Explainer – Amendments to Indian MOD DPP 2016 Made on 25 Sep by DAC | Security Risks Asia Made with Humane Club

Explainer – Amendments to Indian MOD DPP 2016 Made on 25 Sep by DAC

Published Sep 26, 2018
Updated Jul 09, 2020

The Defence Acquisition Council (DAC) chaired by the Defence Minister Ms Nirmala Sitharaman  reviewed the Defence Procurement Procedure 2016 (DPP 2016) with a view to streamline and reduce the timelines as per a Press Information Bureau Ministry of Defence release of 25 September.

Here is an explainer of the major changes and what they would imply in practical terms in defence procurement for the government, the services as well as the supplier companies

Repeat Order

The first amendment relates to executing of Repeat Order which is given as per Paragraphs 96-98 of DPP 2016. The amendment limits the time period for executing Repeat Order to five years after date of completion of warranty of final delivery in the previous contract.

Secondly Repeat Order provisions have also been extended to procurements by other services like the Central Armed Police Force (CAPF) and Border Roads Organisation (BRO).

Repeat Order is defined as Subsequent Procurement of Already Contracted Equipment. Para 96 of DPP 2016 gives the guidelines for repeat orders for equipment/systems/platforms already inducted into service. The SQRs in such cases will  be as per the previous order. All such cases would not be construed as single vendor cases. In such cases, after seeking AoN, a commercial RFP is be issued to the vendor, for quantity not exceeding 100% of the previous order. Repeat orders are made to make up for deficiency in the existing scaling or to cater for the requirements due to new raisings/War Wastage Reserves (WWR)/sector stores. It may be due to necessity for replacement of equipment.

Benchmarking of Cost

The amendments include permissions to commence with benchmarking of cost for equipment immediately on receipt of the trial report in the Service headquarters. This is an important provision which will facilitate early commencement of commercial negotiations and ensure that these are made against a price that has been pre-determined thereby ensuring that the assessment of the commercial offers submitted is fair and that the L1 or lowest price by itself does not have an advantage without necessary parameters are fully evaluated.

Option Clause – Exchange Rate Variation

The legislating provisions for Exchange Rate Variations when procurement is made under an ‘Option Clause’ have been clarified. Option clause is included in every contract where the MOD or services have the right to place separate order on the supplier before a certain date that is defined in the contract. This is however limited to 50% of the main equipment, spares, facilities or services as per the cost, terms and conditions set out in the original contract at the same price till year from the effective date of the contract. CNC is required to verify that there is no downward trend in prices of the product offered.

There is no clarity over application of Exchange Rate Variation in such circumstances in the DPP 2016 which has now been clarified.

LD Clause

The LD or Liquidated Damages (LD) clause relates to the event of the Seller’s failure to submit the Bonds/Guarantees/Documents or/and supply/perform the items/services as per Delivery schedule specified in the contract. The Buyer, at his discretion can withhold any payment until the completion of the contract. The Buyer may also deduct LD to the sum of 0.5% of the contract price of the delayed/undelivered stores/services mentioned above for every week of delay or part of a week, subject to the maximum value of the Liquidated Damages being not higher than 5% of the contract price of the value of delayed stores/services.

The Amendment now provides clarity on guidelines for easing the provisions for imposition of LD Clause in upgradation/ alteration cases,

Applicability of Act or Law

There is now an automatic incorporation of applicability of the latest legislation or changes or amendment of any act or law, rules or regulations.

Bank Guarantee

Bank Guarantee for Essential Parameters ‘B’ if the same are trial evaluated during the field evaluations trials has been done away with which is a practical measure as once the Essential Parameters B are certified during the trials there is no further necessity for verifying the same thus Bank Guarantee is redundant.

Essential Parameters – B are those that are not available originally in the equipment fielded for the Field Evaluation Trial (FET), but are developed and achieved by the vendors using available technologies. These parameters need to be tested and validated within a specified time frame as stipulated in the contract but a Bank Guarantee is taken as an assurance for compliance in the future. Where Essential Parameters B are tested during the FET, there is no requirement for the same and thus this is a pragmatic measure.

Independent Monitors

Names of Independent Monitors (IMs) will be included in the RFP for Defence Capital Acquisitions thus enabling effective coordination from the very outset for the suppliers.

Independent Monitors are appointed by the Ministry of Defence in consultation with the Central Vigilance Commission to monitor integrity in conduct of the deal.