approach to its preparation. The implication is that on-paper consultation between the initiating Service Headquarters and other agencies, such as the DRDO, DDP and Headquarters Integrated Defence Staff could take a long time, and consideration of the question whether other services also need the same/similar equipment/capability gets deferred to a later stage. This can be streamlined simply by providing for participation of all the services (including the Indian Coast Guard) right from the initial stage and collegiate vetting of the Request for Information.

Another example of this would be contract negotiations. The existing instructions regarding initial costing and benchmarking are arguably very tenuous. So is the case with the instructions on contract negotiations, assuming the officials involved in negotiations are well trained for the job. These factors could potentially slow down the progress of a procurement case at the negotiations stage. The answer lies in laying down a detailed costing methodology, specific to defence acquisitions, a detailed procedure for determination of a reasonable price before opening of the commercial bids, and a drill for conducting contract negotiations.

These are just two examples of what needs to be done as regards refinement of the processes. This applies to practically each stage in the procurement cycle, especially those that are most vulnerable, such as formulation of the Services Qualitative Requirements, evaluation of technical offers and field evaluation. The MoD and Services Headquarters can identify the problem areas based on their past experience and formulate instructions on the process to be followed at every stage as a part of the committee's deliberations.

A final word

The best of rules, regulations and procedures can be brought to a naught by tardy decision-making which has been the bane of defence procurement all along. Improvement in the policy, procedure and processes will help, but the ultimate test of their efficacy will be the impact it has on decision-making, which pre-supposes the existence of a strong mechanism for real-time redressal of grievances of the vendors  something that is non-existent at present and which does not seem to be on the agenda of the review committee.

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