Bangalore: Defence research agency the Defence Research and Development Organisation (DRDO) is considering long-term contracts with Indian information technology (IT) vendors such as Tata Consultancy Services Ltd (TCS) and Rolta India Ltd to build software solutions for defence projects, shifting its strategy of awarding deals to the lowest bidders on short-term projects.
So far, the 51 laboratories of the agency across India awarded software contracts to vendors for specific projects, but the new strategy seeks to ensure selected firms are involved through the entire cycle of a development programme.
V.S. Mahalingam, director, CAIR
DRDO’s interests span from building missiles, radars, communication equipment and fighter aircraft, among others, many of which have systems that are software-intensive. The selected firms undergo a rigorous screening process for its work, expertise and ability to sustain for multiple years.
“We map the skill sets of each vendor and we also know how software development work is priced,” said V.S. Mahalingam, director of the Centre for Artificial Intelligence and Robotics or CAIR, a Bangalore lab focused on computing for India’s armed forces. He said DRDO possesses a list of companies with the areas of expertise that would be used for future contracts.
The plan for long-term contracts would be firmed up by August in consultation with the National Association of Software and Services Companies (Nasscom), the software industry lobby. Nasscom and DRDO signed a pact in July last year to build technologies in areas the agency needs expertise from the industry.
DRDO expects its labs to initially spend over Rs30 crore every year on application development of software for projects such as battlefield management system for the army. “As labs gain confidence in the new system, the contracts would only increase,” said Mahalingam. The agency did not specify the rates it would pay for contracts.
Indian software vendors such as Wipro Ltd, TCS and MindTree Consulting Ltd have begun focusing on defence projects—both from DRDO as well as offset contracts from foreign vendors who sell defence equipment to India’s military—as a cushion for the fluctuating fortunes in the global IT market. Defence budgets are huge and contracts run for as long as 15 years from development, implementation, user trials and support.
TCS, MindTree and Rolta have implemented projects for DRDO on contracts won through low-priced bids.
“Defence is more and more driven by software and electronics these days. DRDO’s move to outsource is a right move and will open lot of opportunities benefiting the Indian companies,” said S. Janakiraman, chief executive of research and development services for MindTree Consulting. TCS and Rolta did not respond to queries for comments.
India’s domestic IT services market is expected to double in five years to $10.73 billion or Rs42,888 crore by 2011, on rising demand from government projects and small and medium businesses, technology researcher Gartner Inc. had forecast in January. It had estimated domestic IT services spend in 2007 to be $5.03 billion or Rs20,108 crore.
“Since the procurement process is geared towards capabilities and pricing, I feel tier I vendors will go after it aggressively,” said Avinash Vashistha, chief executive officer of Tholons, an offshore advisory firm.
DRDO owns captive labs such as CAIR and Electronics and Radar Development Establishment, known as LRDE, which build the architecture for the software applications and outsource components to the private industry.
“Every outsourcing company would like to work on defence projects. Though it is not so remunerative, the skill level required is very high,” said an executive of an engineering services firm, who did not want to be named.
Nasscom says the new effort of DRDO would bring in transparency, help implement projects faster and also ensure that the domestic industry would be there to support long-term projects. “The contracts will stand up for scrutiny,” said Rajdeep Sarhawat, vice-president for domestic business at Nasscom.