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Indian Defense: Procurement Process and Policy

Indian defense : Procurement Process and PolicyFebruary 2014 Report created by Feedback Business Consulting Services Pvt. Ltd. for the Virginia Economic Development Partnership Abbreviations AHSP AuthorityHoldingSealed Particulars SQAE SeniorQualityAssuranceEstablishment QAE QualityAssuranceEngineer SAAR Supplier Assessment Application Registrati on Form SQSR Supplier QualitySystemRequirements DGQA DirectorateGeneral of AeronauticalQualityAssurance QR QualityReport RFP Requestfo r Proposal MoD Ministr y of Defence DOFA DefenceOffset Facilitati on Agency SHQ Service Headquarters SCAPCHC Service Capital Acquisiti on Pl an Cate gorizati

Indian Defense: Procurement Process and Policy February 2014 Report created by Feedback Business Consulting Services Pvt. Ltd. for the Virginia

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Transcription of Indian Defense: Procurement Process and Policy

1 Indian defense : Procurement Process and PolicyFebruary 2014 Report created by Feedback Business Consulting Services Pvt. Ltd. for the Virginia Economic Development Partnership Abbreviations AHSP AuthorityHoldingSealed Particulars SQAE SeniorQualityAssuranceEstablishment QAE QualityAssuranceEngineer SAAR Supplier Assessment Application Registrati on Form SQSR Supplier QualitySystemRequirements DGQA DirectorateGeneral of AeronauticalQualityAssurance QR QualityReport RFP Requestfo r Proposal MoD Ministr y of Defence DOFA DefenceOffset Facilitati on Agency SHQ Service Headquarters SCAPCHC Service Capital Acquisiti on Pl an Cate gorizati

2 On Committe e DRDO DefenceResearch& Development Organizati on DAC DefenceAcquisiti on Council DPB DefenceProcurementBoard TEC TechnicalEvaluati on Committ eeIndustry OverviewIndian defense : Industry Overview India is the3rdlargestarmedforcesand 10thlarg estDefencesp enderin theworld India spendsaround2 %of itsGDPtoDefence In FY 2013,theBudgetforDefencehas increasedby almost 10%to reachUS$ 41 billion fromFY 2010 India sp ends40% of itstotalDefencebudgeton capitalacquisitions India currentlyprocuresapprox70%of its equipmentneeds fromabroad.

3 The sector hasattracteda meagerinvestment of US$ million from2001to 2011 India,withitsDefencespending & Civil Aviationmarketgrowthrateof (CAGR) 18%, would puttheco untry,in very nearfuture, among one of thetop fiv e Defence& Civil aviationmarkets FDIof 26%is allowedin theIndustryIndustry StructureDepartmentofDefenseDepartmentof defense Research&DevelopmentDepartmentofEx-Servi cemenWelfare Deals withthe IntegratedDefense St aff (IDS) andthree serv ices and various inter-serv ice organizations It is alsoresponsible fordraftingboth long termand shortterm defense budgets, policie s and co-ordinationofall defense -re latedactiviti es Deals with matterspertaining toDefense production, indigenizationof importedstores.

4 Equipmentandspares It als o undertakes planningandcontrolof departmental productionunits oftheOFBsandDPSUs TheDRDO under the DDRD worksin variousare as of mil itarytechnology Also deals with scientific aspectsof mil itaryequipment and logisticsand the formulationof research,design and development plansequipment usedbythe Services Responsibilityof mattersre lating to ex-serv icemenincludingpensioners , ex-serv icemencontributoryhealth scheme, directorate generalof resettlementandkendriyasainikboard and administrationof pensionre gulations re lating tothe three serv icesMinistry of DefenseDepartmentof defense ProductionIndia s defense BudgetIndia s defense budget is barely of the country s gross domestic product (GDP) which is a record low for India in at least three decadesForeign Direct Investment26% of FDI through approval route (where it required prior government approval)Source.

5 DIPPD efense Procurement ProcessDevelopment in defense Procurement Procedures20012002200320042005-092011201 22013 Defensesector openedtoprivate industry 26%FDI permitted DefenceAcquisition Council(DAC)created Buy category introduced Buy & MakecategorywithToT introduced Kelkarcommittee constitutedfor revision of DPPand participation of privatesector Defenseoffsetpol icyformulated (2005) and DefenceOffset Facilitation Agency(DOFA)created Makeand Buy& MakeIndian categories(2006 &2008)introduced Offset scope enhancedtoinclude aerospace& internal security Revisedoffset guidelinesissued whereinToT included inlistof offsets Preferencetobe givento indigenous production and public releaseof Long TermIntegrated Perspective Plan (LTIPP)Framework of defense Procurement ProcedureLong TermIntegratedPerspective Plan(LTIPP)Serv ices CapitalAcquisitionPlan(SCAP)AnnualAcquis itionPlan (AAP)Defence ResearchandDesignOrganisation (DRDO)Departmentof DefenceProduction (DDP)MinistryofDefence (MoD)Ministry ofDefenceMoD(Finance)

6 ServiceHeadquartersRequest forInformation(RFI)St aff Qualitative Requirements(SQR)St atementofCase (SOC)15years05years01yearCategorization& Acceptanceof Necessity(AoN)Civil Industry ParticipationDefenceAcquisitionCouncil(D AC)DefenceProcurementBoard(DPB)Serv iceCapital AcquisitionPlan CategorisationHigherCommittee (SCAPCHC)Serv iceCapital AcquisitionPlan CategorisationCommittee (SCAPCC)Commonality&Interoperability Issues are discussedat HeadquartersIntegratedDefenceServ ices (HQIDS)Sanctioning AuthoritiesSanctioningAuthoritiesForAcce ptance ofNecessity(Aon)SCAPCHCUptoUSD10 MnDPBUptoUSD20 MnDACB eyondUSD20 MnForAward ofContractVice/Deputy Chiefs/CISC/DGCGUSD10 MnDefence SecretaryUSD15 MnRaksha MantriUSD 100 MnFinance MinisterUSD200 MnCabinet CommitteeonSecurityAbove USD200 MnDefense ProcurementDPM ProcessContract Negotiations Under NewManagement Strategy(NMS) Indian Government decentraliseddecisionmaking DefenceProcurement Manual (DPM)

7 Promulgated in2009andpresently under revision As per Rule 91ofGeneral Financial Rules2005following can be procured under DPM:- Maintenanceand Work ingexpenses. Renewals and Repl acements. Assemblies /Sub assembliestomaintain and opera te already sanctioned assetsStaff Qualitative Requirements(SQR)Acceptance of Necessity(AoN) and Quanti tyVettingTwo Bid SystemSingle Bid SystemProprietary Arti cle Certi ficate (PAC) and Rate ContractTechnical EvaluationContract Negoti ationsContract Negoti ationsRFP Vetting and Issuance of RFPC ontractNegoti ati onsTotal durationforthisprocess after SQRs are formulatedis approximately 22to25weeksDefense Procurement Manual(DPM)

8 DPP 2013 DPM20091 For capital procurementFor revenue procurement2 Only done by Service Headquarters and Ministry of DefenceDelegated to Command Headquartersup to unit le vel3 Twobid sys tem onlyProcured under various methods4 Only OEMscan particip ateAgents/ Distributors/ Authorised Representatives can particip ate5 Timeduration longerTimeduration truncatedRequest for Proposal (RFP) ProcessMinistry ofDefence(MoD)Openstechnical proposals, handsthemover Defence (MoD)Receiv es technical & commercialproposalService Headquarters (S HQ)Receiv ersopen technical proposalsfromHQIDS andconstitutesTechnical EvaluationCommittee (TEC)Ministry ofDefence(MoD)Issues Request forProposal (RFP)Ministry ofDefence (Finance) vetsthe RFPM inistry ofDefence(MoD)Openscommercialproposalsof technically successfulvendors, id entifie s lo west compliant bidder and negotiates contractMinistry ofDefence(MoD)Approves staff evaluationre portsand forwards detailsoftechnicallyacceptablevendorstoM oDMinistry ofDefence(MoD)

9 ApproversTECre portsand asks Serv iceHeadquarterstocarryout FieldEvaluationTrials (FET)Ministry ofDefence (Finance) isco-optedin commercial evaluationNew Procurement Policy to Boost India s Self-reliance in ArmsCate gorizationBuyBuy& MakeBuy& MakeIndianMakeBuyGlobalPurchasefrom ForeignVendorfollowedby Licensed/Indigenous ProductionRFPtobeissuedonl y toIn dian VendorsHighTechComplex Indigenous SystemsBuyIn dianForeign&In dianVendorsIndian Vendors with30%Indigenous ContentNew Procurement Policy BriefParameterBriefBuy Decision Buy wouldmeananoutright purchaseofequipment.

10 Based onthe source ofprocurement,this categorywouldbeclassif ie d as Buy( Indian ) and Buy(Glo bal) . Indian wouldmeanIndianvendorsonlyand Global wouldmeanforeignaswellasIndianvendors. Buy (I ndian) musthave minimum30%indigenouscontentoncostbasis. Apartfromthe overallindigenouscontentbeingatleast30%o fthe totalcontractvaluea minimum30%indigenouscontentwill also bere quired in Basic Cost ofEquipment Cost ofManufacturers Recommended List ofSpares Cost ofSpecialMaintenanceToolsand SpecialTest Equipmenttakentogether provid ed a minimum30%indigenouscontentisensured in the Basic cost ofequipmentat allstages ofcontractincludingthe FETstage Buy&Make DecisionAcquisitionscovere d under the Buy&Make decisionwould meanpurchasefroma foreignvendorfollowedby li censed


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