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Defence Procurement and Blacklisting Policy

By Amit Cowshish Published: November 2016
 

New Delhi. The Defence Acquisition Council (DAC), chaired by Defence Minister Manohar Parrikar, cleared procurement proposals worth around `82,000 crore ($12.35 billion) and also approved the new blacklisting policy in the meeting held on November 7.

The DAC is a high powered body which accords approval in principle – also known as the Acceptance of Necessity (AoN) – for all capital acquisitions, exceed ing `500 crore ($75 million approximately). Proposals for lesser amounts up to `150 crore ($23 million) and `300 crore ($44 million) are approved by the Services Capital Acquisition Plan Categorisation Committee (SCAPCC) and the Defence Procurement Board (DPB), respectively.

Although the DAC meetings get extensive coverage in the media, it is becoming a routine staid affair with proposals worth thousands of crores being accorded AoN in every meeting with hardly any word on the status of the approvals accorded in the previous meetings. If one adds all proposals approved in the last two years since the present government came to power, the total amount may add up to around $50 billion. That is a staggering amount by any stretch of imagination. The question, however, is how many of these approvals have culminated in contracts.

Before the Defence Procurement Procedure (DPP) 2016 brought down the validity of AoNs to six months, every AoN used to be valid for one year within which the Request for Proposal (RFP) had to be necessarily issued to prevent its lapse. This is odd, for the broad time table for procurement activities, given in DPP 2016, allows only eight weeks to issue the RFP from the date the AoN is accorded.

Be that as it may, excessive focus on the value of proposals approved in principle by DAC has overshadowed the fact that by themselves, AoNs do not guarantee procurement of equipment. These have to be converted into contracts. There is little information available on the number of AoNs accorded so far and the ones that fell through because the RFPs could not be issued within six months, as also the progress of those that did not. At any rate, the journey from AoN to signing of contract is long and arduous; many an AoN has fallen prey to the rigours of this journey and never reached the destination.

Going by the information provided from time-to-time by MoD to Parliament or contained in the reports of the standing committee on defence, the rate of conversion of AoNs into contracts has not witnessed any spurt. In 2012-13, MoD had signed 73 contracts for procurement of defence equipment. This figure came down to 42 and 47 respectively, in the two succeeding years. During the last six months of 2015-16, 28 contracts were signed. Even if this is taken as the yardstick, the total number of contracts signed during 2015-16 would be around 56 – much below the number of contracts signed in 2012-13.

It is important, therefore, that in its monthly meetings DAC takes stock of progress of AoNs accorded in the past that are yet to culminate in contracts and resolve any issues that might be hindering the progress in specific cases.

The benchmark for assessing the progress of cases already exists. The DPP envisages a time frame of 74-114 weeks –an additional 12 weeks if winter trials are also contemplated – from AoN to signing of the contract. Unless every single AoN is monitored by DAC, especially those which entail manufacturing in India, this time frame will remain only on paper, which has largely been the case so far.

Once in a while, DAC also takes up other policy issues, such as approval of the Long Term Integrated Perspective Plan (LTIPP), Defence Five Year Plans, and revised versions of the Defence Procurement Procedure.

In its November 7 meeting, DAC also approved the much awaited policy on blacklisting of defence companies involved in bribery and other transgressions. The policy is expected to be uploaded on the ministry’s website within a few days. Though not the main cause, blacklisting of companies in the past has indeed resulted in MoD scoring many a self-goal. Several procurement programmes, ranging from ammunition to guns, ran aground because of the blacklisting of the potential suppliers. More damaging is the long period of suspension of dealings with the potential supplier preceding the actual blacklisting.

There have been instances of dealings with companies being put on hold even if there were no allegations against them but they happened to be the sister concern of another company facing corruption charges. Suspending dealings with or blacklisting an entire group of companies for wrong doing on the part of one of the subsidiaries is counterproductive. For example, India’s new conventional submarine, INS Kalvari has sailed out into sea for trials without being equipped with the Black Shark torpedoes because the Italian firm WASS that makes the torpedoes happens to be a subsidiary of Finmeccanica, the holding company of AgustaWestland which figures in the bribery scandal surrounding purchase of VVIP helicopters.

It is almost certain that the new policy will do away with indiscriminate blacklisting of the entire group of companies if there are charges of bribery against some other subsidiary of the same group. The new policy is also expected to prescribe graded penal action, from payment of hefty fines to blacklisting for one to ten years, depending on the nature of transgression. Some reports suggest that companies may be blacklisted for one year at a time. The much-awaited policy could have a provision for fast track investigation into allegations and for taking the duration of investigation into account while prescribing the ban. These are important decisions but unless the policy is worded unambiguously and the procedure for handling allegations of bribery is laid down with absolute clarity, its implementation could pose unforeseen challenges.

There are many challenges in this. For one thing, MoD does not have an investigative mechanism of its own. It will have to depend largely on the Central Bureau of Investigation and the foreign investigation agencies. Given this constraint, it is difficult to visualise how will MoD ensure a speedy investigation.

No penal action is normally taken unless a show cause notice is issued to the offender. There has to be absolute clarity about the manner in which the response to such notices will be processed in MoD, failing which the tendency will be to seek the advice of the investigating agencies and the law ministry. This could become a never ending exercise. Clear guidelines will also need to be laid down for deciding the quantum of punishment to make sure that the officials responsible for taking action against the offending companies do not hesitate in taking decisions in the fear that their decisions could be questioned on the grounds of subjectivity.

It is a good idea to have a clear policy on blacklisting but considering that the current trend of wearing rectitude on one’s sleeves, execution of the policy could run into difficulty unless there is political consensus on it, cutting across the party lines.

The fear is that it may be too late for that.

– The author is a former top official of the Ministry of Defence, who dealt directly with military acquisitions till a couple of years ago.

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