ARE THE MAKE 2 AND FAST TRACK PROCEDURES OF DAP 2020 IN SYNC WITH INDIA’S OBJECTIVES OF ATMANIRBHARTA IN DEFENCE ? BY Col Mahesh Ramachandran (Re

Introduction

With much fanfare, the MoD, through DAP 2020, announced three MAKE categorizations of procurements to give a boost to 'Atmanirbharta' in Defence sector. The underlying thought process was that Make programs, coupled with the so-called , positive Indigenization lists’ (three released and fourth one in the pipeline) will result in indigenous development of core Defence technologies. While the intent is noble, the procedures have not factored ground realities. Defence indigenization has to be a national effort, involving both public and private players under level playing field conditions, with significant budget allocations by the Government. Other than the MAKE 1 categorization, where the MoD funds 70% of the development cost (Albeit with onerous conditions), the other two MAKE categorizations involve 100 % funding by the vendor, without any assurance of production orders. As a result, indigenization and self-reliance in Defence Industry continue to be a distant dream.

In addition to the MAKE and INNOVATION programs detailed in Chapter III of the DAP 2020, the MoD has also come up with Fast Track Procurements (FTP) in Chapter V.

The MAKE 1 categorization does , to a great extent address the issue of indigenization and self-reliance , as the MoD funds, or is at least supposed to fund 70% of the development costs, with the balance 30 % to be funded by the down selected Development Agencies (DA). Under the MAKE 1 procedure the MoD is mandated to down select at least two DAs and fund each of them with up to 70% development cost. It is a different issue altogether that since 2011, not a single MAKE 1 program has fructified. The much touted Battlefield Management System (BMS) program was retracted after down selection of the Das while the Futuristic Infantry Combat Vehicle (FICV) program died a natural death. The Tactical Communication System (TCS) program, however is still on track and though the Project Sanction Order (PSO) is yet to be issued, it may see the light of day if the MoD , service HQs and the down selected Das show the will and intent to go ahead with the program.

This paper covers the MAKE 2 and FTP categories of the Defence procurement Procedure and discusses their shortcomings while also making recommendations to improve the procedures and create an eco-system for indigenous Defence R&D.

MAKE 2 Categorization of DAP 2020

As per chapter III of DAP 2020, Make-II (Industry Funded) would include design and

development and innovative solutions by Indian vendors, for which no

Government funding will be provided. In Make-II categorization procurements, where solutions have been offered even by a single individual or a firm as a Suo-Moto proposal, the cases would be progressed as a Resultant Single Vendor. However, SHQ should seek for multivendor options in such cases, if feasible, before progressing the case as Single Vendor Case.

Infirmities of the MAKE 2 Categorization

1, MoD expects industry to fund 100% development cost with no guaranty of an order and no visibility of timelines.

2. While this is OK for small sub 1 Cr programs, it is not financially viable for high value programs.

3. The intention of MAKE 2 was to help MSMEs and start-ups enter Defence market. However, the deliverables at the UTRR (User Trial Readiness Review) stage itself are so onerous, that leave aside MSMEs, even big tier 1 vendors cannot afford to participate due to the high costs of UTRR (User Trial Readiness Review) and NCNC (No Cost No Commitment) trials - which are very comprehensive and include, besides user trials, QA evaluations, EMI/EMC evaluations and MET (Maintainability Evaluation Trials).

4. Even assuming a vendor clears all trials, he has to be the L1 bidder, to get an order. There is a provision in the MAKE 2 programs to reserve some orders for the L2 vendor in case he agrees to supply at L1 price. For some strange reason, none of the MAKE 2 EOIs/PSOs incorporate this clause, which is another huge disincentive/risk for the Vendors.

5. The vendors who clear the trials but lose out in the commercial bid are given a 'certificate' saying they have successfully cleared all trials - this is a joke, since the certificate has no monetary value and is not worth the piece of paper it is written on.

6. In some cases a nominated single vendor tender is issued to a DPSU while a multi-vendor tender is issued for the same product - and guess what - the nominated DPSU is also allowed to bid for the multi-vendor tender. The DPSU can easily cross subsidize the multi-vendor commercial bid by not loading his development costs in the multi-vendor tender (As he would have already loaded it in the nominated tender) - thus L1 of DPSU is assured.

7. The 'March In Rights' for the IP are invoked ab initio - that means the MoD, with zilch investment in the development costs wants access to the IP.

8. MAKE 2 ensures no investments by the MoD and provides no guaranty of orders to the Vendors willing to invest. To expect indigenization and self-reliance in core technologies in Defence sector , without GoI funding is a pipe dream. The GoI needs to take a leaf out of the books of the DARPA model. To expect I Indian Industry to fund huge development initiatives, without visibility of timelines and orders is also asking for the moon.

Fast Track Procurement

Stung by criticism over the inordinate delays in Defence Acquisitions, the Service HQ have been coming out with a slew of emergency procurements under the Fast provisions of the DAP 2020. While the intent of pursuing FTP is noble, the process itself suffers from some serious infirmities as listed below.

1.    One of the major problems (self-inflicted) is the challenging timelines given in the FTP tenders. Despite the FTP procedure clearly specifying 45 days for submission of the techno commercial response, in some cases the techno commercial response has been asked to be submitted within 4 to 5 days and the equipment is expected to be brought for NCNC trials 7 days after the bid submission. The reason for this hurry could be (a) MoD opening very restricted windows for issue of FTPs (b) Overzealous staff at service HQ trying to prove their super efficiency.

2.    The major casualty in this hurry is the ‘pre bid queries’, the response to most of which are “As per RFP’. This results in vendors bidding in conditions of ambiguity and risk, thus laying the perfect foundation for retraction of the RFP at a later stage.

3.      The justification given by the service HQ for having such punishing timelines is that, being a Make program, the Indian vendor is expected to have the equipment ready in India, meeting all requirements of Indigenous content ab initio at the trial stage. This is an unrealizable pipe dream since no Indian vendor/Foreign OEM will invest in ToT at the trial stage and hence there has to be a temporary import of the trial pieces, which does take considerable time. And just in case the equipment in question is a radiating equipment like a radio or radar, then getting the radiation clearance from WPC is a very time-consuming process. Surprisingly, MoD expects the vendor to get this WPC license, when, in fact, the same should be provided by the Government. Those who have been in the business know the pitfalls of getting radiation clearances from WPC.

4.      The AoN budget is not disclosed to the biding vendors. This results in either gross over bidding or underbidding since the competing vendors vary from tier 1 to tier 4 to MSMEs. This makes the job of benchmarking by the CNC very difficult. There has been a case where the l1 vendor was unable to get a BG for advance payment owing to his poor financial credentials.

5.      The FTPs are issued under the financial powers of the three service Vice chiefs – Rs. 300 Cr. Though this is a sizeable number, it is still inadequate to incentivize ToT for achieving the mandated indigenous content, which require a high order value.

6.      Reluctance of user to conduct NCNC trials virtually through video conferencing.

7. Huge ambiguity in the Maintainability Evaluation Trials (MET). As per the RFP, the bidding vendor is supposed to give a list of the following as part of the Engineering Support Planning (ESP).

(a) Manufacturer Recommended List of spares. (MRLS).

(b) Special Maintenance Tools/Test Equipment (SMTs/STEs)

(c ) Training Aids

(d) Technical Literature

There is a trust deficit between the buyer and the bidding vendor , wherein the buyer feels (and justifiably so), that the vendor would have under quoted the MRLS to become the L1 vendor. At the same time the buyer has no way of mandating what the Bill of Material (BoM) of the ESP requirements and issuing it to all the vendors to ensure a level playing field. Hence, to overcome this knowledge deficit on part of the Maintenance Agency, there is a provision in all RFPs which mandates that the bidding vendor will sign two undertakings with respect to the ESP deliverables:

(a)  Adequacy clause: An undertaking that the ESP deliverables proposed in the bid are adequate.

(b) Buy back clause: An undertaking which states that the vendor will buy back any redundant spares and replace them with other spares as identified by the buyer at a later stage, at no extra cost.

The above two clauses, especially the ‘Carte Blanche’ buyback undertaking, which is a huge open-ended risk for the vendor, should be enough and more incentive for the buyer to clear the vendor in the MET. But this does not happen, and the outcome of the MET trials remain ambiguous.

This issue can be addressed by including a post warranty life time AMC in the tender itself , to be included in L1 calculations. Alternately the ESP of the project, including the warranty and AMC, should be tendered separately.

Recommendations

(a)   Detailed and transparent deliberations with the vendors at the Pre RFI/RFI stage on the user requirements.

(b)   Cross validation of the exaggerated claims on capability and indigenous content made by some vendors in consultation with credible R&D organizations and academia and weeding them out at the RFI stage itself. This will enable realizable RFP parameters well before the AIP (Acceptance in Principle)/AON stage.

(c)    MoD should keep the window for FTP tenders open round the year.

(d)   NCNC trials should be restricted to functional testing with maximum validation through user/OEM undertakings and data sheets. The tendency to treat NCNC trials as Acceptance Testing (AT) should be curbed. Vendors giving false undertaking should be subjected to heavy penalty including blacklisting.

( e) In MAKE 2 programs, the UTRR (User Trial Readiness Review) should be done on  very limited quantities of equipment. This is because after the UTRR of all vendors it is highly possible that some higher specification shown by some vendor, though not included in the original PSO (Project Sanction Order) , may be included for all other vendors. This will result in complete redesigning and re-engineering of the products developed for the UTRR, adding to the product costs.

(f)   All MAKE 2 and FTP tenders should have a liberal option clause, whereby there is no restriction on placing repeat orders on the L1 vendor. This will not only incentivize the foreign OEMs to give liberal ToT but will also save on fresh tendering process (and consequent delay) for additional orders.

(g)     All MAKE 2 and FTP tenders must incorporate an MoQ (Minimum Order Quantity) clause whereby both L1 and L2 vendor are guaranteed orders at a 60; 40 ratio, where L2 vendor agrees to supply at the L1 price. Where L2 vendor declines to do so, L3 vendor could be asked to deliver at the L1 price and so on.

(h)   MAKE 2 and FTP tenders should lay down realistic and realizable time lines.

Conclusion

The MoD should be complimented on its intent to indigenize and fast track Defence procurements. A 7 % increase in the defence capital procurement budget coupled with the increase in the funding for IDEX (Innovations for Defence Excellence) is also a welcome development. However, the MoD needs to take a serious relook at the procedures mandated for the MAKE 2 and FTP categories of the DAP 2020 so as to make them realistic, flexible and speedy while fixing the ownership for delays. There must be zero tolerance for delays and subsequent retraction of RFPs. As such the MoD will have to figure out a fine balance between “ Haste Makes Waste” and “ Procurement delayed is Procurement denied”. 

Col Mahesh Ramachandran(Retd) is a Combat Network Architect with special interest in Strategic Affairs and Defence Procurements. He can be contacted at colrmahesh@gmail.com