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Dpp 2011 – An Analysis

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DPP 2011 was released on Jan 06th 2011. This analysis provides the changes and industry impact vis a vis DPP 2008 and DPP 2009.

DPP 2011 was released on Jan 06th 2011. This analysis provides the changes and industry impact vis a vis DPP 2008 and DPP 2009.

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  • 1. DPP 2011 – An AnalysisChanges Vis-à-vis Amendments issued to DPP 2008 inthe year 2009 and DPP 2008Ankur GuptaSenior Consultant – Aerospace and DefenceAnkur4.Gupta@in.ey.comIn collaboration with:-Rahul GangalDirector – Defence Advisory and InvestmentsRahul@Aviotech.com
  • 2. Policy Changes Table of Contents / Renaming of broad categories Defence Procurement Procedures Defence Procurement Procedures Implications 2008 2011 “Indigenous Naval Ship Building “Procedure for Defence Ship Building” Dropping of the term Indigenous Procedure” Introduction of DPP Defence Procurement Procedures Defence Procurement Procedures Implications 2008 2011 Amendment of Ammendments issued to DPP 2008 in the year 2009 Incorporated in DPP 2011 Acquisitions covered under the ‘Buy & Make (Indian)’ decision would mean purchase from an Indian vendor including an Indian company forming joint venture / establishing production arrangement with OEM followed by licensed production / indigenous manufacture in the country. ‘Buy & Make (Indian)’ must have minimum 50 % indigenous content on cost basisPage 2 Presentation title
  • 3. Policy ChangesChapter 1 – Defence Procurement Procedures for ‘Buy’ and ‘Buy & Make’ Categories Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 Formal Incorporation of Clause 9A This clause requires sharing of 15 year 9A from Ammendments issued to DPP perspective plans with the Industry 2008 in the year 2009 amendments DPP 2011 tries to make the SQRs more realistic and more in-sync with globally Formal Incorporation of Clause 13 available/under development equipment 13 from Ammendments issued to DPP thereby minimizing unrealistic functional 2008 in the year 2009 amendments characteristics which had earlier adversely impacted several capital acquisition programmes Formal Incorporation of Clause 15 15 from Ammendments issued to DPP 2008 in the year 2009 amendments Formal Incorporation of Clause 18 18 from Ammendments issued to DPP 2008 in the year 2009 amendments Addition to Clause:- For cases where the original RFP has been issued within two years from accord of AON and later retracted for This addition will help in reducing process 20 any reason, the AON would continue time in cases where a retracement of RFP to remain valid, as long as the original has happened. decision and categorization remain unchanged, provided the subsequent RFP is issued within one year from the date of retraction of original RFP. Page 3 Presentation title
  • 4. Policy ChangesChapter 1 – Defence Procurement Procedures for ‘Buy’ and ‘Buy & Make’ Categories Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 Formal Incorporation of Clause 25A This clause requires sharing of 15 year 25A from Ammendments issued to DPP perspective plans with the Industry 2008 in the year 2009 amendments The Indian entity could be a company incorporated under The Companies Act 1956, including DPSUs or entities DPP 2011 has removed the mention of The Indian firm to be selected would like OFB / Army Base Workshops/ RUR. It has also broadened the recipients be from a list of public or private firms Naval dockyards / Base Repair of MTOT. Also previously, the foreign which would be specified in the RFP. Depots of Air Force. This entity would OEM would be free to select any of the 28 These firms would be DPSUs / OFB / be nominated by DDP at Indian entities listed in the RFP as a Raksha Udyog Ratnas (RURs) or any SCAPCHC stage and would be recipient of MTOT. Now, the choice would other firm as selected by the DDP. included in the recommendations of be made by the MoD while seeking the SCAPCHC as also in the SoC AON from the DAC. submitted to DAC for seeking approval of AON. Addition to the clause:- An additional grace period of up to 30 The additional grace period makes it more days may be obtained by Service flexible for the OEM to provide the Headquarters from their respective 41 equipment at the designated location Vice Chief keeping in view the ensuring that all the shortlisted vendors are practical time period necessary for present in the trial process trials. Equal opportunity would be provided to all vendors while granting such grace period. Addition to the clause:- This move is aimed to bringing greater Members nominated should have 46 transparency and impartiality in the entire adequate seniority and experience acquisition process and should not be involved with that acquisition case. Page 4 Presentation title
  • 5. Policy ChangesAppendix A (Refers to para 18 of chapter 1) Defence Procurement Procedures Defence Procurement ProceduresPara No. Implications 2008 2011 Introduction of DPB in categorisationSecurity This appears to be a harmonisation of the status as well as on ReferenceClassification chart vis-à-vis the text in Para 18. Number Allocated Formal Incorporation of clause 3.(G)Security (ii) and 3.(G)(iii) from AmmendmentsClassification issued to DPP 2008 in the year 2009 Addition of clause 3.(p) Timeline for Procurement. The introduction of this clause requires any Are there likely to be deviations to the anticipated delays in the acquisition processSecurity timelines given at Appendix C to to be accounted for and justified beforehandClassification Chapter 1 of DPP? If so, deviations for consideration of SCAPHC/DPB and DAC and week-wise targets to be proposed as per the value of the programme. by SHQ with justification (Format of proposed timeline is given at Annexure to this Appendix). Rationalisation of para 6.(a) to includeSecurity Buy (Global), Buy (Indian), Buy andClassification Make, Buy and Make (Indian) and Make projects. Rationalisation of Clause 15 bySecurity Introduction of DPB in categorisationClassification status as well as on Reference Number AllocatedPage 5 Presentation title
  • 6. Policy ChangesAppendix (Refers to para 3(p) of Appendix A) Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 Addition of Annexure detailing proposed timeline for procurement Notes to Appendix A1 (Refers to para 18 of chapter 1) Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 Clarification and addition of reference Notes to notices issued in 2006 and 2007 Point (e) vis-à-vis the delegation of powers at Point (f) level of SHQ/IDS and Quantity vetting and composition of CNC Appendix B (Refers to Para 47 of chapter 1) Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 Addition of an introduction to the appendix Bin lieu of note at the end of clause in DPP 2008 (Approval of DG Standard CNC composition can be altered Acq.) to be solicited for any change in with prior permission of DG (Acq.) and other Introductory the compositions mentioned above. members may additionally be nominated clause However, in the delegated power from other agencies with prior approval of cases member of any other agency Vice Chiefs /CISC and DGICG apart from the prescribed members can be associated with the approval of Vice Chiefs/CISC/DG ICG.)Page 6 Presentation title
  • 7. Policy ChangesAppendix C (Refers to para 74 of Chapter 1) – Broad Timeframe for Procurement Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 The entire procurement timeline is in weeks rather than in months as in DPP 2008 Each activity has been given its own serial number and its own timeline as against clubbing of activities in DPP 2008. Activities like pre-bid meeting and dispatch of pre-bid reply are deemed as separate activities. The time allowed for receipt of responses to the RFP from the receipt This may make it challenging for OEMs to of Pre-Bid reply is only 3 weeks now. respond in time. However the total time period from Issue of RFP to receipt of responses remains at 12 weeks.Page 7 Presentation title
  • 8. Policy ChangesAppendix D (Refers to Para 22 of Chapter 1) Provisions for implementation of Offsets Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 This has very significant implications whereby it allows the new offset guidelines to be applicable on all eligible capital Introduction Removal of mention of version of DPP acquisition programmes regardless of them being governed by the capital procurement procedures as laid out in DPP 2006/ DPP 2008. Addition to the clause 1.2 Offset obligations may be discharged only with reference to “eligible” products and eligible services. Formal Incorporation of clause 1.3 1.3 from Ammendments issued to DPP 2008 in the year 2009 “eligible products” This has been done to include items and “Indian Industries” manufacturers /service providers of Homeland Security and Civil aerospace “Defence Products” DPP 2008 : 2.1.a) has been modified 2.1.a) This allows for addition of Training services, “Indian Defence Industries” to the extent of DPP 2011 2.1.c) tools and products including simulators to related to Services being categorized be counted as offset under a separate point. Training has been added as an item in the services list Page 8 Presentation title
  • 9. Policy ChangesAppendix D (Refers to Para 22 of Chapter 1) Provisions for implementation of Offsets Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 Formal Incorporation of clause 6.3 6.3 from Ammendments issued to DPP 2008 in the year 2009 6.4 Greater clarity to the clause Annexure VI to Appendix D (Refers to Para 2.1a to Appendix D) Defence Para No. Procurement Defence Procurement Procedures 2011 Implications Procedures 2008 Products for Internal Security • Arms and their ammunition including all types of close quarter weapons. • Protective Equipment for Security personnel including body armour and helmets. • Vehicles for internal security purposes including armoured vehicles, bullet proof vehicles and mine protected vehicles. • Riot control equipment and protective as well as riot control vehicles. Introduction of Internal 2 • Specialized equipment for surveillance including hand held devices and security items as offset unmanned aerial vehicles. qualifiable products • Equipment and devices for night fighting capability including night vision devices. • Navigational and communications equipment including for secure communications. • Specialized counter terrorism equipment and gear, assault platforms, detection devices, breaching gear, etc. • Training aids including simulators and simulation equipment. Page 9 Presentation title
  • 10. Policy Changes Annexure VI to Appendix D (Refers to Para 2.1a to Appendix D) Defence Para No. Procurement Defence Procurement Procedures 2011 Implications Procedures 2008 Introduction of Civil Civil Aerospace Products Aerospace Products as • All types of fixed wing as well as rotary aircraft including their air offset qualifiable products frames, aero engines, • aircraft components and avionics. Another key aspect is the 3 • Aircraft design and engineering services. introduction of the Raw • Technical publications material and semi-finished • Raw material and semi-finished goods. goods in the DPP 2011 • Flying training institutions and technical training institutions (excluding thereby making the product civil infrastructure). scope for offset obligation fulfillment easier Appendix E1 (Refers to Para 24(b) of Chapter 1) Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 The DPP 2011 allows for one single combined Performance cum warranty bond of 5% the Total contract value instead of two Performance-cum-Warranty Bond both separate bonds of 5% each as Performance Part 1 equal to 5% value of the contract is Bond and Warranty Bond in DPP 2008 5(j) required to be submitted after signing thereby bringing in some savings to bidders. of contract. This is also reflected in the Appendix B to Schedule IPage 10 Presentation title
  • 11. Policy ChangesDRAFT RFP FORMAT Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 Formal Incorporation of clause 16A 16 A from Ammendments issued to DPP 2008 in the year 2009 APPENDIX F to Schedule 1 Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 Modification to Clause This is a departure from DPP 2008 wherein An LC can be established in any of the an Irrevocable LC could have been 5 Four Public Sector Banks i.e. S.B.I , established in any of the 27 public sector Bank of Baroda, Canara Bank or banks besides SBI Syndicate Bank Change of validity of the performance cum The Performance-cum- Warranty The Performance Bond should be warranty bond which is now valid for 3 Bond should be valid for a period of valid for a period until three months months from end of warranty period. This three months beyond the warranty 7 from the date of receipt of last has arisen due to a combined performance period as specified in the contract and consignment and should be furnished cum warranty bond in DPP 2011 instead of should be furnished within 30 days of within 30 days of signing the contract. separate performance and warranty bonds signing the contract. in DPP 2008 Indemnity Bond : With regard to Payment Clauses including Bank Guarantee for Advance and Performance cum Warranty, for The mention of Indemnity bond in para 7 of Defence PSUs being issued RFPs as 8 Appendix F of schedule 1 has now been a nominated production agency or on elaborated into a separate point. an ab-initio single vendor basis, submission of BGs need not be insisted upon. They should givePage 11 Presentation title Indemnity Bond.
  • 12. Policy ChangesAPPENDIX F to Schedule 1 – Payment Terms Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 Amplification of Clause This benefit has been expanded from its earlier coverage of DPSUs only. 11 ERV scope has been expanded and now covers Rupee contracts with This is also reflected as an additional Indian vendors under Buy ‘Global’ paragraph 1A in annexure III to Appendix F ANNEXURE 1 to Appendix F – Application of DCF technique Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 Change of Borrowing rate Reduction in borrowing rate to be 3 9.5% considered while applying DCF technique 9% ANNEXURE 3 to Appendix F – Guidelines to protection of ERV in contracts Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 1.(b) Deletion of clause 1.(b).2 Rationalisation of the clause Elaboration on the ERV clause and This change makes it impossible for DPSUs 1.(b).(iv) limiting its applicability only to cases to claim ERV benefit when the delays if any where delay is on account of the buyer are on their account.Page 12 Presentation title
  • 13. Policy Changes ANNEXURE 3 to Appendix F – Guidelines to protection of ERV in contracts Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 New Clause Added This is a change from DPP 2008 where the 3 Paying authority, is to undertake a pre- authority conducted a post audit audit of the documents before payment. New Clause Added Documentation for Claiming ERV:- The following documents would need to be submitted in support of the claim on account of ERV :- (a) A bill of ERV claim enclosing worksheet. Elaboration on the documents which are to 4 (b) Bankers Certificate / debit advice be presented to claim ERV benefit detailing Foreign Exchange paid and Exchange rate as on date of transaction. (c) Copies of import orders placed on the suppliers. (d) Invoice of supplier for the relevant import orders.Page 13 Presentation title
  • 14. Policy Changes ANNEXURE 1 to APPENDIX H to SCHEDULE 1 Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 Formal Incorporation of clause 16A 12 from Ammendments issued to DPP 2008 in the year 2009 ANNEXURE H to Schedule 1 – Agents / Agency Commission Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 Modification of existing clause Refund to the Government of India 19 from Indian companies will be at 2% per annum above the Base Rate of SBI ANNEXURE 1 to Appendix H – Integrity Pact Bank Guarantee (IPBG) Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 Renaming of this clause to Integrity Pact Bank Guarantee (IPBG) A list of specific banks has been Ernest Money / Security Deposit included in lieu of any Indian Nationalised Bank in DPP 2008 Reduced burden on bidders who are not 8 successful. Validity of EM/SD at 5years or The validity of the IPBG is 45 days conclusion of contractual obligations post validity of commercial offer. For a successful bidder this would be extended unto the completion ofPage 14 Presentation title contract.
  • 15. Policy ChangesANNEXURE IV to Appendix F – Draft Copy of Performance-Cum-Warranty Indemnity Bond Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 New Annexure Added Page 15 Presentation title
  • 16. Policy Changes Chapter 3 – Procedure for Defence Ship Building Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 Addition of New subsections that clearly demarcate the procedures to be followed for naval vessels built on Private shipyards now have a more sound a nomination basis at DPSU shipyards chance to participate in India’s Naval 3 and naval vessels built on a programs. This would be of particular competitive basis by DPSU or Private benefit to L&T, Pipavav and ABG. shipyard. Chapter 4 – Fast Track Procedure Defence Procurement Procedures Defence Procurement Procedures Para No. Implications 2008 2011 Liquidated Damages (LD) : In case of delay in supplies, the vendor will run Liquidated Damages (LD). In case of The removal of the Blacklisting clause will the risk of delay in supplies, the vendor shall be make OEM’s less apprehensive in imposition of LD @ 1% per week levied LD participating in the Fast Track Procedure 27 subject to maximum of 10% of value of @ 1.5% per week subject to maximum programs. However the total Liquidated delayed store apart from the getting of 15% of value of delayed store. Damages has increased from 10 to 15% of black listed and debarred from future the delayed store. dealing with the Govt of India.Page 16 Presentation title
  • 17. Thank You