DPP 2013 vs. DPP 2011

A com­par­a­tive overview of DPP 2013 and DPP 2011 in­di­cates that for the first time, there is greater clar­ity on defin­ing in­di­geni­sa­tion and how this is to be achieved. At­tempts have been made to es­tab­lish a level play­ing field be­tween the pub­lic and pri­vat

SP's LandForces - - FRONT PAGE - Bri­gadier (Retd) Rahul Bhon­sle

A com­par­a­tive overview of DPP 2013 and DPP 2011 in­di­cates that for the first time there is greater clar­ity on defin­ing in­di­geni­sa­tion and how this is to be achieved.

PRO­CURE­MENT FOR THE ARMED forces in In­dia is gov­erned by the De­fence Pro­cure­ment Pro­ce­dure (DPP). Th­ese reg­u­la­tions were adopted as an out­come of the Group of Min­is­ters Re­port on na­tional se­cu­rity re­forms in 2001. The Min­istry of De­fence (MoD) set up the De­fence Pro­cure­ment Man­age­ment Struc­tures and Sys­tems and the first DPP was is­sued in 2002. The DPP is re­vised ev­ery two years based on ex­pe­ri­ence gained in im­ple­men­ta­tion, re­quire­ments of the ser­vices and de­vel­op­ments in de­fence re­search and de­vel­op­ment (R&D) and in­dus­try. This has led to con­sid­er­able re­fine­ment in de­fence pro­cure­ment to in­clude in­tro­duc­tion of off­sets and in­tegrity clause, im­prove­ments in the ‘Make Pro­ce­dure’ and sus­tained fo­cus on in­di­geni­sa­tion.

DPP 2013 pro­mul­gated by the MoD on June 1, 2013, is a re­sult of this pro­gres­sive evo­lu­tion and is a fol­low up of DPP 2011. The main changes and ad­di­tions made in DPP 2013 vis- à- vis DPP 2011 are out­lined as fol­lows:

The thrust ar­eas iden­ti­fied in DPP 2011 were ex­pan­sion of off­set el­i­gi­bil­ity to in­clude civil aero­space, in­ter­nal se­cu­rity and train­ing. The pro­ce­dure for ‘Make’, un­der ship­build­ing cat­e­gory was also elab­o­rated. DPP 2013 on the other hand in­cludes some fun­da­men­tal changes with greater thrust given to in­di­geni­sa­tion. Broadly speak­ing DPP 2013 is a more com­pre­hen­sive doc­u­ment. This is also ob­vi­ous from the sheer vol­ume of 428 pages in DPP 2013 as against 291 pages of DPP 2011.

Cov­er­ing some of the spe­cific is­sues, for the first time, a pre­ferred or­der of cat­e­gori­sa­tion has been out­lined in DPP 2013 which de­fines the or­der of pri­or­ity for pro­cure­ment from in­dige­nous sources. Thus the Cat­e­gori­sa­tion Com­mit­tee, while con­sid­er­ing cap­i­tal ac­qui­si­tion, has to en­sure that the fol­low­ing pri­or­i­ties are ad­hered to:

Buy (In­dian)

Buy & Make (In­dian)

Make (In­dian)

Buy & Make Buy (Global)

There are no fun­da­men­tal changes in cat­e­gori­sa­tion in DPP 2011 and 2013 which re­main the same as stated be­low:

Ac­qui­si­tions cov­ered un­der the ‘Buy’

de­ci­sion: ‘Buy’ means an out­right pur­chase of equip­ment. In ‘Buy (In­dian)’ and ‘Buy (Global)’, ‘In­dian’ would mean In­dian ven­dors only and ‘Global’ would mean for­eign as well as In­dian ven­dors. ‘Buy In­dian’ must have min­i­mum 30 per cent in­dige­nous con­tent if the sys­tems are be­ing in­te­grated by an In­dian ven­dor.

Ac­qui­si­tions cov­ered un­der the ‘Buy and Make’ de­ci­sion: ‘Buy & Make’ de­ci­sion means pur­chase from a for­eign ven­dor fol­lowed by li­censed pro­duc­tion/in­dige­nous man­u­fac­ture in the coun­try.

Ac­qui­si­tions cov­ered un­der the ‘Buy & Make (In­dian)’ de­ci­sion: ‘Buy & Make (In­dian)’ de­ci­sion mean pur­chase from an

In­dian ven­dor in­clud­ing an In­dian com­pany form­ing joint ven­ture/es­tab­lish­ing pro­duc­tion ar­range­ment with the orig­i­nal equip­ment man­u­fac­turer (OEM) fol­lowed by li­censed pro­duc­tion/in­dige­nous man­u­fac­ture in the coun­try. ‘Buy & Make (In­dian)’ must have min­i­mum 50 per cent in­dige­nous con­tent on cost ba­sis.

Ac­qui­si­tions cov­ered un­der the ‘Make’

de­ci­sion: Ac­qui­si­tions cov­ered un­der the ‘Make’ de­ci­sion in­clude high tech­nol­ogy com­plex sys­tems to be de­signed, de­vel­oped and pro­duced in­dige­nously.

As per DPP 2013, the state­ment of case (SOC) seek­ing ac­cep­tance of ne­ces­sity (AON) is re­quired to in­clude de­tailed jus­ti­fi­ca­tion for rec­om­mend­ing cat­e­gori­sa­tion as well as rea­sons why each of the higher pre­ferred cat­e­gori­sa­tion has not been con­sid­ered. For in­stance if AON is sought for tank am­mu­ni­tion in the ‘Buy (Global)’ cat­e­gory which is the low­est in the or­der of pref­er­ence, a de­tailed jus­ti­fi­ca­tion for not con­sid­er­ing other higher pref­er­ences will have to be given in the SOC.

In a move to en­sure timely com­ple­tion of process, ten­der­ing ser­vice qual­i­ta­tive re­quire­ments (SQRs) are re­quired to be frozen be­fore AON has been ac­corded, and va­lid­ity of AON has also been re­duced from two years to one year. Thus ser­vice HQs will have to com­plete all for­mal­i­ties in­clud­ing prepa­ra­tion of a draft re­quest for pro­posal (RFP) to en­sure that the AON does not ex­pire as pe­riod of va­lid­ity is re­duced to one year.

Given the thrust on in­di­geni­sa­tion, “in­dige­nous con­tent” has been de­fined in DPP 2013. This is to be ar­rived at by ex­clud­ing from the to­tal cost of equip­ment/ item the fol­low­ing el­e­ments at all stages (tiers) of man­u­fac­tur­ing/pro­duc­tion/ as­sem­bly:

Di­rect costs (in­clud­ing freight/trans­porta­tion and insurance) of all ma­te­ri­als, com­po­nents, sub-as­sem­blies, as­sem­blies and prod­ucts im­ported into In­dia.

Di­rect and in­di­rect costs of all ser­vices ob­tained from non-In­dian en­ti­ties/ cit­i­zens.

All li­cence fees, roy­al­ties, tech­ni­cal fees and other fees/ pay­ments of this na­ture paid out of In­dia, by what­ever term/ phrase re­ferred to in con­tracts/ agree­ments made by ven­dors/sub-ven­dors.

Taxes, du­ties, cesses, oc­troi and any other statu­tory levies in In­dia of this na­ture. More­over, this is not re­stricted to OEMs but ex­tends all the way to the low­est tier of the sub-ven­dor, and im­port con­tent in the prod­ucts sup­plied by the sub-ven­dors will

Ap­proval for all de­vi­a­tions from the DPP, how­ever, will hence­forth be sought from the DAC in­stead of the De­fence Min­is­ter

not qual­ify to­wards in­dige­nous con­tent.

Trans­fer of tech­nol­ogy (ToT) is also de­fined in var­i­ous cat­e­gories in DPP 2013, which had not been in­cluded in DPP 2011. This will over­come am­bi­gu­ity ex­ist­ing at present. There are five cat­e­gories of ToT with the high­est be­ing where com­plete trans­fer is in­volved and low­est where there will be no trans­fer. Th­ese cat­e­gories are out­lined as fol­lows:

Cat­e­gory 1: Com­plete trans­fer of tech­nol­ogy.

Cat­e­gory 2: Com­plete trans­fer of tech­nol­ogy of sub-ven­dor.

Cat­e­gory 3: Par­tial trans­fer of tech­nol­ogy with non trans­fer of tech­nol­ogy of sub-ven­dor.

Cat­e­gory 4: Only draw­ings will be pro­vided.

Cat­e­gory 5: Pro­pri­etary item – no trans­fer of tech­nol­ogy.

DPP 2013 also spec­i­fies for the first time that all com­mer­cial trans­ac­tions in­clud­ing eval­u­a­tion will be car­ried out based on in­ter­na­tional norms as per In­ter­na­tional Com­mer­cial Terms (IN­COTERMS 2010). This will bring pay­ment terms for In­dian bid­ders on par with those for for­eign bid­ders; en­sure speci­ficity in stages and modes of pay­ment and re­moval of ex­cise duty in de­ter­mi­na­tion of L-1 or low­est bid­der.

In an at­tempt to de­rive greater ben­e­fit from off­sets, MoD had is­sued re­vised de­fence off­set guide­lines (DOG) which was ap­pli­ca­ble from Au­gust 1, 2012. Th­ese have now been in­cluded in DPP 2013. Un­der th­ese pro­vi­sions, the De­fence Off­set Mon­i­tor­ing Wing (DOMW) has been set up and has be­come func­tional un­der the Depart­ment of De­fence Pro­duc­tion (DDP).

The off­sets pro­pos­als sub­mit­ted by the ven­dor will hence­forth be eval­u­ated by the Ac­qui­si­tion Wing which will also con­clude off­set con­tracts with ven­dors, along­side the main con­tract. Post-con­tract mon­i­tor­ing and au­dit­ing of off­sets will be done by the DOMW. While off­sets have been in­tro­duced for the first time in DPP 2005, the value de­rived was lim­ited. Off­set mon­i­tor­ing by DOMW is ex­pected to over­come this de­fi­ciency.

To es­tab­lish a level play­ing field, main­te­nance trans­fer of tech­nol­ogy (MTOT) is now open to pub­lic as well as pri­vate sec­tor. Hith­erto fore MTOT was re­served for ord­nance fac­to­ries and de­fence pub­lic sec­tor un­der­tak­ing and was done through nom­i­na­tion.

In a boost to the mi­cro, small and medium en­ter­prises sec­tor, while DPP 2011 had iden­ti­fied set­ting up of a fund to pro­vide nec­es­sary re­sources for de­vel­op­ment of de­fence equip­ment, the source has been specif­i­cally iden­ti­fied in DPP 2013. The Small In­dus­tries De­vel­op­ment Bank of In­dia (SIDBI) will ear­mark an amount of ` 500 crore for pro­vid­ing loans, and fur­ther, a fund of ` 50 crore for eq­uity sup­port out of “In­dia Op­por­tu­ni­ties Fund” man­aged by its sub­sidiary, namely, SIDBI Ven­ture Cap­i­tal Ltd.

Given the emerg­ing con­cerns on cy­ber se­cu­rity, ven­dors will have to cer­tify that the hard­ware and soft­ware be­ing of­fered, as part of the con­tract, does not con­tain em­bed­ded ma­li­cious code that would in­hibit func­tion­ing of the equip­ment or cause phys­i­cal dam­age to the user. In such cases, firms will be held li­able and will be de­barred from par­tic­i­pa­tion in fu­ture con­tracts of MoD/Gov­ern­ment of In­dia.

Con­sul­ta­tions on se­cu­rity guide­lines for In­dian de­fence in­dus­try are also re­quired to be is­sued by the MoD as per DPP 2013. Draft Se­cu­rity Guide­lines that will ap­ply to all li­censed de­fence in­dus­tries have been cir­cu­lated for con­sul­ta­tions with var­i­ous stake­hold­ers. This will es­tab­lish a strong se­cu­rity frame­work for In­dian pri­vate in­dus­tries par­tic­i­pat­ing in de­fence pro­duc­tion

DPP 2013 has also en­hanced del­e­ga­tion of fi­nan­cial pow­ers from ` 50 crore to ` 150 crore for cap­i­tal ac­qui­si­tion by the Ser­vice HQs. This will to some ex­tent re­duce ne­ces­sity for pro­cess­ing cases to the De­fence Ac­qui­si­tion Coun­cil (DAC). Ap­proval for all de­vi­a­tions from the DPP, how­ever, will hence­forth be sought from the DAC in­stead of the De­fence Min­is­ter.

To sum up, a com­par­a­tive overview of DPP 2013 and DPP 2011 in­di­cates that for the first time, there is greater clar­ity on defin­ing in­di­geni­sa­tion and how this is to be achieved. At­tempts have been made to es­tab­lish a level play­ing field be­tween the pub­lic and pri­vate sec­tor as well as In­dian and for­eign ven­dors. Ef­fec­tive mon­i­tor­ing of off­sets is en­vis­aged thereby en­sur­ing value ad­di­tion in terms of trans­fer of tech­nol­ogy. It is now up to the De­fence Ac­qui­si­tion Wing and the DDP, the Ser­vices and HQ In­te­grated De­fence Staff, to en­sure that th­ese pro­vi­sions are im­ple­mented to achieve the aim of DPP 2013 that is timely pro­cure­ment prefer­ably through in­dige­nous sources while de­riv­ing best value for money.

PHO­TO­GRAPH: PIB

A file photo of A.K. Antony un­veil­ing the De­fence Pro­cure­ment Pro­ce­dure 2011

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