Defence Acquisition Procedures Offset Guidelines and Opportunities in Defence Sector Securing Asia 2013

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Commander Gautam Nanda (retd) …

Commander Gautam Nanda (retd)
Vice President, Business Development Indianeye Security

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  • 2. ©Indianeye Security (P) Ltd. Topics  Introduction.  Defence Budget Overview.  Defence Procurement Procedure (DPP).  Defence Procurement Manual (DPM).  Offsets Guidelines.  Defence Opportunities.
  • 3. ©Indianeye Security (P) Ltd. DEFENCE BUDGET
  • 4. ©Indianeye Security (P) Ltd. Defence Budget 28.34 29.74 32.88 33.7 40.73 0 5 10 15 20 25 30 35 40 45 2009 - 10 2010 - 11 2011 - 12 2012 - 13 2013 - 14 Amountin$billion
  • 5. ©Indianeye Security (P) Ltd. Defence Budget 2.35% 2.20% 1.83% 2% 1.79% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 2009 - 10 2010 - 11 2011 - 12 2012 - 13 2013 - 14 SHARE OF GDP IN INDIAN DEFENCE BUDGET
  • 6. ©Indianeye Security (P) Ltd. Defence Budget 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2012 -13 2013 -14 59 41 57 43 Capital Revenue
  • 7. ©Indianeye Security (P) Ltd. Defence Budget ALLOCATION OF DEFENCE BUDGET SERVICE WISE Army Air Force Navy DRDO Other 17.48 5.21 Army Air Force Navy DRDO OFB Other 5 1 2012 - 13 2013 - 14 24 19 1 50 27.91 0.47 48.93
  • 8. ©Indianeye Security (P) Ltd. Defence Procurement Procedure (DPP)
  • 9. ©Indianeye Security (P) Ltd. Timeline Year Development 2001 • Defence sector opened to private industry. • 26% FDI permitted. 2002 • Defence Acquisition Council (DAC) created. • Buy category introduced. 2003 Buy & Make category with ToT introduced. 2004 Kelkar committee constituted for revision of DPP and participation of private sector. 2005-09 • Defence offset policy formulated (2005) and Defence Offset Facilitation Agency (DOFA) created. • Make and Buy & Make Indian categories (2006 & 2008) introduced. 2011 Offset scope enhanced to include aerospace & internal security. 2012 Revised offset guidelines issued wherein ToT included in list of offsets. 2013 Preference to be given to indigenous production and public release of Long Term Integrated Perspective Plan (LTIPP).
  • 10. ©Indianeye Security (P) Ltd. Defence Procurement Procedure (DPP) Long Term Integrated Perspective Plan (LTIPP) Services Capital Acquisition Plan (SCAP) Annual Acquisition Plan (AAP) Defence Research and Design Organisation (DRDO) Department of Defence Production (DDP) Ministry of Defence (MoD) Ministry of Defence MoD (Finance) Service Headquarters Request for Information (RFI) Staff Qualitative Requirements (SQR) Statement of Case (SOC) 15 years 05 years 01 year
  • 11. ©Indianeye Security (P) Ltd. Defence Procurement Procedure (DPP) Categorization & Acceptance of Necessity (AoN) Civil Industry Participation Defence Acquisition Council (DAC) Defence Procurement Board (DPB) Service Capital Acquisition Plan Categorisation Higher Committee (SCAPCHC) Service Capital Acquisition Plan Categorisation Committee (SCAPCC) Commonality & Interoperability Issues are discussed at Headquarters Integrated Defence Services (HQIDS)
  • 12. ©Indianeye Security (P) Ltd. Defence Procurement Procedure (DPP) Ministry of Defence ( MoD) Opens technical proposals, hands them over to SHQ. Commercial proposals lie unopened Ministry of Defence ( MoD) Receives technical & commercial proposal Service Headquarters (SHQ) Receivers open technical proposals from HQ IDS and constitutes Technical Evaluation Committee (TEC) Ministry of Defence (MoD) Issues Request for Proposal (RFP) Ministry of Defence (Finance) vets the RFP
  • 13. ©Indianeye Security (P) Ltd. Ministry of Defence ( MoD) Opens commercial proposals of technically successful vendors, identifies lowest compliant bidder and negotiates contract Ministry of Defence ( MoD) Approves staff evaluation reports and forwards details of technically acceptable vendors to MoD Ministry of Defence (MoD) Approvers TEC reports and asks Service Headquarters to carry out Field Evaluation Trials (FET) Ministry of Defence (Finance) is co-opted in commercial evaluation Defence Procurement Procedure (DPP)
  • 14. ©Indianeye Security (P) Ltd. Sanctioning Authorities Sanctioning Authorities  For Acceptance of Necessity  SCAPCHC – up to $ 10 mn  DPB – up to $ 20 mn  DAC – beyond $ 20 mn  For Award of Contract  Vice/Deputy Chiefs/CISC/DG CG - $ 10 mn  Defence Secretary - $ 15 mn  Raksha Mantri - $ 100 mn  Finance Minister - $ 200 mn  Cabinet Committee on Security - Above $ 200 mn
  • 15. ©Indianeye Security (P) Ltd. Defence Procurement Manual (DPM)
  • 16. ©Indianeye Security (P) Ltd. Defence Procurement Manual (DPM)  Under New Management Strategy (NMS) Indian Government decentralised decision making.  Defence Procurement Manual (DPM) promulgated in 2009 and presently under revision.  As per Rule 91 of General Financial Rules 2005 following can be procured under DPM:- • Maintenance and Working expenses. • Renewals and Replacements. • Assemblies/Sub assemblies to maintain and operate already sanctioned assets.
  • 17. ©Indianeye Security (P) Ltd. Defence Procurement Manual (DPM) Staff Qualitative Requirements (SQR) Acceptance of Necessity (AoN) and Quantity Vetting Two Bid System Single Bid System Proprietary Article Certificate (PAC) and Rate Contract Technical Evaluation Contract Negotiations Contract Negotiations RFP Vetting and Issuance of RFP Contract Negotiations Total duration for this process after SQRs are formulated is approximately 22 to 25 weeks
  • 18. ©Indianeye Security (P) Ltd. Difference between DPP and DPM S No DPP 2013 DPM 2009 (a) For capital procurement For revenue procurement (b) Only done by Service Headquarters and Ministry of Defence Delegated to Command Headquarters up to unit level (c) Two bid system only Procured under various methods (d) Only OEMs can participate Agents/ Distributors/ Authorised Representatives can participate (e) Time duration longer Time duration truncated
  • 19. ©Indianeye Security (P) Ltd. DEFENCE OFFSETS
  • 20. ©Indianeye Security (P) Ltd. Defence Offsets Defence offset obligations are applicable to all capital acquisitions where: • Indicative cost is INR 300 Crores ($55.81 million approximately) or more. • Schemes are categorized as „Buy (Global)‟ and „Buy and Make with Transfer of Technology (“ToT”)‟ i.e. purchase from a foreign vendor followed by licensed production in India. • Value of the offset obligations prescribed under is 30% of the estimated cost of the acquisition in „Buy (Global)‟ category acquisitions and 30% of the foreign exchange component in „Buy and Make with ToT‟ category acquisitions.
  • 21. ©Indianeye Security (P) Ltd. Defence Offsets Avenues for discharge of offset obligations may be done by any one or a combination of the following methods: • Direct purchase of eligible products manufactured by Indian Offset Partners (IOP) and Indian enterprises, i.e. Defence Public Sector Undertakings (DPSU), Ordnance Factory Board etc. • Executing export orders for, eligible products manufactured by, IOP and Indian enterprises. • Services provided by IOP and Indian enterprises. • FDI in Joint Ventures (JV) with Indian enterprises (equity investment) for the manufacture and/or maintenance of eligible products and provision of eligible services.
  • 22. ©Indianeye Security (P) Ltd. Defence Offsets • Investment in „kind‟ through ToT to Indian enterprises for manufacture and/or maintenance of products and services through JV or through the non-equity route for co- production. • Investment in „kind‟ in Indian enterprises by providing equipment through non-equity route for manufacture and/or maintenance of products and services. • Provision of equipment or ToT to government institutions and establishments engaged in the manufacture and/or maintenance of products and services, including DRDO. • Technology Acquisition by the Defence Research and Development Organization in areas of high technology.
  • 23. ©Indianeye Security (P) Ltd. Defence Offsets Products and Services those are eligible through offset discharge are: • Defence products (including small arms, mortars, cannons, guns, anti tank weapons, bombs, torpedoes, rockets, missiles, jamming/detection equipment, energetic materials, explosives, propellants/pyrotechnics, tracked/wheeled armoured vehicles,, armoured or protective equipment, vessels of war, special naval systems etc.). • Products for inland and coastal security (includes all types of close quarter weapons, protective equipment for security personnel, vehicles, riot control equipment, specialized equipment for surveillance and UAV, night visions devices, navigational and communications equipment etc.).
  • 24. ©Indianeye Security (P) Ltd. Defence Offsets • Civil aerospace products (includes all types of fixed wing and rotary wing aircraft or their airframes, aero engines, avionics, instruments and related components, composites, forgings and castings for the products training aids viz. simulators, associated equipment, software and computer based training modules, guidance and navigation equipment, test facilities, related software etc.). • Services related to the above eligible products (includes maintenance, repair and overhaul, up gradation/life extension, engineering, design and testing, software development, quality assurance, training etc.).
  • 25. ©Indianeye Security (P) Ltd. Defence Offsets • Original Equipment Manufacturer (OEM) are free to select the IOP for implementing the offset obligation provided the IOP has not been barred from doing business by the MoD. • Agreement between the OEM and the IOP is required to be governed by the laws of India. • Acquisition wing in the MoD is responsible for technical /commercial evaluation and approval of offset proposals. • Obligations is to be discharged within a time frame that can extend beyond the period of the main procurement contract by a maximum period of 02 years. Period of the main contract includes the period of warranty of the equipment being procured under the main contract.
  • 26. ©Indianeye Security (P) Ltd. Defence Offsets • Defence Offsets Management Wing (DOMW) under Department of Defence Production (DDP) is responsible for formulation of discharge of offset and all matters relating to post contract management. • Functions of DOMW include monitoring offset obligations, participation in technical/commercial evaluation of offset proposals and administration of penalties under offset contract. • Assisting vendors in interfacing with Indian industry. • Progress reports and claims relating to discharge of offsets are required to be submitted to DOMW.
  • 27. ©Indianeye Security (P) Ltd. Indian Army • Major Procurements those are at various stages worth $ 3.56 billion are  Assault Rifles for Infantry.  Modern Artillery Ammunition.  Light Utility Helicopters.  Tank Ammunition.  Bullet Proof Jackets/Helmets.  Tactical Communication System (TCS).
  • 28. ©Indianeye Security (P) Ltd. Indian Air Force • Major Procurements those are at various stages worth $ 7.71 billion are  Medium Multi Role Combat Aircraft (MMRCA).  Pilatus Basic Trainer Aircraft.  Light Utility Helicopters.  Installment for upgrade of Mirage 2000, C 130J, C17.  Attack Helicopters.  Heavy Lift Helicopters.
  • 29. ©Indianeye Security (P) Ltd. Indian Navy • Major Procurements those are at various stages worth $ 4.68 billion are  Multi Role Maritime Helicopters (MRH).  Mine Counter Measure Vessels (MCMV).  Light Utility Helicopters.  Project 75 Submarines.  Installments for Indigenous Aircraft Carrier (IAC).  Installment for Advance Technology Vessels (ATV).
  • 30. ©Indianeye Security (P) Ltd. Major Procurements - Defence • Anti missile Doppler radar for Indian Army - $ 70 million. • Night vision sights for tanks and BMPs for Indian Army - $ 400 million. • 120 Naval Multi Role Helicopter (NMRH) for Indian Navy - $ 07 billion. • 56 Medium lift transport aircraft for Indian Air Force - $ 2.4 billion. • Future Infantry Solider as a System (F – INSAS) for Indian Army worth $ 1.1 billion.
  • 31. ©Indianeye Security (P) Ltd. Major Procurements - Defence • 05 Fleet Support Ships (FSS) for Indian Navy – RFI issued. • Mobile Communication System for Indian Army - $ 170 million. • 06 Project 75 I submarines for Indian Navy - $ 11 billion. • 171 Light Strike Vehicles (LSV) for Para Special Forces of Indian Army and Indian Navy - $ 16 million . • 04 Special Operations Vessels (SOV) for marine commandos of Indian Navy - $ 340 million. • Relief and rescue equipment for Indian Air Force - $ 200 million.
  • 32. ©Indianeye Security (P) Ltd. Major Procurements - Defence • Light Machine Guns (LMG) for Indian Army – $ 105 million. • 3000 Light Support Vehicles for Indian Army - $ 300 million. • 3000 Hand Held Thermal Imagers (HHTI) for Indian Army - $ 160 million. • 02 truck scanners Indian Army - $ 11 million. • Anti Tank Guided Missiles for Indian Army - $ 03 billion. • 2600 Future Infantry Combat Vehicles (FICV) for Indian Army - $ 01 billion.