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Lowest bidder norm off – Rule for defence buy | idrw.org
The Centre is set to ask domestic defence firms – almost all of them in the public sector – to abandon the "L-1"³ (lowest bidder) principle while selecting contractors for their orders as part of policy changes planned to bolster Prime Minister Modi's "Make in India" initiative.
The "L-1"³ principle applies to all structured government contracts – whether defence or non-defence – but has frequently meant that it has had to compromise in quality while determining the choice.
But the abandonment of the policy can easily lend itself to charges that the government would favour some companies over others. In other words, charges of "crony capitalism".
The policy changes will be illustrated to about 300 chief executive officers – 150 from overseas – in Bangalore on February 18 when Narendra Modi is scheduled to inaugurate the 10th edition of AeroIndia. AeroIndia is an airshow and industrial fair held in Bangalore once every two years.
"L-1 mentality has governed the procurement policy of so many of our organisations because of the Indian ecosystem. They (the defence PSUs and ordnance factories and shipyards) do not usually outsource high value parts. The percentage of outsourced (orders) needs to increase to be part of the value chain," secretary (defence production) G. Mohan Kumar said here today.
The changes would be included in the Defence Procurement Policy that defence minister Manohar Parrikar is currently reviewing.
The defence production secretary also said there would be changes in the offsets policy.
Offsets are reinvestments made by overseas vendors into a country that has sourced high value defence equipment.
For example, the current contract for the estimated $ 20 billion-plus 126 fighter aircraft being negotiated has an offset requirement of 50 per cent. Meaning, if the contract is signed, the French company, Dassault, will have to invest half the value of the negotiated price that the Indian government will pay for the aircraft into industries in India.
The defence production secretary said current rules make it difficult for the vendors to deliver offset requirements. Speaking on the impact of the decision to allow 49 per cent foreign direct investment (FDI) in the defence sector taken last July, he said "we have heard that a lot of (foreign) vendors are talking to (Indian) companies but this is still early)".
Mohan Kumar, who led talks with US counterpart Frank Kendall in talks before the Obama visit, said the Defence Technology and Trade Initiative (DTTI) was still in the early stages.
He expected the US to quicken clearances but admitted that there was still some way to go before "transformative technologies" could be acquired by India.
Mohan Kumar said the defence establishment has not stopped any company – whether "blacklisted" or not – from participating in Aero India but some of the firms had chosen not to.
The Centre is set to ask domestic defence firms – almost all of them in the public sector – to abandon the "L-1"³ (lowest bidder) principle while selecting contractors for their orders as part of policy changes planned to bolster Prime Minister Modi's "Make in India" initiative.
The "L-1"³ principle applies to all structured government contracts – whether defence or non-defence – but has frequently meant that it has had to compromise in quality while determining the choice.
But the abandonment of the policy can easily lend itself to charges that the government would favour some companies over others. In other words, charges of "crony capitalism".
The policy changes will be illustrated to about 300 chief executive officers – 150 from overseas – in Bangalore on February 18 when Narendra Modi is scheduled to inaugurate the 10th edition of AeroIndia. AeroIndia is an airshow and industrial fair held in Bangalore once every two years.
"L-1 mentality has governed the procurement policy of so many of our organisations because of the Indian ecosystem. They (the defence PSUs and ordnance factories and shipyards) do not usually outsource high value parts. The percentage of outsourced (orders) needs to increase to be part of the value chain," secretary (defence production) G. Mohan Kumar said here today.
The changes would be included in the Defence Procurement Policy that defence minister Manohar Parrikar is currently reviewing.
The defence production secretary also said there would be changes in the offsets policy.
Offsets are reinvestments made by overseas vendors into a country that has sourced high value defence equipment.
For example, the current contract for the estimated $ 20 billion-plus 126 fighter aircraft being negotiated has an offset requirement of 50 per cent. Meaning, if the contract is signed, the French company, Dassault, will have to invest half the value of the negotiated price that the Indian government will pay for the aircraft into industries in India.
The defence production secretary said current rules make it difficult for the vendors to deliver offset requirements. Speaking on the impact of the decision to allow 49 per cent foreign direct investment (FDI) in the defence sector taken last July, he said "we have heard that a lot of (foreign) vendors are talking to (Indian) companies but this is still early)".
Mohan Kumar, who led talks with US counterpart Frank Kendall in talks before the Obama visit, said the Defence Technology and Trade Initiative (DTTI) was still in the early stages.
He expected the US to quicken clearances but admitted that there was still some way to go before "transformative technologies" could be acquired by India.
Mohan Kumar said the defence establishment has not stopped any company – whether "blacklisted" or not – from participating in Aero India but some of the firms had chosen not to.
