Due Diligence

Selection of vendors is a critical process

Maj. Gen. Mrinal Suman (retd)

The Defence Procurement Procedure (DPP) aims to provide ‘the highest degree of probity, public accountability, transparency, fair competition and level-playing field’. To achieve this aim, generation of maximum competition becomes an imperative. For that, adequate opportunities must be provided to the largest number of vendors to participate in the procurement process. No eligible vendor should be denied a fair chance to offer his product for sale to the ministry of defence (MoD).

Selection of vendors demands diligent treatment on account of two restrictive provisions of the procedure. One, as per Para 31(f) of DPP-2016, no addition to the vendors would be allowed after issue of Request for Proposals (RFP). Hence, it becomes imperative that no prospective vendor is left out inadvertently. Two, acceptance of unsolicited bids/ response from any vendor to whom a RFP has not been issued is forbidden.

The process for the solicitation of proposals commences after the finalisation of the Services Qualitative Requirements (SQR) and the accordance of Acceptance of necessity (AoN). Concurrently, the process of preparing a list of all prospective vendors is undertaken diligently.

Identification of Vendors

To start with, the concerned Service Headquarters (SHQ) ascertains the likely sources of procurement for the said product and shortlists the prospective manufacturers/suppliers, as per the guidelines issued by the Acquisition Wing. With a view to cast the net wide, sufficient details about the item proposed to be procured are posted on the websites of MoD and SHQ, keeping security concerns in mind. Minimum performance parameters are also mentioned to enable prospective vendors to ascertain SQR-compliance of their products.

All vendors who desire to participate in any given procurement proposal are required to send their requests to the Technical Managers and SHQ concerned. Application must contain sufficient details to enable the procurement agencies to determine whether the said vendor possesses the necessary wherewithal to supply the required product. After due scrutiny, names of eligible vendors are included in the database of the short-listed vendors for the issuance of RFP.

The short-listed vendors should either be Original Equipment Manufacturers (OEMs) or their authorised vendors. In the case of some countries, domestic laws do not allow direct export by OEMs and all exports have to be routed through the government authorised/sponsored export agencies. In such cases, DPP allows issuance of RFP to those agencies. Rosoboronexport of Russia is one such example.

In cases involving Transfer of Technology (ToT), the short-listed vendors must possess ability to transfer requisite technology for licensed indigenous production. They must possess proven technical competence of the level sought and have credible past track record. It is equally important to ascertain the rules/laws of the country of every foreign vendor with respect to the export of high-tech items and transfer of the specified technology. Foreign vendors have also to provide names of the countries where the said equipment is already in service.

Details that an Indian vendor has to provide include company profile with shareholding pattern; financial status of the company; category of company (large/medium/small scale); whether OEM or authorised vendor; manufacturing infra-structure held; earlier contracts with the government; quality assurance certification; registration details; and complete description and profile of the product on offer.

DPP-2016 has unambiguously defined an Indian vendor to mean ‘for defence products requiring industrial licence, an Indian entity, which could include incorporation/ownership models as per Companies Act, Partnership Firm, Proprietorship and other types of ownership models including Societies as per relevant laws, complying with, besides other regulations in force, the guidelines/licensing requirements stipulated by the Department of Industrial Policy and Promotion as applicable; and for defence products not requiring industrial licence, an Indian entity registered under the relevant Indian laws and complying with all regulations in force applicable to that industry’.

In case the above measure fails to generate sufficient vendor response, case specific advertisements can be placed on the internet and the newspapers. Even the route of Expression of Interest (EoI) can be explored. The aim is to have maximum competition, albeit keeping security constraints in mind. Although the initial list of vendors is prepared by SHQ, the Technical Managers can add to it. For that, the Acquisition Wing is also required to maintain a databank.

In ‘Buy (Global)’ cases entailing ToT for maintenance infrastructure, the Indian recipient could either be an Indian vendor or any other entity (OFB/Army Base Workshops/Naval Dockyards/Naval Aircraft Yards/Base Repair Depots). This entity would be identified at the categorisation stage itself and included in AoN. Existing technical arrangements, if any, of the foreign OEMs with Indian industry, may be taken cognisance of. The Indian entity would be responsible for providing base repairs (third line) and the requisite spares for the entire life cycle of the equipment. Both the vendor and the nominated Indian entity would be jointly responsible. The cost of maintenance of ToT would be borne by the Indian private entity or the government, as the case may be.

Therefore

Selection of vendors has to be carried out with due care. Three important aspects get flagged from the above discussion. One, government wants maximum competition without compromising security considerations. It is a fine balancing act that requires considerable thought and attention. Two, issuance of RFP is an expression of confidence in the capability of the vendor. Once RFP is issued, no vendor can be eliminated summarily for suspect competence. Therefore, it is of utmost importance that the short-listing of vendors is carried out diligently, lest an incompetent and unscrupulous fly-by-night operator embroils the whole process in vicious allegations and endless litigations.

Three, no new vendor can be added after the issuance of RFP and unsolicited bids are not accepted. Thus, in order to ensure that they do not lose the opportunity by default, all desirous vendors must make sure that their existence, capabilities and product range are known to the Technical Manager and the SHQ. It is only then that their names would get included in the list of prospective vendors for the issuance of RFP.

It is a good practice for all vendors who wish to supply products to MoD to remain informed of the impending procurements. Vendors must also respond to MoD’s queries, both through Request for Information (RFI) and otherwise. If not interested in a product, a polite note of regrets should be sent to the concerned office. This is one way to remain in touch with the developments of various procurement proposals and the agencies. It also pays to keep the potential users informed of new products and upgrades, even if not on MoD’s immediate shopping list.