Procurements must be made in the basis of performance alone
Maj. Gen. Mrinal Suman (retd)
The services seek military equipment either to counter an anticipated enemy threat or to enhance own operational capability for envisaged missions. The services spell out minimum performance attributes corresponding to the task/tasks to be performed by the equipment sought. These attributes are collectively referred to as Services Qualitative Requirements (SQR). They form the basis of India’s defence acquisition philosophy. Hence, importance of diligent formulation of SQR cannot be over emphasised.
SQR flow from India’s operational doctrines and plans; prospective enemy’s capabilities, his probable plans and tactics; likely pattern of employment of the equipment in the obtaining terrain and climatic conditions; current and anticipated technology levels; and availability of the systems in the world market. As SQR spell out users’ requirements in terms of functional characteristics in a comprehensive, structured and concrete manner, their formulation is the exclusive prerogative of the concerned Service Headquarters (SHQ).
SQR have to be broad-based so that they result in a multi-vendor situation. It implies that SQR have to be pitched at run-of-the-mill levels to ensure participation by multiple vendors. As the state-of-the-art systems cannot be sought, the services get saddled with mediocre equipment which may be approaching obsolescence.
All vendors who meet SQR are considered at par and the lowest bidder gets the order. If a particular system performs in excess of the laid down SQR, it gets no additional credit. As a high-tech high-performance system can never be cheaper than a common-place system, the services miss out on getting superior equipment that may be available for an acceptable increase in cost.
Procurement of military equipment on the basis of SQR has been the bane of India’s acquisition regime. It is an archaic system and most countries have already discarded it. During the year 2011-12, 41 procurement proposals had to be withdrawn on account of inadequacies of SQR. Therefore, the environment was expecting DPP-2016 to adopt a more progressive system of incorporating users’ requirements. Disappointingly, the current system of SQR has been retained, albeit in a more convoluted form.
SQR-Related Changes in DPP-2016
Two significant modifications have been introduced in DPP-2016. In place of having only one category of essential parameters, SQR have been split into ‘Essential Parameters-A’ (EP-A) and ‘Essential Parameters-B’ (EP-B). EP-A will form the core of SQR and will generally correspond to the contemporary equipment available in the market. These parameters will be tested and validated at the Field Evaluation Trial (FET) stage itself.
EP-B will consist of the parameters that may not be available originally in the equipment fielded for FET but can be developed and achieved by the vendors using available technologies. These parameters need to be tested and validated within a specified time frame as stipulated in the contract. Provision for partial quantities of the items being procured to meet different/higher specifications for specific operational requirements will be incorporated in the Statement of Case itself.
Approval of the Defence Acquisition Council (DAC) will be necessary to invoke provision to incorporate EP-B in any procurement proposal. EP-A and EP-B are non-negotiable requirements to be met by the vendor, prior to the commencement of equipment delivery. In procurement cases involving EP-B, it will be essential for vendors to demonstrate their ability to develop the item further to meet EP-B with their existing capabilities at the bid submission stage itself. An undertaking will also be required while entering into a contract.
To guard against default, an additional bank guarantee (valued between 5 and 10 per cent of the contract value of equipment required with EP-B) will be needed (in addition to the standard performance bank guarantee). The quantum must be mentioned upfront in the Request for Proposals (RFP). Failure to meet EP-B within the contracted time frame will lead to the forfeiture of all bank guarantees (performance bank guarantee, additional bank guarantee and advance bank guarantees, if any). It will also attract other penal provisions as may be prescribed by the government.
The second major SQR-related change in DPP-2016 is the introduction of the concept of Enhanced Performance Parameters (EPP). With a view to retain an option to choose equipment with parameters higher than those mentioned in SQR, DPP-2016 allows introduction of EPP, if considered desirable. Equipment successfully meeting EPP parameters will be awarded a credit score of up to 10 per cent while determining the lowest bidder (L1), with each individual attribute not exceeding a credit score of up to 3 per cent. EPP and the respective credit scores need to be explicitly explained in RFP. Vendors must be fully aware of the proposed credit criteria while preparing their bids.
Inability to meet EPP does not preclude vendors from being eligible for bidding. However, if a vendor claims to have equipment meeting EPP, then he must provide details of the same in his technical bid. For, it has to be tested for compliance during FET itself. In case a vendor’s equipment meets EPP, his commercial quote will be multiplied by a credit factor less than 1 and greater than or equal to 0.9 for identifying L1.
Need to Reward Better Performance
Although both the above-mentioned changes appear progressive, it will be well nigh impossible to implement them. The concept of having two sets of parameters (EP-A and EP-B) is ill-conceived and suffers from several infirmities. Most disconcertingly, it makes the whole procurement process dependent on the potential of vendors and not their demonstrated current competence. All vendors who promise further development will have to be invited to bid.
It is a known fact that all vendors make exaggerated claims. They claim full compliance with SQR in their technical bids while most claims turn out to be false in field trials. Therefore, it will not be prudent to sign contracts with vendors on the basis of their assertions.
Misplaced quest for equipment with EP-B will restrict the vendor base considerably. As per the new norm, only those vendors would be issued RFP who declare competence to upgrade equipment for EP-B within the specified time period. It implies that all those vendors who are currently manufacturing equipment with EP-A specifications but do not possess commercial/technological resources for upgradation will get ruled out. Not a wise move at all; it militates against the underlying spirit of DPP of generating maximum competition.
Although failure to meet EP-B within the contracted time frame will lead to the forfeiture of all bank guarantees, it will be of little consolation to the services. Penal provisions cannot compensate for the non-availability of equipment. The government will have to initiate fresh proposal for the equipment, entailing a delay of four-five years. In the interim, the services will be forced to function with critical deficiencies.
Coming to the policy of granting extra credit to higher performing equipment through EPP, the process of determining the criteria has to be highly objective and transparent. To obviate allegations of favouritism, it will be essential that methodology and justification for assigning credits for various parameters are made known to the environment. The credibility of the system should not come under a cloud.
EPP system will also put extra load on the field trial regime. Arrangements will have to be made for validating both regular and enhanced parameters. What is more, DPP-2016 is silent about the action proposed to be taken against the vendors whose EPP claims turn out to be hollow. In the absence of strong deterrence, most vendors are likely to claim compliance with EPP standards. They may see no harm in trying their luck to earn some extra credit.
Another concern relates to the application of ‘life-cycle-cost’ to the commercial bids to arrive at L1. In case the government implements its often-repeated resolve to make ‘life-cycle-cost’ to be the basis of choosing L1, the system of EPP will introduce colossal complexities. It is not clear whether the discounted cost for comparison purposes will be applicable only to the commercial bids or to ‘life-cycle-cost’ as well.
Appraisal of Linkages between Performance and Cost
Need to seek equipment with enhanced capabilities is a just and valid requirement, provided the cost-penalty is considered justified. For that, it will be far more prudent to spell out parameters in the form of a matrix with lower and upper limits specified. The lower end should indicate minimum inescapable requirement (akin to SQR) while the upper end should benchmark maximum useable limit. Relative weightage will have to be assigned to different parameters for the purpose.
Translation of all parameters into measurable, gradable and comparable parameters requires thorough knowledge of envisioned exploitation of the equipment. As it is difficult to incorporate all SQR into a matrix, a judicious mix of a matrix of quantifiable factors and other hygiene factors offers best option. The government can set minimum standards and yet obtain equipment with higher performance by giving due credit through award of extra points.
To explicate the concept, a notional performance matrix for an artillery gun has been taken as an example. About range of the gun, the matrix shows a spread from 25 km to 30 km. It would imply that the minimum range must be 25 km, but the buyer favours a gun with a longer range up to 30 km (range beyond 30 km may not be exploitable due to lack of related target acquisition capability). Extra credit is awarded as per pre-decided relative weightage for range in excess of 25 km (up to the ceiling of 30 km). Other parameters are also spelt out similarly to reduce them to a common comparable scale for objective and transparent comparison.
|Performance Parameters||Acceptable Range||Performance Points|
|Minimum Essential Standard||Upper Acceptable Limit||Minimum Score at Lower End of Range||Norm for Award of Additional Merit Points||Maximum Merit Points Possible||Optimum Score at Top End of Range|
|Range||25 Km||30 Km||80||4 points for every extra km||20||100|
|Rate of fire||5 rounds per min||8 rounds per min||30||5 points for each extra round||15||45|
|Weight of shell||48 kg||54 Kg||35||2 points for each extra kg||12||47|
|Time taken to get into position||60 seconds||30 seconds||25||1 point for every 5-seconds saving||6||31|
|Time to get out of position||40 seconds||20 seconds||20||1 point for every 5-seconds saving||4||24|
Sample Performance Matrix – Artillery Gun
As shown in the table above, a gun that satisfies minimum essential standard of all parameters would score 320 points. Maximum possible score of a gun that meets upper limit of all parameters would be 450. Let us assume that six guns participate in trials and score 340, 373, 381, 412, 421 and 431 points respectively. As it would be unfair to consider them at par for cost comparison, a decision can be taken to limit commercial evaluation to top three guns only. Guns with scores of 340, 373 and 381 would thus get eliminated. This aspect of limiting commercial process to top performers will have to be mentioned in the RFP to eliminate subsequent representations.
As per the current SQR system, all six guns in the example discussed above would qualify for procurement and the cheapest amongst them would get the contract. That would amount to comparing the cost of the top performer with 431 points with a mediocre system pitched at 340 points. Needless to say, the latter would always be cheaper. This flaw gets corrected in PMS. By short listing top performers, fair competition is generated between near-equals and India can buy the most cost-effective system.
The Way Forward
Procurement of defence equipment on the basis of performance matrix has enormous advantages. First, while fixing parameters at minimum essential levels, India retains the option to opt for equipment with higher performance parameters, at a reasonable extra cost. It ensures that the services are not deprived of superior equipment with advanced technologies.
Preparation of a practical performance matrix is undoubtedly a highly complex and painstaking task. Translation of all parameters into measurable, gradable and comparable parameters requires thorough knowledge of envisioned exploitation of equipment. A number of technical tools are available for the purpose. A beginning should be made by adopting performance matrix for simpler products initially. Over a period of time, as expertise is gained, its application can be made compulsory for all defence procurements.
The current genre of the procurement procedure was promulgated in June 2002. It has undergone regular biennial reviews, DPP-2016 being the current version. Yet, during the last 16 years, not a single major contract has been successfully concluded in open competition. It speaks volumes about the fundamental infirmities that afflict the procedure. Flawed SQR system is the primary reason for the failure of India’s defence acquisition regime. It has outlived its utility and needs to be replaced by an innovative and responsive methodology. Adoption of performance matrix provides a scientific and practical alternative.