Towards a New Defence Procurement Organisation: Some Points for Consideration

Abstract

The Times of India reported on 15 May 17 that the Ministry of Defence (MoD) is considering of putting in place a new Defence Procurement Organisation (DPO) to streamline the mega arms acquisitions, as well as to leverage them to build a robust defence Industrial Base (DIB).¹ This peice puts forward certain points from a User's perspective for consideration of the decision makers as they embark on the above said exercise. The points are borne out of decades of first-hand experience of the author in dealing with multiple procurement cases.

Amidst the new euphoria of "Make-in-India”, as propelled through the pages of DPP 2016, several new concepts are slowly but surely finding ground in the overall Defence manufacturing eco-system. Some of these include the top acquisition category of Indian Design Defence and Manufacture or IDDM for short, new opportunities and options in the foundational pillar of Services Qualitative Requirements or SQR, the new air of hand-holding and protecting the interest of Micro Small and Medium Enterprises (MSMEs) in the new provisions of the ‘Make Procedure’, the desired end-state of achieving the required ‘indigenous content’ in various permutations and combinations to realise the dream of Make-in-India and more.

In addition to the above, one more important Agenda of the MoD has been to put the Rule Book in order by putting in place the new Defence Procurement Organisation (DPO). Towards this end, a Sub Committee (Pritam Singh Sub Committee) has been tasked to suggest a functional mandate of the proposed DPO, its organisation and staffing and to suggest how autonomously it could function.

Basically, the mandate of the Sub Committee is to amalgamate what the Defence Ministry currently does in a fragmented and an isolated manner by integrating the long winded and cumbersome arms acquisition, offsets, Defence production and other such processes. In addition, the Committee has been tasked to build in a degree of autonomy in the DPO enabling it to function as a powerful executive arm of the Defence Acquisition Council (DAC). For the above to happen, the new organisation will have to address the structure of the current procurement monolith which is presently split between Service HQ (SHQ), HQ Integrated Defence Staff (IDS), Director General Acquisition (DG Acqn), Acquisition Managers and Technical Managers of the Defence Acquisition Wing and Department of Defence Production (DDP). This will mean, bringing multiple bodies under one overall and overarching procurement umbrella of the DPO under the MoD.

In addition it will have to address such other processes, weak links and delay factors that impede procurement. Some of these include multi-polarity, multiple decision heads, duplications, avoidable redundant layers doing the same thing over and over again, delayed comments, delayed decisions, delayed/complacent execution, the tendency to fault-find rather than to facilitate, to name a few. In this milieu, the current state, as aptly quoted by the open source, is that while we import about 65% of all our defence needs and carry the unenviable tag of world's largest arms importer, we 'do not get enough bang for our buck'.

On a macro front, what ails the procurement regime primarily (besides a quagmire of procedures) are many. Firstly, the Technology transfer actually does not take place as envisaged/desired. Far from 'know why', even in the 'know how' the Original Equipment Manufacturers (OEMs) normally keep us perpetually dependent for that last 2-5%. Then, talking of offsets, we really have not been able to put our offset regime into an effective and optimally unrolling mechanism. There are nagging issues and doubts about many a points relating to the offsets. Some of these include, initial selection and subsequent change of Indian Offset Partners (IOPs), choosing (and later changing) the offset discharge fields, and the regime of fines and damages on non compliance of offset obligations. In order to address the above, the new regime in the DPO must include Subject Matter Experts (SMEs) on Offset negotiation and implementation.

Another set of experts who are needed are the costing experts. As of now, there is actually no expertise in the costing exercise of various systems and subsystems under procurement. A very rough shod guide being applied is the Last Procurement Price (LPP) plus inflation, or at best, the competitive market regime as prevalent at a point in time. What we actually require in the DPO are professional costing experts, well versed in market strategies and negotiating skills. One more weakness to be addressed is the presence of a strong legal muscle on the side of the buyer. Currently there are any number of defaults by the Original Equipment Manufacturers (OEMs) that pass by legally unchallenged. Some of these include delays in delivery schedules, non adherence to a previously agreed range and depth of Manufacturer's Recommended List of Spares (MRLS), Special Maint Equipment /Tools (SME/SMTs), offset defaults and more.

While the baby steps have been taken by all the three Services to set up their respective Design Bureaus, except for the Navy, whose Design wing has fully matured over decades and which stands fully amalgamated into their procurement mechanisms, the design muscle of the other two Services still needs to be knitted into the system as a adjunct system of the DPO. This capability will go a long way in reducing perpetual dependence on foreign OEMs when it comes to the design and development of equipment in the long run.

Besides the above major issues, some procedural and operational issues that lie in the domain of the 'Operators of the DPP' are enumerated at succeeding paragraphs. These points are stated in the firm belief that DPO or no DPO, it is the operators of the systems and the attitude they carry in making it 'pass' or making it 'fail' that will actually decide the fate of defence procurements in times to come. At the outset and as stated earlier, the existing heterogeneous structure with multiple verticals in SHQ, HQ IDS, DDP, MoD, Ministry of Finance (MoF) and more, must yield to one unified structure under one central leadership, one hierarchy, one decision centre and one organisation called the DPO. Also, there is a crying need to ruthlessly cut out all duplications and multiple overlaps now existing at various stages in a bid to 'over-ensure' and check and recheck exercises 'just to be sure'.

With due respect to the civil hierarchy, Service domain experts must be placed at all such positions where core competencies and Service specific expertise is needed in analysis and decision making. In this context, the small beginning by the then Raksha Mantri (RM) to appoint a Service Advisor is indeed a positive aspect. Splitting of responsibilities for a single task vertical among multiple players [Weapons and Equipment Directorate (WE Dte), Perspective Planning Dte (PP Dte), Deputy Chief of Army Staff, Planning and Systems (DCOAS P&S), HQ IDS, DG Acquisition, DPP et al, must be streamlined with a view to ruthlessly cut out the tendency of 'checks over checks'. The current vertical split between the negotiation of offsets and discharge of the same between DG Acqn and DDP needs to be unified into one agency. This one fundamental conceptual flaw, whereby Off-set Contract is done by DG Acqn and its roll out implementation is under the DPP, has been responsible for many an offset contracts getting stuck at various stages besides causing inordinate delays due to split responsibility scenario. In addition to the above, institutional arrangements need to be built to bring in platforms for free flowing interactions between SHQ, Defence Research and Development Organisation (DRDO), Defence Public Sector Undertakings (DPSUs), Director General Quality Assurance (DGQA), Defence Industry, Market Experts and Academia.

Talking of the need to build expertise through training and stable tenures, the requirement of specialist training of 'Procurement Staff' and ensuring their utility over extended tenures repeated at various points in their Service Careers is a point that cannot be over-emphasised. The author's experience has been, that while everybody seems to agree with the requirement unanimously, it somehow never proceeds towards implementation. The DPO document must address it. There is a convenient parking place for this thought that is – ‘wait till INDU (Indian National Defence University) comes’. It is the considered opinion of the author that we need to act on it NOW, INDU or no INDU. While the author has argued all along his case for cutting stages and layers, it needs to be done very judiciously lest it becomes self-defeating. The case in point is the oft repeated recommendation of merging the two Categorisation Committees, i.e SCAPCC (Services Capital Acquisition Plan Categorisation Committee) and SCAPCHC (Higher Committee) into one. The same should not be done. The reason for stating the above is the fact that in each of the above Committees, the aim and purpose are different because the areas being looked at by each are different. Accordingly, the attendance in each is different, the content and level of discussion is different and the levels of approval are different. And all these for a very good reason. The industry exposure is allowed in one not in the other. Force-fitting them into one will not only make the resultant Committee so unwieldy that it will get crushed under its own weight, but also, it will amount to wasting more time as everything will be considered by one Committee as against the current arrangement of SCAPCC filtering out what must go to the SCAPCHC.

Talking of numbers, there is a need to right size the DPO with a minimalistic approach. The current ad hoc structure has too much flab by way of ‘over ensurers’ and ‘too many people doing the same job’ resulting in re-inventing the wheel, time and again.

All the above notwithstanding, it is the considered opinion of the author that DPO or no DPO, the onus of success or failure of defence procurements lies in the hands of those who operate the Rule Book, i.e. the Defence Procurement Procedure (DPP). Simply stated, a law is only as good as the enforcer of the law. DPP 2016 will be only as good as the persons who operate it , who interpret its content and apply the same to procurements at hand. The initiators, the commentators, the deciders, the buyers and sellers, the middleware, all combined constitute a community that can be clubbed as ‘the operators of DPP'. The DPP is only as good as these operators make it to be. It must be appreciated by the operators that DPP is only a set of regulations (read guidelines). Keeping intact the tenets what DPP stands for (accountability, probity, and more), it demands intelligent interpretation not a dogmatic and mindless word-to-word adherence. The underlying spirit in applying the DPP must be to make the procurements happen and not a race (read one-upmanship) in trying so interpret the written word in a manner that may stop/stall/delay an ongoing case.

The bottom-line in this regard is the realisation that 'DPP is an enabler and not a show-stopper'.

Endnotes
1. https://www.timesofindia.indiatimes.com>india news dated 15 May 2017