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DEFENCE PROCUREMENT ORGANISATION

Indian defence procurement is still modeled on the traditional structures and procedures. As an experienced and independent nation; the time has come to take proactive and dynamic decisions for cost-effective management of the defence and need to migrate to the models being adopted by most of the developed world.

 A lot has been done in the establishment of structures and procedures yet, India has not developed in terms of defence acquisition. To make the procurement process more effective and accountable, a separate body for defence procurement is the need of the hour, as the delay in procurements has derailed the entire modernization programme of the Indian Defence Forces.

Acquisition Framework

Indian defence procurement framework at present comprises of a two-tiered structure, comprising the Defence Acquisition Council (DAC) and its subordinate bodies  - Defence Procurement Board, Defence Research and Development Board and the Defence Production Board.

            The second tier is Acquisition Wing, headed by the Special Secretary (Acquisition) and it handles all matters concerning defence acquisitions of capital nature. It assists the Defence Procurement Board in its functioning.  The Special Secretary (Acquisition) is assisted by a Financial Adviser (FA) Acquisition drawn from Defence (Finance). FA (Acquisition) functions as an Integrated Financial Adviser to the Special Secretary (Acquisition).

            The Acquisition Wing consists of Land, Maritime and Air Divisions dealing with the Army, Navy and Air Force respectively and a Systems Division responsible for systems having tri-service applicability and medical equipment. Each of the Divisions has an Acquisition Manager (a Joint Secretary level officer), a Technical Manager (Major General Equivalent Defence Service Officer) and a Finance Manager (Additional Financial Advisor level officer from Defence Finance).

Issues

The Acquisition Wing is still evolving and attempts inclusiveness. Though the organisation is layered but the involvement of the service element or the users in decision making is limited to a Maj. Gen. Level Officer as Tech Manager only for advice on technical matters.

            The other drawback is that it does not have its own permanent cadre and is riddled by number of committees, which further delays the proceedings. People are deputed or seconded to the Acquisition Wing for a fixed period of time and are not acquisition specialists. The system does not assure posting qualified workforce and there is no specialist training and policy aimed at creating a strong and qualified staff for acquisition. Three to five year tenures are simply not adequate. There is no continuum of staff over life cycle of an acquisition programme and thus no institutional knowledge exists regarding the intricacies of a particular acquisition programme, legal & procedural expertise as to how the case actually progressed. The lack of a core of well qualified and adequately trained acquisition staff is the weakest link of the acquisition chain.

Experience so far with Procurement Structure

  • Lack of professionalism and accountability.
  • Too many entities responsible for various acquisition functions
  • Unsuccessful to ensure time-bound procurement
  • Vulnerability to import-centric pressures, corruption and controversies
  • Many heterogeneous agencies, causing 'cost & time overruns'.
  • Within MoD, the DG(Acqn) is responsible for awarding contracts in allocated resources, irrespective of the source of supply, The Secretary (DP) is responsible for indigenous defence production the state-owned/controlled Defence Public Sector Undertakings (DPSUs) and the Ordnance Factory Board (OFB). The inherent conflict of interests between the functions of DG (Acq.) and Secretary (Defence Production),domestic industry has not received the necessary attention it deserves.

Acquisition Framework of Developed Countries

No government can afford to be complacent about its defence acquisition machine and has reason to search the ways for best practice. In contrast to India's defence acquisition system, several countries such as the UK, France and Australia follow a more centralised system of procurement. Some governments trying new approaches include Australia's application of incremental acquisition methods, and New Zealand's exploration of leasing possibilities for combat equipment, both looking for a better way of doing business. The U.S. and the UK have been reforming their acquisition systems continuously for at least the last two decades. In France, the role of Director General Armament (DGA) is being changed with more focus on preparation for the future, in particular long term cost implications; private ownership is being extended in defence industry; and industry is being required to bring down its prices by as much as 30 percent.

            France, in particular, has been highly successful in promoting a domestic-industry-driven procurement system. It is one of the few countries in the world to have developed an advanced defence manufacturing base that is capable of producing the full spectrum of military items.

            DGA (Director General Armament) under the MoD provides the French Armed Forces with the necessary equipment at the best cost and in due time. The DGA is responsible for a vast array of defence acquisition functions relating to research, development, test evaluation, production and export of defence equipment. Its activities cover:

  • The management of armaments programs
  • The procurement of armaments equipment
  • The technical and scientific expertise related to the outfitting forces
  • Trials and evaluations
  • Overall training and support

Proposed Defence Acquisition Organization (DAO)

In an effort to make the procurement process more effective and accountable and secure defence procurement system and realize the 'Make in India' move, the Indian MoD is also planning to have a separate body for defence procurement

            The Defence Acquisition organization as recommended by Pritam Singh Committee, to be a new autonomous organization created under the Ministry of Defence (MoD) to deal with the procurement of the Armed Forces. It will function within the defence ministry and will be in charge of formulating policy, planning and executing weapons purchases for the Armed Forces. The motive is to create an organization which will not fall under the ambit of normal rules of the government. To make the organization autonomous, it would be funded with certain percentage of the funds that it utilizes every financial year. In the first year the amount would be approximately Rs 400 crore.

Principles and Organizational Structure

Basic guiding principles suggested for its functioning to be an autonomous, decentralized decision making Defense Procurement Organization (DPO) with accountability and transparency with a mandate to manage delivery within the agreed PCTR (Performance, Cost, Time and Risk) envelope as per the annual acquisition plans based on:

  • Risk management rather than risk avoidance
  • Individual rather than group accountability
  • .Quarterly measure of performance with the internal customers (Army, Navy, Air Force)
  • The process should be differentiated into three broad steps with autonomy and accountability
  • Technical requirements identification

Proposed Structure

The Acquisition Wing should be a 'centralised & self-contained organisation' like the Defence Equipment and Support (DE&S) department of UK, Director Generale of Armament (DGA) of France and Defence Acquisition Corps of the US functioning through the Office of the Under Secretary of Defence for Acquisition, Technology and Logistics, (AT&L), as the nodal agency for the 'entire life cycle' of the acquisition programme. Headed by a Secretary level officer reporting directly into the  Defence Minister, who would be the political link between the government and Procurement Executive, the organisation could be structured as under:-

            The new structure is recommended to be modelled on the lines of the Strategic Partner segments concept with a Director level officer in charge of acquisition of each segment & sub segment, i.e. Aircraft (Fighters, Transport and its major systems), Helicopters (Attack, Light), Submarines, Warships (Destroyers, Frigates), Armoured Fighting Vehicles including Tanks, Gunnery (including Artillery Guns), Ammunition and Systems (including ICT projects).

            The suggested organisation should coordinate with the Indian Armed Forces within Integrated Programme Teams at each step of the procurement programme till equipment is declared obsolete (cradle to grave concept).

The proposed organisation structure to be:-

  • Headed by a Chief Executive Officer (CEO) who will be appointed by the Appointment committee of Cabinet. He will be responsible for overall functioning of the DAO.
  • To have eight directors reporting to CEO, all will be appointed by the cabinet.
  • Admin and Personnel unit will carry out activities including - logistics, human resource & training.
  • The Risk Assessment Group will carry out technical evaluation of bids, keep record of ongoing research projects and will make assessment of current technologies, besides Test & Evaluation of QA of production run.
  • Finance and Commercial Division will plan budgetry allocations, cost and finance expertise on projects and cost estimation industry development.
  • Promotion and Exports Division will interface with industry and issue NOC for licenses and exports, managing offsets, conducting exhibitions, selection of strategic partners.
  • One Director will be appointed for each land system, Naval system, Aviation system and Information Technology .
  • Other employees shall be autonomously hired by the DAO
  • Features of DAO

Salient features are:-

  • Single joint responsibility for acquisition capabilities for the Armed Forces
  • Interface with the industry to build its capabilities and promote defence exports
  • It will carry out planning, make policies and execute projects for the Armed Forces
  • To be physically located outside the South Block to allow access to Indian and foreign industry
  • Allocation with a budget of 400 crore
  • DAO will have a dedicated professional cadre
  • To function under direction and oversight of the Defence Acquisition Council (DAC) and Defence Acquisition Board (DAB)

 Functions of DAO

  • Defence acquisition policy as well as defence industrial development, facilitation and promotion.
  • Be a part of inter-governmental agreements
  • Analyse integrated perspective plan, capability road map and will prepare 2, 5, 10 year capability and acquisition plans. It will also prepare budget estimates for schemes.
  • Observe the procurement procedure for the approved acquisition schemes and manage Research & Development projects.
  • Plan and execute procurement of life cycle support, transport and ammunition needs.

            The creation of a separate Defence Procurement Organization which is adequately staffed, skilled and sophisticated to address procurement and life cycle sustainment of platforms and technologies will go a long way to fill a gap that has historically limited defence procurement effectiveness. There is always a resistance to change, but in the aftermath of 70 years of experience as an independent nation; the time has come to take proactive and dynamic decisions for cost-effective management of defence. Adhering to status quo would only result in delays and wasteful expenditure in the realm of defence logistics. In India we are by and large following the traditional model and need to migrate to the model being adopted by most of the developed world.

 

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