Ministry of Defence30-August, 2006 16:9 IST
Doors are now open for Indian industry to participate in Defence research development and production: Pranab Mukherjee

DPP-2006 &DPM-2006 released

Following is the full text of the speech delivered by Defence Minister Shri Pranab Mukherjee  while releasing Defence Procurement Procedure (DPP) -2006 and Defence Procurement Manual (DPM) - 2006 here today.

            “At the outset, I extend a warm welcome to you all at this function for the release of DPP – 2006 and DPM – 2006.  It is also a moment of great personal satisfaction for me as it marks the completion of the policy reforms process that I had initiated two years ago.  DPP – 2006 is now a comprehensive document with clearly stated norms and guidelines on ‘Buy’, ‘Buy and Make’ and ‘Make’ procedures.  It also includes shipbuilding procedure and Fast Track Procedure for acquisitions.  The Offset Policy is firmly in position.  The long pending request of the Indian industry for a level playing field has also been addressed and necessary orders providing a level playing field have been issued and now are a part of these two documents.  With these measures, we have effectively opened the doors for the Indian industry to participate in defence research, development and production.

            The acquisition of defence equipment is a complex and intricate process. This is necessarily so as defence equipment is expensive involving commitment of substantial public funds. Defence acquisitions, owing to its special features and characteristics, involve a long and deliberate process that starts with the enunciation of qualitative requirements by the Services. This is followed by the acceptance of necessity, identification of vendors, issuance of requests for proposals, technical evaluation of vendors, extensive trials, technical evaluation, evaluation of commercial quotes and final selection of acceptable equipment.

            This process is to ensure that the country gets best value for money. To achieve this objective, it is essential that proper procedures for acquisition are laid down and adhered to. These procedures provide the guidelines and norms that would govern the selection of an equipment and its subsequent acquisition. They provide the template against which all steps taken in the acquisition process can be examined for their correctness. Strict adherence to laid down procedures, therefore, ensures the highest degree of probity and public accountability. It creates the conditions required for transparency, free competition and impartiality. Procedures lay down the ‘rules of the game’ and eliminate adhocism. These procedures help expedite acquisitions of approved equipment in terms of capabilities sought, within the timeframe prescribed, while optimally utilizing budgetary resources allocated for the modernization of our Armed Forces.

            It was with this objective in my mind that I initiated the review of procedures governing the acquisition of defence equipment soon after assuming office as Defence Minister. This initiative resulted in the promulgation of the Defence Procurement Procedure 2005 (Capital Procurement) and Defence Procurement Manual 2005 (Revenue Procurement). Some of the salient features of these procedures included the following :-

i)        Broadbased qualitative requirements for avoiding single vendor situations;

ii)       Standard contract terms stated upfront as part of Request for Proposal (RFP);

iii)     Open tendering of commercially off the shelf items;

iv)      Provision for Joint Services Qualitative Requirements (JSQRs) for equipment common to all three Services;

v)       Objective evaluation criteria by adopting  techniques like  Discount Cash Flow (DCF) where payments are to be made over a period of time.

vi)      Clear timeframe for each stage and process of procurement to cut down delays and bringing in accountability; and

vii)    General guidelines for assessing the reasonability of prices.

These procedures have now been in force in the Ministry of Defence for over a year.

            Based on the experience gained in their implementation, it was felt that DPP 2005 and DPM 2005 should be reviewed and further improvements made for achieving enhanced transparency in the acquisition process while ensuring greater public accountability. Some features now being introduced in Defence Procurement Procedure 2006  (Capital Procurement) and Defence Procurement Manual 2006 (Revenue Procurement) include the following : -

(i)         major decisions would be taken simultaneously in a collegiate manner by the Defence Acquisition Council;

(ii)         the generic requirements of the three Services would be placed on the website of the Ministry of Defence to enable vendors to register themselves on the internet;

(iii)        increased transparency in the conduct of field trials, wherever required;

(iv)        the requirement of a pre-contract  integrity pact in all contracts over Rs. 100 crores.

(v)         procedure for implementing ‘offset’ provision for all contracts over Rs. 300 crores in respect of Capital Schemes.  During the 11th Plan period, it is estimated that an amount of Rs. 45,000 crores would become available by way of offsets;

(vi)        provision of level playing field for indigenous vendors, vis-à-vis foreign vendors by comparing CIF prices of foreign vendors  with the  indigenous vendor’s offer - less excise duty, sales tax and local levies; and

(vii)       no negotiations to be conducted with the L-1 vendor identified in a multi-vendor situation as per guidelines issued by Central Vigilance Commission.               

While DPP – 2005 covered the ‘Buy’ & ‘Buy and Make’ procedures, one area that had not been addressed so far was a procedure for the acquisition of defence equipment developed based on indigenous research and design. This lacuna has been addressed in the DPP 2006, which includes a separate procedure for the ‘MAKE’ category. In formulating this procedure, we have relied upon the recommendations of the Kelkar Committee and the Sixth Report of Standing Committee on Defence (14th Lok Sabha).  The ‘MAKE’ procedure has been designed to enable Indian industries to develop high technology complex systems and undertake upgrades required by the Armed Forces, considering that such technology is well guarded and not freely available. The ‘MAKE’ procedure provides for the sharing of development costs with the two vendors identified, following a transparent selection process. The prototypes developed by the two identified vendors would be evaluated technically and commercially before final selection. After the successful prototype has been identified, the ‘MAKE’ procedure provides for the placement of a minimum ordered quantity on the successful vendor. The ‘MAKE’ procedure bridges a critical gap that existed in our defence procurement procedures and paves the way for increased participation of Indian industry in the defence sector and for attaining the goal of self reliance in defence production.

To expedite the acquisition of defence equipment required on urgent operational basis, a Fast Track Procedure had been promulgated in 2001. Based on the experience gained in its implementation since then, a revised and revamped Fast Track Procedure is now being promulgated as part of DPP 2006. While defence acquisition process is long, deliberate and arduous, it is recognized that urgent operational requirements do arise from situations that may be foreseen as imminent, or in circumstances when a crisis emerges without prior warning. Consequently, the revised Fast Track Procedure has adopted ‘a top down’ approach in which all critical decisions are taken in a collegiate manner by the Defence Acquisition Council.  The objective of this procedure is to provide our Armed Forces with the equipment they need to meet urgent operational requirements within the shortest possible time. The revised Fast Track Procedure is now a part of DPP 2006.

A separate procedure for Indigenous Warship Building was promulgated in 2004 based on the fact that warship building is a capital and technologically intensive activity that cannot be strictly categorised as ‘Buy’ or ‘Buy and Make’ or ‘Make’. This procedure has also been reviewed and revised with the objective of integrating systems acquired from different sources with indigenous systems on the same platform. The primary objective is to ensure that futuristic weapons and censors are deployed while minimizing time and cost overruns in the indigenous construction of naval ships. This revised procedure finds place in the Defence Procurement Procedure 2006 as the Indigenous Naval Ship Building Procedure.

            It has been our consistent effort that all delays in the modernization of Armed Forces are eliminated and funds earmarked for modernization are spent fully and on time. The successive revisions of Defence Procurement Procedures have been an important means for achieving this objective. It is pertinent to note that in the last two years, the utilization of allocations in the Defence budget has been consistently around 99% with reference to the RE. With these words, it gives me great pleasure to promulgate the implementation of the Defence Procurement Procedure 2006 and Defence Procurement Manual 2006 with effect from September 1, 2006.

Thank you. “

SKS/RAJ


(Release ID :20385)