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

©Indianeye Security (P) Ltd.
DEFENCE ACQUISITION PROCEDURES
OFFSET GUIDELINES AND
OPPORTUNITIES IN DEFENCE SECTOR

Topics
 Introduction.
 Defence Budget Overview.
 Defence Procurement Procedure (DPP).
 Defence Procurement Manual (DPM).
 Offsets Guidelines.
 Defence Opportunities.

DEFENCE BUDGET

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

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

Defence Budget
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 -13 2013 -14
59
41
57
43
Capital
Revenue

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

Defence Procurement Procedure (DPP)

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).

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

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)

Ministry of Defence ( MoD)
Opens technical proposals, hands them over to
SHQ. Commercial proposals lie unopened
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

Opens commercial proposals of technically
successful vendors, identifies lowest compliant
bidder and negotiates contract
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

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

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.

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
RFP Vetting and Issuance of RFP
Total duration for this process
after SQRs are formulated is
approximately 22 to 25 weeks

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

DEFENCE OFFSETS

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.

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.

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.

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.).

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.).

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.

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.

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).

Indian Air Force
billion are
 Medium Multi Role Combat Aircraft (MMRCA).
 Pilatus Basic Trainer Aircraft.
 Installment for upgrade of Mirage 2000, C 130J, C17.
 Attack Helicopters.
 Heavy Lift Helicopters.

Indian Navy
billion are
 Multi Role Maritime Helicopters (MRH).
 Mine Counter Measure Vessels (MCMV).
 Project 75 Submarines.
 Installments for Indigenous Aircraft Carrier (IAC).
 Installment for Advance Technology Vessels (ATV).

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.

• 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.

• 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.

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

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

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