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Defence procurement policy overhauled

Defence procurement policy overhauled
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First Published: Fri, Jan 07 2011. 12 12 AM IST
Updated: Fri, Jan 07 2011. 12 12 AM IST
New Delhi: The ministry of defence (MoD) has overhauled its procurement policy with an accent on indigenization to facilitate the development of domestic capability, particularly in shipbuilding.
The revised policy, posted on the ministry’s website and which came into effect on 1 January, also enhances the scope of offsets that will allow foreign defence vendors to include civil aerospace, and internal security equipment and training services to meet obligations for encouraging domestic companies.
Under its procurement policy or the defence procurement procedure (DPP), India imposes counter-trade obligations on original equipment manufacturers who are awarded defence contracts worth more than Rs 300 crore by way of transfer of critical technologies and production of components in India. For this purpose, the foreign defence vendor partners with an Indian company; at present the offset obligation is 30-50%.
The revised DPP governs the capital procurement procedure for defence equipment and supersedes DPP 2008.
The major change in the shipbuilding procedure is that the policy has divided procurement into two different sections, one for defence public sector unit (DPSU) shipyards and another for private shipyards. DPSU shipyards will be given shipbuilding contracts on a nominated basis while private shipyards will have to participate through competitive bidding.
The new policy, unlike DPP 2008, sets a limited level-playing field for private shipbuilders, allowing them to participate through competitive bidding for some projects. But the government still reserves the right to decide if the contract should be open to competitive bids in the first place.
Rajiv Chib, a retired colonel and a defence analyst with Pricewaterhouse Coopers, said, “The MoD has basically concentrated on enlarging the scope of offsets and hastened the procurement process, including homeland security and civil aerospace products under the offset umbrella.”
This, he said, “will go a long way in building capability in these adjacent sectors as well as improving our ability to absorb offsets. Formalizing training services and simulators as valid offsets will support the requirement of the services and display?a pragmatic approach”.
The policy also seeks to ensure fair competition between private and public vendors by making the exchange rate variation clause applicable to all Indian vendors. Accordingly, private vendors will be now allowed to revise bids for acquiring foreign equipment in line with foreign exchange fluctuations. Earlier only DPSUs were allowed to revise their bids.
The revised DPP also incorporates a “performance-cum-warranty bond” of 5% of the total value of the contract as against two separate bonds of similar value. This would halve the cost of the bond value and thereby provide financial relief to the vendor.
Vendors supplying equipment needed urgently under the “fast-track procedure” will now be allowed a “grace period” of 45 days instead of 15 days applicable under DPP 2008, to make it available for field trials and technical evaluation. The grace period starts from the date the vendor is notified by the defence ministry. Along with this, the penalty of getting blacklisted for non-performance has been been removed.
aman.m@livemint.com
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First Published: Fri, Jan 07 2011. 12 12 AM IST