VIEW­POINT: DE­FENCE PRO­CURE­MENT – FOR­EIGN FIRMS AL­LOWED AGENTS

SP's MAI - - FRONT PAGE - LT GEN­ERAL P.C. KA­TOCH (RETD)

Un­der the De­fence Pro­cure­ment Pro­ce­dure (DPP) 2016, is­sued on June 8, 2016, for­eign en­ti­ties have been al­lowed to en­gage agents for de­fence deals un­der a strict set of con­di­tions, which in­cludes giv­ing De­fence Min­istry ac­cess to com­pany ac­counts. It may be re­called that on De­cem­ber 31, 2014, me­dia had re­ported that a new gov­ern­ment pol­icy le­gal­is­ing mid­dle­men in arms pur­chases will be put in place soon. De­fence Min­is­ter Manohar Par­rikar had then said, “The mid­dle men have to be de­clared and their com­mis­sion can­not be linked to the out­come of ne­go­ti­a­tions”, adding that Min­istry of De­fence (MoD) will an­nounce a more lib­er­alised ex­port regime cen­tred on Prime Min­is­ter Naren­dra Modi’s ‘Make in In­dia’ vi­sion and that “pri­vate com­pa­nies must be al­lowed to ex­port de­fence equip­ment made in In­dia, and for that rules will be changed.”

Mid­dle­men or de­fence agents were banned for years af­ter the mul­ti­mil­lion-dol­lar scan­dal in the 1980s in­volv­ing al­leged kick­backs paid to politi­cians and of­fi­cials in pur­chases. This move came be­cause of poor re­sponse to the reg­u­la­tory role on agents that MoD had ac­quired for it­self in con­junc­tion strin­gent guide­lines is­sued in year 2001 – that had proved coun­ter­pro­duc­tive.

In­ter­est­ingly, the gov­ern­ment in 2001 had lifted the blan­ket ban on agents, which had been in force since 1987 af­ter the in­fa­mous Bo­fors guns and HDW sub­ma­rine scan­dals. But this bid to inject some trans­parency did not re­ally work since the strin­gent norms laid down for agents were con­sid­ered un­re­al­is­tic, with the gov­ern­ment even declar­ing it would de­ter­mine the scale of com­mis­sion to be paid to them. Con­se­quently, al­most no one came for­ward to be reg­is­tered as an agent. De­fence Min­is­ter Par­rikar had said in De­cem­ber 2014, “We will al­low com­pany rep­re­sen­ta­tives. They will be mid­dle­men”. In­ter­est­ingly, while mid­dle­men or de­fence agents were banned for con­sid­er­able num­ber of years fol­low­ing ex­po­sure of bribes to politi­cians and of­fi­cials in 1980s, they are now be­ing of­fi­cially per­mit­ted when the kick­backs in the Agus­taWest­land He­li­copter deal has made head­lines fol­low­ing an Ital­ian court or­der, and which is presently un­der in­ves­ti­ga­tion in In­dia.

How­ever, the DPP 2016 an­nounced on June 8 out­lines a num­ber of con­di­tions for em­ploy­ing agents; one, de­tails of agents to be dis­closed within two weeks of en­gage­ment; two, agents would not be en­gaged to ma­nip­u­late con­tracts or in­dulge in un­eth­i­cal prac­tices; three, no fees linked to the progress of the con­tract would be al­lowed; four, no suc­cess fee or penalty linked to suc­cess or fail­ure of con­tract per­mit­ted; five, all pay­ments made to agents in past year to be dis­closed – an­nual re­port of pay­ments made to be sub­mit­ted to MoD; six, ven­dor to al­low MoD in­spec­tion of fi­nan­cial doc­u­ments re­gard­ing agents at any time, and; seven, MoD will have au­thor­ity to re­ject or fire agent at any time. Vi­o­la­tion of the con­di­tions would in­vite pe­nal ac­tion but the pol­icy does not state the ex­act na­ture of pun­ish­ment.

The new DPP also does not men­tion any pol­icy on black­list­ing of firms, which as per a MoD of­fi­cial will be an­nounced sep­a­rately as it is still be­ing worked upon. With ref­er­ence to above-men­tioned con­di­tions for em­ploy­ing agents, the pro­vi­sion about MoD hav­ing au­thor­ity to re­ject or fire the agent at any time has been in­sti­tuted to keep out un­de­sir­able per­sons out of the pro­cure­ment loop based on past deal­ings or con­tro­versy. In fact the new DPP specif­i­cally says, “MoD re­serves the right to in­form the ven­dor at any stage that the agent so en­gaged is not ac­cept­able where­upon it would be in­cum­bent on the ven­dor ei­ther to in­ter­act with MoD di­rectly or en­gage an­other agent. The de­ci­sion of MoD on re­jec­tion of the agent shall be fi­nal and be ef­fec­tive im­me­di­ately.”

In 2014, De­fence Min­is­ter Par­rikar had said mid­dle­men can be per­mit­ted to charge ex­penses from par­ent com­pa­nies for rep­re­sent­ing them in the coun­try and that gov­ern­ment should be in a po­si­tion to have a very clear cut pol­icy by Jan­uary 2015 and on black­list­ing in­clud­ing a raft of mea­sures to en­sure trans­parency and at the same time speed­ing up such pur­chases to mod­ernise the armed forces. This is not a new idea and has come up time and again, with many ex­perts rec­om­mend­ing its in­sti­tu­tion­al­i­sa­tion.

The new pol­icy au­tho­ris­ing agents with strin­gent con­di­tions is a good idea. But what needs to be ac­knowl­edged that while glob­ally hardly any arms deal has taken place with­out in­volve­ment of an agent even when not of­fi­cially autho­rised, ways are found to cir­cum­vent overt ac­count books to show bribes paid – Agus­taWet­land bribery scan­dal be­ing just one ex­am­ple. Bribes can find the routes like NGOs, even un­der pre­text of CSR and more. What the De­fence Min­is­ter and the MoD need to en­sure is that mil­i­tary equip­ping is not de­layed at any cost con­sid­er­ing the poor state be­cause of ex­treme ne­glect over the past decade plus.

What the De­fence Min­is­ter and the MoD need to en­sure is that mil­i­tary equip­ping is not de­layed at any cost con­sid­er­ing the poor state be­cause of ex­treme ne­glect over the past decade plus

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