Defence Acquisition Council Approves New Defence Procurement Procedure-2016

Raksha Mantri Manohar Parrikar during the launch of
Make In India Portal in New Delhi (File Photo)

Shailesh Kumar

New Delhi

Defence Acquisition Council (DAC) chaired by Defence Minister Manohar Parrikar has approved the new Defence Procurement Procedure (DPP) 2016. According to the new DPP, a new catgory of acquisition "Buy Indian (IDDM)" is added to promote indigenous design development and manufacturing. The Government is likely to notify the new policy in about two months time. Through new DPP Government envisages to boost "Make In India" initiative. "In IDDM, 40% content has to be indigenously developed. The product which has 60 per cent indigenous content, sometimes it becomes difficult to prove that the product is designed and developed in India because of various factors, in such case if 60 content is indigenous then it will be treated under this category, said defence minister Manohar Parrikar. "Buy (Indian)" category of acquisition requires a minimum IC of 40%. Buy and Make (Indian)' and 'Buy and Make' categories require an overall IC of 50%.

AON (acceptance of necessity) time period reduced from 1 year to 6 months. While seeking AON, draft RFP has to be filled in to the authority where RFP is being issued. If AON issued is below 150 crores then it has to be approved by concern vice chief. Above of it will go to DAC. Offset obligation will not be applicable up to Rs 2,000 crores because Government found that the existing offset obligations is enough to be absorbed in next 10- 15 years as currently $ 5 billion offsets are piled up and total quantum will increase to $10 - 12 billion including those in the pipeline. Government does not seek to get more offset of Buy And Make In India. "Lot of people do not realize but offset do cost anywhere from 14% to 18% . That means more price has to be paid for the offset. So, price of material increases. So, we have increased the offset requirement to Rs. 2000 crores from Rs. 300 crores, Parrikar said. 

Government has accepted most of the recommendations of Task Force (Dhirendra Singh Committee). Chapter one was split into Chapter 1 and Chapter 2. Today they have been approved. There is one chapter that is "Strategic Partnership" that would require financial and cabinet approval. Due diligence in selecting a strategic partner will be required. The Government is waiting for the second report of the task force committee (Aatrey Committee). Defence Minister assured that the ship building will also subsequently be amended according to Dhirendra Singh Committee report. Aatrey committee report is expected by 15th or 16th January. "The plan for 15 years will create a projection of requirements and its only in those areas where we will require, we will select and rest will be selected financially. It is not that I am going to select 10 partners and keep them. So if my priority lets say fighters, helicopters, submarine, those will be selected on priority", Raksha Mantri Parrikar elaborated. 

However, he has not given a time frame for selecting strategic partner but clarified that strategic partner has to be a private sector. "PSUs are already strategic partners but because of work culture and requirement of Government shadows the PSUs in there performance. However, some PSUs have overcome this. More or less there is always fear of CBI in PSUs rightly or wrongly. The decision making hampered. In private sector decision making is not hampered". "CBI can not be taken care and does not required to be taken care if the procedures are clean and transparent", said Parrikar when asked if new DPP takes care of CBI in Private Sector if required. "We will have to go for international audits. Standard audit or CAG audit will not be adequate for it". "That is how it has to go for cabinet because it involves financial transaction. We have to ensure that the strategic partner does not taken for a ride. It is very important".      

For the first time Government added a preamble which talks about the logic for defence procurement. In new DPP 2016, Government sought to divide the SQRs (Services Quality Requirement) into two categories. "Many vendors would be able to include SQRs into final product. But when we take trials, it so happens that the product supplied for trial can not be made all SQR compliant. No one will make product specially for trial. They will field a available SQR product", Defence Minister clarified. 

Category- A needs to go through tests. Category- B to be included in the final order and supply starts after vendor gets successful tender. 

There is one more criteria that is "enhanced parameters" that is a product which has enhanced SQR a quality which is not required in the product. This can be exemplified like a gun firing 1200 rounds is is more preferable than a gun with 1000 rounds if available in same cost within time. This parameter has a weight-age of maximum of 10 percent in order to select better equipment. 

Single vendor cases need at the bid  submission stage, TEC stage, and staff Evaluation stage will be processed, with due justification. Retraction of RFP in case of single vendor situation is not the norm. 

Government has made three sub categories of Make Procedure namely Make-I (Government funded), Make-II (Industry funded), Make-III (MSME funded). Make-I involves 90% funding of the development cost, by the Government. Remaining 10% of the development cost would be reimbursed, if RDP for the equipment developed is not issued within 24 months from the date of successful development of the prototype. Projects under Make-I sub category, with estimated development costs of less than Rs. 10 crores will be reserved for MSMEs; and will be opened up for non-MSMEs, only if it is not feasible for MSMEs to develop the required prototype,

All programs under Make-I scheme will be eligible for a mobilisation advance of 20% of the estimated development cost, which will be deducted during the course of the developed phases. Make-II subcategory involves no funding by the Government for prototype development. However, if RFP for the equipment developed, is not issued with two years from the successful prototype development, 100% refund for successful developers, who were selected through due process. 

Make-III sub-category is MSME funded. It will be reserved for projects less than an estimated development cost of Rs 3 crores and is reserved only for MSMEs. "However, in all sub categories, there will be prior approval and the concern companies will get RFPs that means they will be asked to quote for the product. So all three have guarantees of order", defence minister clarified.

"Black listing is in process. The file has just reached me so in next DAC it will be cleared", informed Manohar Parrikar when asked by the reporters in briefing. There are some 150 paragraphs which are being corrected. Final notification will be preceded by the annexture correction.

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