BEST PRACTICES IN PROCUREMENT IN MINISTRY OF DEFENCE
Discussion restricted to Capital AcquisitionLargely relevant to Stores procurementHOWEVERWe can adopt certain practices that suit :Both Works and Stores tendersProcessing and decision making on Capital projectsSpecifications and standardization of scales
Basic difference in Project sanction and Procurement Philosophy betweenMoDandMoR
Project Sanction cycle
InMoRCapital Projects are sanctioned annually , as part of annual budgetary exercise.MoD– Capital Acquisition projects sanctioned in the Ministry , on a monthly basis :No sanction power is delegated.SCAPCHC- ProjectsuptoRs. 150CroresDPB-Projects between Rs 150-300CroresDAC- All proposals over Rs 300crores.
Capital Acquisition planning is a regular activity unlike Railways where it is reduced to an annual activity and a budgetary exercise.There is possibility for review, discussion and remedy before final acceptance.All stakeholders get adequate time to respond and if need be, seek amendments.SUGGESTIONSA system of monthly examination of projects , to be consolidated in Pink Book for the Annual Budget. Will permit detailed examination and remediation before approval. Current practice of “CONVINCE OR PERISH “ disappears.
Prerequisites for Processing Capital Acquisition Cases
PLANNINGSCALINGSPECIFICATIONSMODE OF PROCUREMENT
Contrasting examples of Planning
Electric Locomotives-Diverse holdings with major implications of inventory carrying costsCLW:Tap changer technology based Freight and passenger Locomotives-obsoleteThyristorbased 3 Phase 6000 HP Freight and Passenger locomotives-obsoleteIGBT based3 Phase 6000 HP Freight and PassengerlocomotivesMadhepuraElectric Locomotive Factory –IGBT based 12000 HP LocomotivesDankuni–9000 HP JICA locomotivesPotential problems-Interchange of spares not possibleSpecialised manpower for different LocosDifferent maintenance practices, M&P and tools
Contrasting examples of planning- Contd.
Artillery modernization plan-No new inductions after BOFORS15 Year Modernization planupto2027 preparedWeapon systems identified for up-gradation:Up gradation of 130/39 mm calibre BOFORS to 155/45 mm in-house by OFBUp gradation of130 mm/39 calibre M46 Russian guns to 155mm/45calibre by IsraelUpgrading exiting“CATAPULT” guns –mounting of130 mm M-46 gunbarrel, presently onVijayantchassis toArjunMk-1 chassisandsubsequently upgrading the mated SP gun to 155mm/45calibre – Agency: DRDOIndigenous Self propelled gun, for desert region. Will serve as indigenous Self propelled Artillery system.
Key Issues checked in Mod(Finance)
In case being scaled for the first time , basis of required quantities :Study Report, Authority who approved the ReportIn caseof Scaling on replacement account :If the new equipment is technologically more advanced, whether one is to ne replacement is essential or lesser numbers meet the requirement.In case of replacements, present holding of current equipment and its de-induction schedule.Additional Requirement –Cross checked with sanction for new raisingsWhether there are additional requirements of manpower, other equipment etc.In case of accessories , cross link with actual scaling and holding of main equipment
Negatives and Positives of Product vs. Performance Specifications
CVC CIRCULAR NO 01/02/11 ON TRASNPARENCY IN TENDERING SYSTEM
Where plant/equipment to be procured is of complex nature and procuring organization does not possess full knowledge:Float expression of interestFinalise specifications after technical discussions with reputed manufacturers/ suppliers and other stakeholders.Then invite techno-commercial offer.DPP provisions relating to finalization of GSQRs are in line with this.InMoR, such concept missing. Technical discussions held at pre-bid stage.Pre-bid is not meant to revisit tender criteria but we often treat it as such.Case of Coaches for Kolkata Metro- changes in eligibility requirement after pre-bid.
Mode of Procurement
DPP recognises different modes of procurement and lays down the preferred hierarchy.Proposal must justify a given choiceFirst necessity: Single versus multi-vendor bidJustify Single Vendor bidIn case of multi vendor proposal, include results of RFI showing Vendors who responded and their suitability in the technical compliance matrix.Second necessity :Source of Procurement in declining preferenceBuy Indian- at least 30% indigenous content on total cost basisBuy Global withToTBuy Global
Additional Facts on Modes of Procurement
Inter-GovernmentalAgreements-Normal rules of tender discarded and Agreement between the Indian and the selling Government .We have a large order value of procurement with US Government under theirforeign Management Sales (FMS).Currently 32 cases for USD 7.2 BillionAll negotiations and Agreements between US Government (USG) andMoD.USG does procurement from their sources (Private suppliers) on behalf ofGoI.All normal rules of Government procurement , applicable to US procurements, also followed for FMS cases.Benefits- Transparency, ease of mind being Govt. to Govt. procurement, no need for export licenses.
Scaling :There is need to identify units/ structures where uniform yardsticks in terms of manpower, hierarchy, vehicles, tools, M&P, sparesetccan be uniformly laid downEg- Loco Sheds, Track Machine Depots, Coaching depots etc.Uniformity of resources will lead to common practices across units, proliferation of best practices, efficiencies.Specifications-We should shift to a mix of both Product and Performance specificationsProduct specifications ideal for equipment already inductedPerformance specifications suited for new products/technologies and EPC ContractsStory of first 132 Traction Motors of 22 ABB Locomotives.
MoD differentiates between“COTS – Commercially off the shelf item”and specialised item where SQRs framedFor COTS item – DGS&D or Open TenderFor specialised items, the normal mode of procurement is based on “Special Limited Tender”Mode-Vendor identification through the net and existing list available, before any proposal.RFP issued to Vendors who respond to RFI, substantially meet the commercial compliance matrixi.eQR parameters specified in the RFIPreference is to minimise variety, to keep inventory costs low, ensure ease of use and training. Example- Heavy mobility vehicles (HMV)– Earlier BEML’s TATRANow all HMV 6x6 will be Tata Motors and 8x8 will be Ashok Leyland
Sanction process inMoD
MoD-ProposaltermedSoC(Statement of Case)has specified FORMAT. Some of the questions to be answered are-Proposed Categorization/ mode of procurementQuantities, costs and basis of costScaling and GSQRDetails of Deficiency in CapabilityIf it can be addressed by change in Doctrine/ tactic .Most significant:Examined on file by concerned Departments.However, final decision incollective manner by SCAPCHC/DPB/DAC.Representatives of all Departments present at these meetings held monthly.Project sponsoring department presents its case , highlights comments of other departments and its remarks.Members discuss, debate, seek clarification and finally decide.
Tendering Process inMoD
RFP forms part of the DPP. Only changes permitted are-Delivery ScheduleQRs to be specified and Trail methodology.Following are pre-specified and no change permitted-Payment termsBid EvaluationLiquidated DamagesVetting of Tender Documents-Two stage-Stage 1 –Normally Director /Undersecretary level CommitteeStage 2- Second stage vetting –JS level CommitteeApproval by Vice Chief/ DG (Acquisition)Committee involves all stakeholders- Ministry, Finance, Services, EME, DGQA and if required, DRDO and DDP.
Tendering process contd.
All Capital procurements are done through“Single Stage two packet system of tendering”-Separate technical and commercial bids.Bid Evaluation provides for adoption of DCF Technique and L1 based on NPVin all cases where there is AMC or offers result in differing cash flow over the years.Effort to nullify distorting effect of taxes -InGlobal tenders –Foreign offers are calculated based on CIP and Indian bidders by elimination of Excise, VAT/Sales Tax and other local levies.In indigenous procurement-Bids considered by disregarding Excise duty. Efforts on to ensure bid evaluation done by ignoring all taxes.Currency of Sanction-Sanction to the project lapses if RFP is not issued within one year from date of sanction.
Tendering process contd.
Pre Bid conference is mandatorySingle Bid situation-If in case of multi-vendor bid :Where only one bid found complaint at TEC stage , bid process cancelled.Where in course of trials, only one bidder found successful, bid process continues- Assumption- Bids were received in a competitive situation.Extension of time for extension of offers-Maximum 4 weeks, beyond that approval of RM required on file.Extension of time for fielding equipment for trials-Maximum 45 days. Beyond that approval of DAC is required.
Technical Evaluation:Done exclusively by Services without any role ofMoDorMoD(Finance).Is restricted to review of technical offer only.Technical evaluation consists ofTEC-Paper evaluation of offers received –checked via a vie RFP specified technical parameters.FieldTrials-User Trials – Actual exploitation of equipment. One winter and one summer trial.Maintenance Evaluation and Quality Assurance Trails by EME and DGQA.GeneralStaff EvaluationTechnical Oversight Committee (TOC)
CommercialEvaluation:Convening of CNC-Multi disciplinary body of minimum 11 members.Functions of CNC-Strictly related toCommercialissues except where GS Evaluation has certain conditional ties.Benchmarking before opening of offers –A unique feature ofMoD.Note-No negotiations should be resorted to unless quoted rates are higher than the benchmarkedrates.Offersopened only after benchmarkingCompliance StatementComparative statement ofTendersDeclaration of L1.Deviations sanctioned only by DAC.CNC to address all complaints received .
Contract template provided in DPPVettingof Contract Agreement-Jointly by AM and FM at JS level.
Post Contract Modifications
Changes having nil financial implications–AM and FMChanges having Financial implications-Only by RMPayments-For International suppliers: LC paymentIndigenous Suppliers-Direct Bank TransferIndigenous suppliers in Global tenders- proposed LC payment.
Evolve a new procurement philosophy-Open Tender is a mantra inMoR.Fail to recognise-highly technical department ; optimal solution-multi vendor bidfor Quality productMultiple platforms have cost implicationsFocus should be -Technically complex items ; 3-4 sources adequate ; else kill innovation; overt cost minimization also leads to quality issues.Must adopt Single stage two bid package especially for Capital AcquisitionThe technical bid should focus not merely on Technical eligibility criteria but a serious examination of Technical specifications.My experience with RFQ ofMadhepura,DankuniandKanchrapara; Technical bid merely examination of eligibility, RFP issued after 60 months
Ideally, fashion the bids in such a manner that Finance member’s role restricted only to Commercial issues and Financial eligibility criteria.Time for submission of bids-Define minimum threshold as existing 30 days + maximum celling on extension.Further,time for bid submission should be fixed realistically – 30 days not suited for EPC/PPP/ Design and build contractsRecent case of Development tender in MoD-inadequate time leading to Single bid situation.Bid Evaluation-Adoption of DCF technique wherever different offers lead to differing cash flows.Benchmarkingbefore opening of commercial bidThere should be restricted delegation of powers where there are deviations from the Tender document.
Fast Track Procurement
Procedure designed for meeting urgent operational requirements.It refers to procurements under “Buy Category” and includes both equipment already inducted in to service and new equipment.Requirements of SQRs, Scaling dispensed with. IF SQRs not formulated, Services can formulate broad operational requirements for procurement.There is no field trial or GS Evaluation.Only Technical examination, based ondata submitted, isto be done.For already inducted equipment, Single Vendor procurement and for new equipment multi-vendor/Inter Government procurement.
Strict Time-lines prescribed for FTP:DAC approval to the proposal – 7 daysPreparation, vetting and issue of RFP – 10 daysReceipt of offers- 30-45 daysTechnical Evaluation – 10 daysCNC proceedings- 15-30 daysContract to be signed after approval- 112-169 daysSupply Period- 3-12 monthsMonitoring Mechanism-DPBA healthy practice overMoRwhere often our only response to urgency is to float single Tender.
A transparent mechanism for induction of new systems.Story of Track fittings- 2012.Modernisation often Vendor driven.Recourse to Open tender, finalise on single bids.MoD has structured provision for induction of new systems via indigenous manufacture , under “Make project”Strategic , Complex and Security sensitive systems to be developed by DRDO.However, high technology complex systems to be developed under “Make” by Private sector/OFB/DPSUsMust form part of LTIPP and AAP.Sanctioned as “Make” project by DAC.Preliminary SQRs to be framed
PSQRs to differentiate between essential and desirable parameters.Essential parameters to be based on proven state of the art technology available in India/abroad and desirable on futuristic/emerging technologies.PSQRs can be revised during prototype developmentSelect list of Vendors throughEoIShortlist two Vendors based on capability- Quality based scoring selection- mix of performance, level of technology and R&D, access toToTand levels of Technology transfer (mere license to IPR) and financials. Level of technology offered primary criteria.Shortlisted Vendors to submit DPR –Broad technical detailsDetailed Bill of Material with costFinancialsExit criteria, Risk Register and risk mitigation plan
If DPR accepted, execute development contract for design and manufacture of PrototypeMoD funds 80% of the cost, DA funds 20%Stage payments on achievement of pre-specified milestones.All IPRs produced by MoD funds finally vest with MoD.A project Management team including reps from services, DRDO, DGQA, EME, User , Finance and DDP constituted for Vendor selection , DPR finalization and project monitoring.Prototype to undergo field trials and GS Evaluation.If approved GSQRs formulated.Regular tendering process with successful DAs for bulk quantity initiated.Prototype must have minimum 30% indigenous content on total cost basis.