Money Over Matter | Fair Deal

Transparency in defence acquisitions needs a relook  

Maj. Gen. Mrinal Suman (retd)

The Rafale deal is once again in the news. The Opposition parties are alleging that the deal lacks transparency and that the government is avoiding full disclosure under the sham cover of security imperatives. The government, on the other hand, keeps claiming that everything is above board – being a government to government deal, there are no middlemen. It further states that the cost of an aircraft consists of the basic platform and the add-ons on board. Disclosing the breakdown of the cost would amount to divulging the complete avionics, armament package and other force-multipliers configured on board; thereby disclosing its capabilities to the potential enemies. It is a compromise that no military can ever afford to make.

Need for transparency in government deals cannot be refuted. However, when it comes to the defence equipment, a fine balance has to be drawn between transparency and need for secrecy. It is a dilemma that all nations face. In India, it acquires further criticality as every opposition party targets defence deals to corner the government. Unfortunately, our political leadership and the media have still not understood the fact that major defence deals are an instrument of foreign policy and contain many undisclosed elements on quid pro quo basis. Undoubtedly, if a defence deal smacks of corruption, it must be questioned; but doubting every deal just to score political points is certainly detrimental to national interests. An environment of witch-hunting and fear of subsequent inquests deter decision making by the procurement officials.

Procurement of defence equipment in an ‘open, free and impartial competition’ is one of the stated aims of the Defence Procurement Procedure (DPP). To achieve that, a well-defined process has been prescribed. To start with, all eligible vendors are invited to submit their technical and commercial proposals in separate sealed envelopes to the Acquisition Wing. Vendors, whose technical offers are found to be fully compliant with the specified Services Qualitative Requirements (SQR), are asked to field their equipment for user trials to validate performance claims. Finally, commercial offers of technically acceptable vendors are opened and compared to identify the lowest compliant bidder for the award of the contract.

DPP attempts openness at every stage through the following provisions:

  • Request for Information (RFI) is issued to all known vendors of the required equipment. Sufficient time is given to the environment to facilitate response from all interested vendors, even if not given RFI.
  • SQR express user’s requirements in terms of capability desired with minimum required verifiable functional characteristics in a comprehensive, structured and concrete manner. In order to generate maximum participation, DPP mandates that SQR should be of ‘contemporary technology widely available in the world/indigenous market’.
  • Request for Proposals (RFP) is issued to all competent vendors. Efforts are made to cast the net wide. Technical Managers can add to the list of vendors suggested by the Service Headquarters (SHQ).
  • As stated above, single stage two bid system is followed. Proposals are submitted in two separate envelopes (technical and commercial). It is done to safeguard against the possibility of a vendor increasing his commercial quote consequent to his selection after technical evaluation. Subsequently, commercial bids of all technically successful vendors are opened for comparative price evaluation.
  • Paper evaluation of proposals is carried out by a broad-based committee with wide representation. It scrutinises all technical proposals for their SQR compliance and shortlist those who should be called for trials.

 

  • Field trials are carried out under the aegis of SHQ, to confirm compliance of parameters in actual terrain and climatic conditions. All participating vendors attend trials. After each stage of the trials, a debriefing of all vendors is carried out at the trial location itself wherein compliance or otherwise vis-à-vis SQR is specifically communicated to all the vendors in a common meeting.
  • Staff Evaluation is carried out by SHQ, based on inputs received from all trial units and maintenance agencies. All vendors whose equipment are found to be fully SQR-compliant are considered fit for the award of contract. No preferences can be recommended.
  • Commercial bids of the technically successful vendors are opened in their presence, A ‘Compliance Statement’ is prepared incorporating commercial terms offered and sought, an analysis of the discordance and the impact of the same. Thereafter, Contract Negotiation Committee (CNC) prepares a Comparative Statement of Tenders with a view to determine the lowest acceptable offer. Further negotiations are carried out with the lowest tenderer.

As can be seen from the above, DPP tries to ensure transparency at all stages of technical and commercial evaluation. Vendors are kept duly informed as to how their equipment is fairing. The laid down procedure is quite open, impartial and above board. The problem arises when human subjectivity attempts to tweak the process in favour of a chosen vendor. This can be done in three ways.




One, extraneous parameters can be introduced during the formulation of SQR to eliminate competition and pave the way for the favoured vendor. It is done very subtly. Perceived operational necessities are cited as justification. In the case of VVIP helicopters, two critical parameters were reportedly introduced to favour the chosen vendor. First, the flight ceiling was reduced from the earlier 6,000 to 4,500 meters as the ‘favoured helicopter’ was certified to fly up to an altitude of 4,572 meters only. Secondly, minimum cabin height was increased from 1.45 to 1.8 meters. It effectively ruled out all competition as only the ‘favoured helicopter’ complied.

Two, commercial evaluation and subsequent negotiations can be manipulated for subjective motives. Fair and reasonable price is deliberately fixed by CNC at an unreasonably high level to benefit the seller, especially in single vendor situations. Interestingly, in the case of VVIP helicopters, CNC pegged the benchmarked price at Rs 4877.5 crore while the estimated cost as per the procurement proposal submitted three years earlier was just Rs 793 crore. Astonishingly, cost quoted by the vendor turned out to be Rs 3966 crore. Thus, the benchmarked cost was higher by 22.80 per cent. The contract was finally signed for a negotiated price of Rs 3726.96 crore.

In addition, the comparative table is deliberately prepared in such a manner that the favoured vendor appears to be the lowest bidder; by excluding cost of those features that make him more expensive. Such aspects are generally in small print and relate to spare parts, support package, warranty and training. Requirement of engineering support package and other peripheral (but costly) items can be varied to help favoured vendor. Another ploy is to increase the quantity to be procured. In the case of VVIP helicopters, the initial quantity of eight helicopters was subsequently increased to 12 without any justification.

Three, offsets are by far the most non-transparent part of DPP. Very little information is made public. As the focus always remains on main contracts, offset contracts attract peripheral public interest. Resultant lack of media attention allows unscrupulous players to tweak the system ingeniously to derive undue advantages. Appraisal, monitoring, evaluation and efficacy-ascertainment of offset programmes are carried out in total secrecy.

 

Finally

Transparency is the best antidote for the virus of corruption and misconduct. Secrecy is the antithesis of transparency and encourages unfair practices. In addition, lack of transparency facilitates growth of a culture of non-accountability. Whereas DPP encourages transparency, there is considerable propensity amongst the functionaries to exaggerate security concerns to keep many aspects under wraps. For example, there is no plausible reason whatsoever for not making the complete gamut of offset activities public.

Almost all defence deals are shrouded in varying degree of secrecy. Proclivity of the services to exaggerate security concerns aggravates the problem. Resultant lack of transparency creates doubts about their probity. It is essential that a deliberate attempt be made to convince the environment that the government has nothing to hide. For that, feasibility of lowering security classification of all procurement proposals should be explored. Only transparency can instil confidence in the environment about the uprightness of the complete process.