In past number of procurements have fallen through at various stages and for various reasons but most of them have fallen due to RFP related issues. The author dwells on the grave consequences of these regular occurrences....
The regularity with which the Requests for Proposal (RFP) for equipment badly needed by the armed forces keep falling through, would have made for an excellent slapstick comedy had it not been for the grave consequences this bizarre occurrence has for the defence and security of India.
On 15 June 2015, the RFP for Multi-calibre Assault Rifle (MCAR) was retracted by the Indian Ministry of Defence (MoD), four years after it was floated in 2011. Four global companies -Ceska from the Czech Republic, Israel Weapon Industries, Italy's Beretta and Colt of the USA - had been shortlisted based on their response but the prototypes of the rifle offered by them failed to satisfy the qualitative requirements (QRs) set out in the RFP. The RFP for Close Quarter Carbine is also been hanging for quite some time. This is not isolated case of cancellation and seems to be acceptable norms.
The companies that respond to the RFPs are usually established names in their respective areas of competence, which was also the case with the four companies shortlisted in the MCAR case. It would be ludicrous to suspect that they were not sufficiently motivated to bag the approximately INR 4,850 crore contract. And yet they could not come up with the prototype of the kind of rifle Indian Army wanted. It is hard to imagine who else could have made the rifle sought by the Indian Army if they could not.
Though it is a problem that afflicts all the services, the Indian Army is the worst affected by it. In a rare display of candidness, deposing before the Standing Committee on Defence in March 2012, the then Defence Secretary had informed the committee that over the previous 18 months as many as 41 RFPs of the Indian Army had fallen through because of the RFP-related issues. This basically implies that the QRs were either faulty, or too ambitious, resulting in no or poor response or a single-vendor situation.
While ill-conceived specifications have been the bane of many procurement programmes, this is not the only reason why RFPs get retracted. Many RFPs fall prey to the government's obsessive promptness in suspending all dealings with a company the moment any allegation of transgression on the company's part in obtaining the contract surfaces, even if there is absolutely no question about the quality of the equipment.
The saga of the Bofors artillery guns epitomizes this obsession and its consequences. Almost three decades after the allegations of bribery surfaced in Sweden the phantom of the scam has not been fully exorcised. Even after the gun proved its mettle in the Kargil conflict it took several years before some people within the system mustered enough courage to suggest it was high time India made use of the technology obtained while buying the gun. The terms of transfer of technology had given India the unfettered right to do whatever it wanted with the transferred technology but the shadow of the scandal loomed so large that no one even thought of make use of the technology that had been fully paid for.
Earlier this year, MoD had scrapped the deal with the South Korean Kangnam Corporation for import and indigenous production of mine countermeasure vessels (MCMVs) due to allegations of agents having vitiated the entire selection process. The deal, possibly worth INR 8,700 crore, was scrapped more than three years after the commercial negotiations had been completed. It is another matter that within months of that the same company seems to be back in the reckoning for a possible tie-up with the Goa Shipyard Limited for making 12 of these vessels in India.
It may be recalled that in August last year the ban imposed several years back on the South African company Denel following allegations of corruption had to be lifted as years of investigation by the premier investigating agency of the country failed to gather credible evidence to support the charges. Ironically, the deal that got adversely affected by this was also for procurement of rifles.
Between them, formulation of ill-conceived QRs and hasty suspension of dealings with the suppliers even in ongoing contracts have caused incalculable harm to the modernization drive, stymieing one procurement programme after the other. But this has caused far more incalculable damage to MoD's credibility as a reasonable buyer, more so because the reasons for seemingly interminable delay in procurement programmes are seldom, if ever, conveyed to the bidders. It is not uncommon for the MoD to go on asking the bidders to extend the validity of their offer when it is confronted with a situation where it cannot make up its mind quickly whether to go ahead with the deal or to scrap it.
Companies have to invest considerable amount in anticipation of an RFP, be it for developing new products based on state-of-the-art technologies or keeping the production line of an existing product open even if there are no current orders. It must, therefore, be exciting to receive an RFP but this is also the beginning of a fresh round of expenditure.
Responding to RFPs is not a simple affair. It might require creation of a supply chain and tying up with the sub-vendors. At times, prototypes have to be developed to meet the specific qualitative requirements set out in a particular RFP. The equipment/prototype also has to be offered for field trials on a no-cost-no-commitment basis. All this entails costs which go down the drain the moment an RFP is withdrawn.
It is not going to be easy to address these problems unless they are seen from the point of view of their consequences for modernization of the armed forces and MoD's credibility as a buyer. While the former has grave implications for the defence and security of India, the latter has a bearing on the ease of doing business in India, in which respect India's track record is not very complimentary. India cannot expect to realise the objective of becoming a manufacturing hub without improving the business environment.
The remedy for the problems associated with formulation of QRs lies in creating a specialist organization to write the specifications and modifying the procedure for their finalization. The services do not seem to be in favour of this task being taken away from them but this viewpoint is based on the wrong premise that they will lose the ultimate say in formulation of QRs if an 'outside' agency is given the responsibility of writing the specifications. It does not have to be an 'outside' agency.
The services must have a decisive say in the kind of capabilities required by them but they may not be necessarily the best agency to write the specifications of the equipment which will provide them the requisite capability. The specifications have to be formulated by specialists drawn on as-required basis from the related fields in consultation with not just the services but also the industry. This task can be coordinated by a small inter-services organization or an inter-disciplinary agency specifically created for this purpose the latter being a better option. This could prevent the problems being faced presently on account of ill-conceived QRs.
The other problem related to suspension of the procurement process on account of allegations of transgression requires a pragmatic approach to be adopted by MoD. The ultimate objective has to be to ensure that procurement of the equipment does not get stalled, unless the allegations concern the quality of the equipment.
It makes little sense to suspend an ongoing procurement programme or an ongoing contract because doing so puts the clock back by several years. This could also have implication for some other ongoing programme if the company with which dealings are suspended happens to be the supplier of some component in that programme. Suspending dealings with all the group companies on account of allegations against one of them could be more ruinous.
This is not a plea for going soft on corruption but to point out that scoring self-goal may not be the best way of displaying commitment to rooting out corruption. While all necessary steps must be taken to ensure speedy punitive action in such cases, the remedy lies in strengthening the preventive measures.
The Ministry of Defence tends to respond to these and several other problems besetting defence procurement by focussing on simplification of the procurement procedures. But in this process it seems to fall short of the expectation every time because the issues, such as the ones relating to formulation of QRs and suspension of dealings with companies, do not get addressed with the focus being on procedure rather than the policy.
Review of the current Defence Procurement Procedure promulgated in 2013 is due and a committee set up by the MoD is holding widespread consultation with various stakeholders. Hopefully, this time around policy issues will receive as much attention as the issues related to procurement procedures.
(The writer is former Financial Advisory (Acquisitions) and Additional Secretary and Member, Defence Procurement Board, MoD)