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August 2016

Aviation Update: July 2016

In order to provide impetus to “Make in India” initiative and in order to further streamline the procurement process, the Ministry of Defence released the revised Defence Procurement Procedure as on March 28, 2016(“DPP 2016”) , which is a set of guidelines for procurement of defence equipment and technology. The crucial aspects of DPP 2016 are –

1. Introducing new category with utmost priority called“Buy (Indian – IDDM)”: An Indian vendor either designs and manufactures the product in India with at least 40% Indigenized components, including basic cost, spares and test equipment OR manufactures the product in India but is designed/developed abroad but with 60% Indigenized components, including basic cost, spares and test equipment. The other categories are“Buy (Indian)”, “Buy and Make (Indian)”, “Buy and Make” and“Buy (Global)” . In addition to the above listed categorization, there is theMake category, which aims at developing long-term indigenous defence capabilities.

2. The request for information (RFI) process, which will have far reaching implications on the source of procurement, indigenisation, the timeliness of procurement and competition. The most significant change is the formulation process of RFI by the concerned SHQ in consultation with other relevant stakeholders, including DRDO, DDP and HQ IDS as opposed to by the SHQs so that all contrary views are taken into consideration in RFI.

3. Thenew L1-T1 methodology for selecting the supplier of military goods under the ‘Buy’ and ‘Buy and Make’ schemes, which means that the final bidder would not necessarily be selected on the basis of lowest price quoted by the technically-compliant vendors but by a combination of price and superior technology offered by qualified vendors. The L1-T1 method would ensure that the equipment that is bought are with Enhanced Performance Parameters, a notch higher than the Essential Parameters. This will provide additional incentive to equipment suppliers with superior, expensive and uncompetitive products impetus to bid.

4. Incorporation of two significant provisions –“single OEM, multiple bids” and “multiple bids by single Indian vendor”. The first case is likely to arise in ‘Buy and Make (Indian)’ category in which a single foreign original equipment manufacturer (OEM) offers the same product through multiple bids in collaboration with a number of Indian companies. In such a situation, the new provision allows the authorities to continue with the procurement process, provided that the Defence Acquisition Council, the highest decision-making body of the defence ministry, decides that changes in the RFP condition will not invite participation of any more foreign vendors.

5. Provision of Procurement in Single Bid Situation is allowed in certain situations where only one bid is received in response to an RFP. This would require approval of the DAC, which must certify that there is no scope for change of the RFP conditions.

6. Hike in Offset Threshold Limit to Rs. 2,000 crores (approximately USD 305 million) from Rs. 300 crores.

 

July, 2016 July, 2016

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