Unified Procurement Structure

Issues Details: 
Vol 11 Issue 1 Mar - Apr 2017
Page No.: 
12
Sub Title: 
Pragmatic structural reforms that will help bolster and expedite procurement of defence equipment.
Author: 
Lt Gen JP Singh, PVSM, AVSM (Retd)
Wednesday, March 15, 2017

Greater Productivity and self Reliance in Defense Requires a Unified Procurement Structure

In this age of unrestricted warfare, defense forces need diverse range of military capabilities, which are adequate and technologically superior to deter the adversary from waging war or creating internal disorder. If deterrence fails, the armed forces should be able to fight effectively. For this we require the right people with right equipment to attain operational advantages and freedom of action.

Does our procurement system provide our armed forces with the best capabilities to defend and advance national interests, both in the near and long terms; and in doing so, obtain best possible value for money and propel growth of the indigenous defense industry base {DIB}? With there being little integration between the Users, Production and Acquisition Wings of the MoD, DRDO and the industry, largely due to structural infirmities, well thought out policies and procedures and enablers who make doing business easy, we have not till yet and will not, even in the future, succeed to generate capabilities through a higher self-reliance index. A macro view of uniqueness of the defense industry, the reforms promulgated in DPP 2016 and existing shortcomings in the functioning of stakeholders (in vertical silos) will suggest that the solution lies in a surgical strike on the existing structures.

Defense Industry

Defense industry is a class apart. Order quantities of platforms and major systems are always limited and the basic platforms do not change for decades though the users insist on upgrades with cutting edge technologies. This requires skill in system integration and can happen effectively if the design resides with the manufacturer.  No country shares know- how freely and technology transfer is restrictive. ToT arrangements are heavily in favour of the sellers. Number of viable manufacturers are limited. Recent times have seen  a number of mergers and acquisitions in advanced defense manufacturing nations. However, they are supported by large number of MSMEs, who have long term relationships with the system integrators. In addition, small innovators have found niche markets for themselves. Significantly, all advanced countries with advanced technologies and a large production base have a unified production and acquisition executive. The same authority is responsible for R&D, production and acquisition activities. This is vital, as the interests of production agencies do not always coincide with the work ethos of acquisition agencies. Such unified structures provide better arrangements for coordination and avoid inter departmental conflicts.

An inevitable conclusion is that if we want to harness the strength of private industry in India, it must be done under a well-defined model depending on strategic needs, quality criticality and cost competitiveness.  Where certain platforms or materials are of strategic importance, we must create strategic partnership models on long term basis over and above public sector enterprises. When the vendor base is large and competition is feasible, we may follow the competitive process. Thereafter, there is a need for the MoD to forge a  long term relation with an Indian private sector entity under a unified procurement executive.

DPP 2016

DPP 2016, in its preamble highlights, unique features of defense acquisitions. It recognizes that the defense market is different from the open market form of procurement because of supplier constraints, technology complexities, denial of critical technologies, non availability of material held by foreign suppliers, high costs, exchange range variation and geo political ramifications. The preamble also states that while maintaining probity, accountability and transparency there is a need to balance between expeditious procurement, high quality standards and appropriate costs. It acknowledges that  the need of defense forces cannot be compromised and provides timelines and delegates powers to all stakeholders. It recognizes the need for flexibility in the procurement process. Accepting long gestation periods, it defines self-reliance, i.e., design, development and manufacturing as a major corner stone and Make in India as a focal point of the defense acquisition policy. The DPP promotes indigenous design and development as a priority category of procurement and has further refined the MAKE procedure, which has yet to take off. It recognizes the need to identify Strategic partners for promoting defense production in the private sector.   DPP 2016 makes decision making more unique for the existing procurement structures in the MoD, which unequivocally have failed to meet the aims and objectives of earlier additions of DPP, DPM and DPrP.

Infirmities

The unique nature of the defense industry and materials has not been fully appreciated. Standard procedures, as for civil procurements have been adopted which result in multiple contracts of short duration. These utterly frustrate all attempts at building a viable defense industry.

In high quality defense products, the costs will be high and quantities not very substantial. Not many major system integrators can  thus expect to generate viable revenue. However, a large number of companies are applying for licenses for a number of items without any firm orders with a hope that competitive bids will fetch them business. Most of them do not have the know- how and they are tying up with foreign collaborators with attendant risks. Mapping of competencies of Indian private defense industry to deliver and sustain the product is beyond the present acquisition structure.

There is less than adequate integration between the armed forces, production and acquisition wings of the MoD. Lack of technical expertise coupled with fuzzy understanding of  the operational environment complicates procurement related decision-making at the Apex level. Insufficient trained military or civilian managers with knowledge, expertise and authority, compounded by inadequate domain data and analytics tools, hinder sound and timely procurement decision- making.

Armed forces without a CDS led IDS continue to generate an ‘overheated’ equipment programme, which is not aligned to the budget and to an inclusive inter services capability index. The GSQR, a very extensive cross -pollinated inter disciplinary exercise, in most cases is not affordable and achievable by the indigenous industry. There are no Centres of Excellence to conduct meaningful field trials.

The Acquisition Wing’s core activity is contracting and monitoring the contract. There is very limited flexibility in contract administration that is modeled on civilian templates. The Production Wing, despite promulgating a rational Defense Production Policy{DPrP}, has yet to develop procedures to respond to the requirements of large range of producers. Structurally, it just about manages to monitor defense public enterprises and that too not very effectively. Government support and sharing of common test and evaluation facilities is limited. Long term acquisition plans along with technical specifications are not shared early enough for defense industries to take investment decisions.

Structural Reforms

Restructuring of defense establishment needs to be done to remove the clutter and channel efforts in a purposeful direction. An integrated and centralized procurement structure with a dual responsibility of arms acquisition and indigenous defense industrial development can lead to greater self reliance and propel India into a true military power. At the Apex level the proposed structure is as at Figure 1 below.

To ensure that wings within the departments do not work at cross purposes and seamless integration is forged within departments and with industries, the production and acquisition wings and equipment managers of the Services should get integrated within the same executive. The proposed executive could be a Secretary / DG Defense Acquisition and Support{DA&S}. The DG would report directly to the Raksha Mantri. As a multi disciplinary body, the DG DA&S  will be supreme in all facets of weapon acquisition programmes. The heart of the DA&S would be the balanced Subject Matter Expert{SME} and Integrated Project Management Teams{IPMTs}. In addition, DA&S will have representatives from the DRDO, Defense Finance, Industry, Quality Assurance and Standardization Directorates embedded within. The Industry Interface Directorate under this set up will undertake proactive scan of the industrial landscape to identify innovative companies and funding mechanisms, especially the MSMEs, with periodic upgradation of skills of people involved. Proposed structure of DA&S is at Figure 2 below.

Service HQ Equipment Management structures would also require to align with the above paradigm shift. A proposed structure under DCOAS{P&S} is at Figure 3 below. This office will generate the force development document to include plans, resources, capability audit, options, prioritization, creation of users requirements and budget appropriation. It will the prime node to monitor acquisition and interface with DG DA&S.

Without the right equipment, delivered on time and where the troops need it, the Armed Forces cannot function effectively and our National Interests are put at risk.  Effective procurement and support of defense equipment is therefore not a “could have” but an essential part of maintaining battle winning Armed Forces. No policies, procedures and endless committee recommendations can address the present ineffective procurement system and promote indigenous DIB unless supporting structures are created. Political leadership at the highest level can only bring in this transformation because a  number of agencies besides social and cultural biases that creep in are involved.

Category: 
Military Affairs