The system of payment to defence vendors is not as complex as the common experience of chronic delays in release of payment would suggest. The author deliberates the reasons and way forward to obviate the delays.
Nothing upsets a vendor more than an inexplicable delay in payment of his bills by the buyer. Such delays in payment, particularly to the Indian vendors, are frequent in defence contracts. They also feel more discriminated against because, unlike the foreign vendors, payments are not made to them through Letters of Credit (LCs).
The system of payment to defence vendors supplying capital goods and services to the Ministry of Defence (MoD) is not as complex as the common experience of chronic delays in release of payment would suggest and yet, ironically, it is fraught with frustrating uncertainties for the vendors .
The vendors submit their bills along with all the supporting documents mentioned in the contract to the paying offices of the Defence Accounts Department (DAD), where these are subjected to a round of pre-audit/scrutiny before the release of payment. Typically, payments are released to the vendors in instalments as follows as per the provisions of the Defence Procurement Procedure (DPP):
(a) Advance payment: Normally 15 per cent of the total contract price is paid within 30 days of signing of the contract against submission of a bill by the vendor and a bank guarantee of the equivalent amount.
(b) On dispatch: The percentage of the contract price to be paid varies from one contract to another. Part dispatch and corresponding part payment is permitted if this is a part of the contract. Payments could also be linked with achievement of milestones/stages as defined in the contract.
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