Defence procurement process requires professional expertise in diverse disciplines to be effective and efficient
RAdm. Sudhir Pillai (retd)
The Kargil conflict of 1999 catalysed the need to modernise India’s defence procurement process, prompting a renewed emphasis on adopting advanced technologies and streamlining procurement procedures. The conflict exposed shortcomings in the country’s defence preparedness and has forced successive Indian governments under different political dispensations to attempt reforms towards a structured and transparent mechanism.
In 2002, the Indian government introduced the first formal document outlining defence procurement procedures: the Defence Procurement Procedure 2002 (DPP-2002). The DPP has subsequently seen multiple revisions leading to DPP-2005, DPP-2006, DPP-2008, DPP-2011, DPP-2013, DPP-2016, and DAP-2022.
Over the past 25 years, the requirements of the defence sector have become increasingly demanding, particularly in light of China’s military growth and assertiveness. The evolving geopolitical landscape, technological advancements and regional dynamics have driven the need for a more robust defence posture. India has little choice but to invest in modernising its armed forces, improving infrastructure and acquiring advanced defence technologies to address emerging security concerns.
The provision of defence and national security has to contend with two characteristics: the advanced technological and scientific content of the materials, services, products and components negotiated in contracts; and the increasingly non-market context within such contracts. Both characteristics compound and complicate many of the problems facing governments concerning policy alternatives, allocation of resources and the relationship with the private sector.
The unique complexities of the military industrial complex (MIC) in contrast to the larger manufacturing and service industries require an evaluation of the effectiveness of recent policy adjustments, such as the Strategic Partnership (SP) model using Project P-75I as a case study. Reforming the ministry of defence (MoD) and its related organisations is imperative for effectively managing complex defence industrial programmes and processes.
Defence Acquisition System
In 2015, the Dhirendra Committee Report was submitted to the government that came into office in 2014 with its election manifesto identifying Make in India as a critical policy initiative. The report is subtitled ‘Facilitating Make in India in defence sector through defence procurement procedure’ (July 2015).
The committee suggested procedural additions and amendments to DPP 2013 when examining the issues with the DPP without delving into bureaucratic processes that have hamstrung defence procurement. It stays within rigid vertical hierarchical frameworks where the armed forces staff system (central to professional staff inputs in current arrangements) is placed under the political executive for oversight and approvals. The defence procurement system has an opacity regarding responsibility and accountability within these structures.
The report in Chapter I on ‘Defence Materiel’ states: ‘The political executive of various shades has also not built-up cadres of strategic thinkers to provide continuity. Internal social divisions and the structure of the Indian polity is such that there are continuous internal confrontations and only in time of crisis and war that everyone comes together, unfortunately, to relapse into business as usual once the crisis abates. Unless a consensus develops and an institutional framework is put in place, adequate military power will not be generated.’
In identifying certain lacunae within the Indian armed forces staff system from which defence materiel demands emanate, the report states: ‘There is a widespread belief that the Qualitative Requirements are gleaned from glossy brochures and that unrealistic parameters for defence equipment are formulated. We would like to dispel this notion and state that whereas primacy has to be accorded to policy makers in strategic planning taking into account domestic compulsions (including resource allocations) and international relations, sometimes translating into greater reliance on diplomatic efforts and defensive postures, the balance of advantage, however, needs to shift to the armed forces in the matter of the choice of the characteristics of defence systems and equipment based on user preference and tactical and operational doctrines. Modernisation is not merely induction of new types of equipment, but a mix of strategy and security perceptions and optimum use of hardware to achieve stated national objectives. The services should lead the initiative for modernisation.’
An offshoot of the Dhirendra Committee Report was the introduction in May 2017 of the Strategic Partnership (SP) model in the DPP. The SP model of the government is an initiative to boost indigenous defence manufacturing through increased private-sector participation. The SP model intends promotion of partnerships between Indian private companies and foreign OEMs to facilitate technology transfer and fast-track the development of indigenous high-tech capabilities.
The government appears to have shelved the fighter aircraft and helicopter programmes among those accepted for procurement through the SP model route. Indian efforts in submarines and Future Ready Combat Vehicles (FRCV) remain significant in the SP model context.
The successful implementation of these programmes necessitates the evolution of existing bureaucratic systems to address military strategic and operational requirements alongside technical and commercial risks. Achieving these goals is a policy imperative, highlighting the need for comprehensive reforms in the defence procurement process.
Military Industrial Complex
The military-industrial complex is a multifaceted system with intricate dynamics involving government agencies, defence contractors, lobbying efforts, political considerations and national security priorities. Its complexity extends beyond the traditional framework of the broader industrial sector due to the unique nature of modern militaries and their raison d’être.
Despite many steps taken to evolve the defence acquisition processes, policies involving major defence projects have, under the Make in India plank, seen a return to the policies of yesteryears characterised by protectionism for DPSUs and furthering of market structures and dynamics like monopoly and monopsony. Monopoly and monopsony adversely affect market competition and efficiency, impacting consumers and suppliers.
However, the issue goes beyond economic considerations. The military’s effectiveness in addressing security challenges can be a crucial policy imperative. Compromises in acquiring necessary and appropriate equipment and resources can harm national security. Hence, ensuring a competitive and efficient defence acquisition pipeline is vital in supporting military efficiencies and effectiveness.
Project P-75I
To such ends, India’s 30-year submarine build programme encompassed a long-term vision to enhance the country’s submarine fleet over three decades. The programme aimed to strengthen India’s naval capabilities, ensure maritime security and maintain a credible underwater deterrent. The programme included various projects and initiatives that span the spectrum of submarine design, construction and modernisation. These projects involve collaborations with domestic and international partners, technology transfers and indigenous manufacturing capabilities.
A parallel track within the 30-year submarine build programme is Project-75I (P-75I), which seeks to acquire advanced diesel-electric submarines. The P-75I aims to leverage foreign partnerships and collaborations to develop capacities and capabilities within domestic shipyards to construct advanced submarines. India has ongoing projects such as the construction of Scorpene-class submarines under Project-75 in partnership with France’s Naval Group.
While these approaches have held much promise on paper, the Indian Navy’s efforts to augment its underwater assets through P-75I, being taken ahead along the SP model route, have faced significant challenges and delays. The deadline for the P-75I tender response has seen several revisions. Potential foreign original equipment manufacturers (OEMs) have raised concerns about the navy’s requirements, delivery schedules, liability clauses and technology transfer demands. As a result, several leading submarine builders from Japan, Sweden, France, and Russia have opted out of the project. Germany, South Korea and possibly Spanish participation is uncertain as they face similar concerns as the other OEMs, and some are yet to obtain clearance from their governments for technology transfer.
The lack of success in attracting international design know-how, technology and manufacturing processes through the SP model route for the P75I project in India indicates how unviable projects have passed the muster of our military-politico-executive bureaucracy and its many organs. The complexities of the research, development and acquisition processes, the associated commercial and technical risks, and the intractable issues surrounding project staff requirements and tender conditions require introspection of existing bureaucratic structures. The challenges in navigating the estimating, forecasting and overseeing mechanisms in such endeavours underscore the necessity for organisational reforms in the acquisition field.
Elephant in the Room
Within the MoD, several structures oversee and appraise Indian defence acquisitions. The critical entities involved are the Defence Acquisition Council (DAC), the Defence Procurement Board, various departments/ wings of the MoD, including the Ministry of Defence Acquisition Wing, Department of Defence, Department of Military Affairs, Defence Finance, the Defence Research and Development Organisation (DRDO), the Indian Army, Navy, and Air Force Headquarters, the Integrated Defence Staff (IDS) etc.
These structures should ideally, or in theory, work together to ensure adequate oversight, appraisal and decision-making in acquiring defence equipment and systems. While aiming to promote transparency, efficiency and strategic alignment in the procurement process, do they have collective responsibility or even the collective capacities and capabilities to consider the operational needs, technical specifications, budgetary constraints, etc., in tune with national security requirements?
The Indian defence acquisitions’ organisational structures exist in stove pipes and verticals, and what eludes is horizontal integration to promote a more collaborative and interconnected organisational structure. By encouraging cross-functional collaboration and communication, the MoD can leverage diverse, complex perspectives, improve decision-making under conditions of uncertainty and long-term ambiguities, enhance operational efficiencies, and facilitate innovation.
Any system of control would inevitably have to consider questions of finance, scientific issues, the allocation of resources and changes in general policy and straddle collectively a swath of topics. Given major defence projects’ complexity and technical-commercial uncertainty, bureaucracies mitigate risks through risk contracts.
The term risk contract refers to fixed and firm price contracts. Under such agreements, the contractor guarantees to develop and produce equipment within a specific time scale and cost; even though the project is at such an early stage in the procurement cycle, there is little hard evidence upon which to base time and cost estimates.
Ministries are known to award risk contracts as a check and a balance after scrutiny of the risk management plans of contractors as best as expertise allows. The logic in awarding such contracts despite increased funding and developmental risks follows the simplistic understanding that in a commercial operation, the risk problem is that of the contractors and not the MoD’s. Such approaches, however, ignore the military necessities.
An example of the naiveté of such approaches was demonstrated in the fixed-price contract between the Indian government and the Russian Federation (2004) for approximately USD 974 million to refit Admiral Gorshkov into INS Vikramaditya. In hindsight, it appears that the shipyard accepted the contract despite the understanding that costs and time frames for the refit were unrealistic and that the project would lead to significant price escalation and delays. Ultimately, a revised contract value was agreed upon in 2010 at USD 2.35 billion, reflecting a substantial increase from the initial estimate.
When negotiating major contracts like Vikramaditya, it is notable that the responsibility is given to a serving military officer who may lack the necessary competence to handle the high stakes. Is the politico-executive bureaucracy sidestepping responsibility and accountability in this regard?
With risk contracting not providing the requisite check and balance, can alternate acquisition policies such as the SP model be the answer? The simplistic understanding in the SP model is that given assurances of billions of dollars of sales assurance by a sovereign government, international OEMs will pick up the gauntlet to custom design and build-in-India submarines to specifications drawn up by the Indian Navy and through local companies and significant accretion of capacities and capabilities within India would be a natural outcome. OEMs are declining to pick up the gauntlet given the risk-reward inequality and could be seeking alternative avenues to supply India with the much-needed submarines.
Decision-Making Models
It is beyond the scope of this article to delve into decision-making theories but suffice it to say that decision-making across long-term cost and technology horizons requires adaptive and dynamic organisational structures and manning.
While deterministic decision-making provides a clear framework and can be effective in stable and predictable environments, it may struggle to cope with complex, uncertain and rapidly changing situations, such as in a 30-year submarine programme. On the other hand, adaptive decision-making allows for greater agility, creativity and responsiveness, enabling organisations and individuals to adapt their strategies and actions as needed. The latter requires organisational tweaks such as Integrated Project Teams and matrix organisations with professional cross-competence to ensure responsibility and accountability through smart structures. Such integration does not exist in the MoD and the Indian defence acquisition system and thus various bodies created work out of silos with responsibility and accountability splintered and not concentrated.
In 1997, as part of the overall restructuring of the ministry, the French military services and the French DGA began a ‘long-term’ look at the armament planning process when they migrated to a 30-year prospective plan. Unlike the Indian 30-year submarine programme, the French programme undergoes yearly reviews, which force annual reviews of a dynamic plan that never finishes. This 30-year forecasting plan looks beyond regular programming and planning documents to raise questions, make recommendations and provide a framework for evolving military capabilities. This ‘prospective approach’ provides the DGA and the services with a look at the future battlefield environment and technology status and helps focus R&D efforts and accountability for vast public monies.
Organisational Reforms
Confronted by a combination of overly ambitious requirements on the part of the services and a series of wrong technical and cost estimates on the part of the defence contractor, modern defence industrial nations are increasingly involved in professionally overseen management and control of major defence projects. These nations get their Services Headquarters to generate operational requirements, and outsource research, development and production to public or private entities with their inefficiencies and motives. Consequently, various organisational and modern management concepts get introduced. The following is a sample of such approaches:
a) For oversight of the Service Headquarters from which operational requirements for defence equipment and systems emanate, new operational requirements staff systems were established for each service by the UK MoD. Currently, the Indian Services Headquarters (SHQs) employ individuals and teams who manage these systems through a case-worker approach. While military specialisation is considered a crucial criterion for staff officers, the acquisition specialisation necessary for effectively managing procurement processes and requirements remains elusive.
b) The UK MoD established the Defence Operational Analysis Establishment to provide an independent source of advice to the government on the necessity and cost-effectiveness of military requirements and proposed projects. It offered one way of countering the tendency of the services to gold plate equipment and pursue expensive solutions generally.
c) Within the UK MoD, to evaluate and monitor defence projects, an Operational Requirements Committee (ORC) examined all military requirements to ensure that they supported military doctrine and strategy, were compatible with other equipment in service, did not duplicate another project and were the most cost-effective means to fulfil the requirement.
d) Greater financial responsibility is imposed on design and production agencies/firms by requiring them to prepare a detailed cost programme for their development proposals and establishing other incentives within the cost-plus contract.
e) In 1965, the British government commissioned an investigation into the methods used by industry for estimating the cost of developing and producing defence equipment, the adequacy of methods used by the state to evaluate these methods and finally how to control development and production.
The centrepiece of these new arrangements is the design or project study with crucial features as outlined below:
a) Where it was impossible to define the objective of a development contract concerning the operational requirement or assess the time scale or probable cost, contractors were required to submit a design study in which:
i. The contractor had to submit a detailed report predicting their design’s time, cost and likely performance. The contractor had to prepare a phased and priced technical programme.
ii. The approach to weapons acquisition placed a premium on monitoring the contractor as the next best thing to actual control.
b) However, this required the establishment of an increasingly elaborate and intrusive bureaucratic apparatus such as:
i. Firms adopt sophisticated cost accounting systems and impose them on the firm.
ii. Technical cost officers were to evaluate a proposal, prepare estimates of how much a project should cost in total and year by year, and assess the contractor’s recommendations.
iii. Government accountants examine investigation findings to ensure that estimates are realistic.
iv. The staff of the contracts department re-check to ensure that firms had used the ‘most economical method of achieving the objectives’.
The Gibb-Zuckerman Report (Report on the Committee on the Management and Control of Research and Development) published in 1961 in the UK, examined the management and control of research and development efforts within the UK government and provided recommendations for improvements. The report significantly shaped policies and practices related to research and development in the UK, particularly in defence and scientific endeavours.
The report called for the breakdown of the process of R&D into several phases. Before this, feasibility, technical and financial investigations and full development tended to be one process. Zuckerman broke this process into three steps: feasibility, project study and development. The purpose was to minimise the state’s financial liability by establishing a series of checkpoints in developing and delaying a final decision until accurate cost and technical estimates were available. Only then was a financial commitment to full development made.
Conclusion
In recent years, defence planners have been upbeat about the march of technology and the promise it holds for defence innovation. The end of the Cold War and the success of the Gulf War resolved concerns over the combat effectiveness of new military technologies. Yet, the problem of soaring costs for new weapons remained unresolved. The inability to produce equipment on time and within budget persists even after years of effort from industry and government.
Historically, the defence realm has prioritised strategic art over efficient material preparation, assigning defence procurement lower priorities. Nonetheless, the significance of defence procurement cannot be underestimated, given its substantial impact on India’s defence policies, economic well-being and growth. India’s economic growth and evolving security challenges necessitate reforming outdated and rigid structures and organisations.
The conclusions reached by the Dhirendra Singh Committee should not be mere lip service or another unimplemented paragraph in a report. It is crucial to take ahead and actively pursue concrete actions as recommended by the panel of experts:
a) A tectonic shift must take place in the acquisition procedures, which are primarily based on the template of civil procurement procedures, because of the sophisticated nature of defence systems and which must cater to defence requirements;
b) The procurement executive devised to execute such complex procedures in an efficient and timely manner must have inhouse professional expertise in diverse disciplines, working in harmony, having continuity of tenure and having the ability to obtain outside professional advice when needed and be subjected to capability assessments from time to time; and
c) Oversight and audit procedures would need to be instituted to cater to these specialised procedures.
(The writer is a former Flag Officer Naval Aviation, Chief of Staff HQ Andaman & Nicobar Command and Chief Instructor (Navy) at DSSC, Wellington)