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DPP 2011 – An Analysis

Changes Vis-à-vis Ammendments issued to DPP 2008 in the year 2009 and DPP 2008

Advisory
Investments 202 ,
In collaboration with:-

Rahul Gangal Ankur Gupta


Director – Defence Advisory and Investments Senior Consultant – Aerospace and Defence
Rahul@Aviotech.com Ankur4.Gupta@in.ey.com
Segment by Segment Changes
Detailed changes and implications

NOTE : COVERAGE – Buy, Buy and Make and Make Categories under the Defence
Procurement Procedures - 2011

1/6/2011

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Investments UK: 31A - St James`s Square, London SW1Y 4JR
Policy Changes

Table of Contents / Renaming of broad categories


Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

“Indigenous Naval Ship Building


“Procedure for Defence Ship Building” Dropping of the term Indigenous
Procedure”

Introduction of DPP
Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

Amendment of Ammendments issued to


DPP 2008 in the year 2009 Incorporated in
DPP 2011

Acquisitions covered under the ‘Buy &


Make (Indian)’ decision would mean
purchase from an Indian vendor including
an Indian company forming joint venture /
establishing production arrangement with
OEM followed by licensed production /
indigenous manufacture in the country.
‘Buy & Make (Indian)’ must have minimum
50 % indigenous content on cost basis

1/6/2011

Defence Advisory INDIA : Sewa Corporate Tower, Sector 25, MG Road, Gurgaon 122002
Investments UK: 31A - St James`s Square, London SW1Y 4JR
Policy Changes

Chapter 1 – Defence Procurement Procedures for ‘Buy’ and ‘Buy & Make’ Categories
Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

Formal Incorporation of Clause 9A from


This clause requires sharing of 15 year
9A Ammendments issued to DPP 2008 in the
perspective plans with the Industry
year 2009 amendments
DPP 2011 tries to make the SQRs more realistic
and more in-sync with globally available/under
Formal Incorporation of Clause 13 from
development equipment thereby minimizing
13 Ammendments issued to DPP 2008 in the
unrealistic functional characteristics which had
year 2009 amendments
earlier adversely impacted several capital
acquisition programmes
Formal Incorporation of Clause 15 from
15 Ammendments issued to DPP 2008 in the
year 2009 amendments
Formal Incorporation of Clause 18 from
18 Ammendments issued to DPP 2008 in the
year 2009 amendments
Addition to Clause:-

For cases where the original RFP has been


issued within two years from accord of
AON and later retracted for any reason, This addition will help in reducing process time
20 the AON would continue to remain valid, in cases where a retracement of RFP has
as long as the original decision and happened.
categorization remain unchanged,
provided the subsequent RFP is issued
within one year from the date of
retraction of original RFP.
1/6/2011

Defence Advisory INDIA : Sewa Corporate Tower, Sector 25, MG Road, Gurgaon 122002
Investments UK: 31A - St James`s Square, London SW1Y 4JR
Policy Changes

Chapter 1 – Defence Procurement Procedures for ‘Buy’ and ‘Buy & Make’ Categories
Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

Formal Incorporation of Clause 25A from


This clause requires sharing of 15 year
25A Ammendments issued to DPP 2008 in the
perspective plans with the Industry
year 2009 amendments
The Indian entity could be a company
incorporated under The Companies Act DPP 2011 has removed the mention of RUR. It
The Indian firm to be selected would be 1956, including DPSUs or entities like OFB has also broadened the recipients of MTOT.
from a list of public or private firms which / Army Base Workshops/ Naval dockyards However by specifying that the potential
would be specified in the RFP. These firms / Base Repair Depots of Air Force. This recipient has to be incorporated under
28
would be DPSUs / OFB / Raksha Udyog entity would be nominated by DDP at Companies Act 1956, it creates an issue for
Ratnas (RURs) or any other firm as SCAPCHC stage and would be included in established companies which were
selected by the DDP. the recommendations of SCAPCHC as also incorporated in earlier versions of the
in the SoC submitted to DAC for seeking Companies Act.
approval of AON.
Addition to the clause:-

An additional grace period of up to 30 The additional grace period makes it more


days may be obtained by Service flexible for the OEM to provide the equipment
41 Headquarters from their respective Vice at the designated location ensuring that all the
Chief keeping in view the practical time shortlisted vendors are present in the trial
period necessary for trials. Equal process
opportunity would be provided to all
vendors while granting such grace period.
Addition to the clause:-
This move is aimed to bringing greater
Members nominated should have
46 transparency and impartiality in the entire
adequate seniority and experience and
acquisition process
1/6/2011 should not be involved with that
acquisition case.
Defence Advisory INDIA : Sewa Corporate Tower, Sector 25, MG Road, Gurgaon 122002
Investments UK: 31A - St James`s Square, London SW1Y 4JR
Policy Changes

Appendix A (Refers to para 18 of chapter 1)


Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

Introduction of DPB in categorisation


Security This appears to be a harmonisation of the chart
status as well as on Reference Number
Classification vis-à-vis the text in Para 18.
Allocated
Formal Incorporation of clause 3.(G) (ii)
Security
and 3.(G)(iii) from Ammendments issued
Classification
to DPP 2008 in the year 2009
Addition of clause 3.(p)

Timeline for Procurement.


The introduction of this clause requires any
Are there likely to be deviations to the
anticipated delays in the acquisition process to
Security timelines given at Appendix C to Chapter
be accounted for and justified beforehand for
Classification 1 of DPP? If so, deviations and week-wise
consideration of SCAPHC/DPB and DAC as per
targets to be proposed by SHQ with
the value of the programme.
justification (Format of proposed timeline
is given at Annexure
to this Appendix).
Rationalisation of para 6.(a) to include
Security
Buy (Global), Buy (Indian), Buy and Make,
Classification
Buy and Make (Indian) and Make projects.
Rationalisation of Clause 15 by
Security Introduction of DPB in categorisation
Classification status as well as on Reference Number
Allocated

1/6/2011

Defence Advisory INDIA : Sewa Corporate Tower, Sector 25, MG Road, Gurgaon 122002
Investments UK: 31A - St James`s Square, London SW1Y 4JR
Policy Changes

Appendix (Refers to para 3(p) of Appendix A)


Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

Addition of Annexure detailing proposed


timeline for procurement

Notes to Appendix A1 (Refers to para 18 of chapter 1)


Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

Clarification and addition of reference to


Notes notices issued in 2006 and 2007 vis-à-vis
Point (e) the delegation of powers at level of
Point (f) SHQ/IDS and Quantity vetting and
composition of CNC

Appendix B (Refers to Para 47 of chapter 1)


Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

Addition of an introduction to the


appendix Bin lieu of note at the end of
clause in DPP 2008
(Approval of Director General (Acq.) to be Standard CNC composition can be altered with
solicited for any change in the prior permission of DG (Acq.) and other
Introductory
compositions mentioned above. members may additionally be nominated from
clause
However, in the delegated power cases other agencies with prior approval of Vice
member of any other agency apart Chiefs /CISC and DGICG
1/6/2011 from the prescribed members can be
associated with the approval of Vice
Defence Advisory I N D Chiefs/CISC/DG
I A : S e w a CICG.)
orporate Tower, S ector 25, MG Road, Gurgaon 122002
Investments UK: 31A - St James`s Square, London SW1Y 4JR
Policy Changes

Appendix C (Refers to para 74 of Chapter 1) – Broad Timeframe for Procurement


Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

The entire procurement timeline is in


weeks rather than in months as in DPP
2008

Each activity has been given its own serial


number and its own timeline as against
clubbing of activities in DPP 2008.

Activities like pre-bid meeting and


dispatch of pre-bid reply are deemed as
separate activities.

The time allowed for receipt of responses


to RFP has been reduced from 3 months This may make it difficult for OEMs to respond
to 3 weeks However the total time period in time
from Issue of RFP to receipt of responses
remains at 12 weeks.

1/6/2011

Defence Advisory INDIA : Sewa Corporate Tower, Sector 25, MG Road, Gurgaon 122002
Investments UK: 31A - St James`s Square, London SW1Y 4JR
Policy Changes

Appendix D (Refers to Para 22 of Chapter 1) Provisions for implementation of Offsets


Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

This has very significant implications whereby it


allows the new offset guidelines to be
applicable on all eligible capital acquisition
Introduction Removal of mention of version of DPP
programmes regardless of them being
governed by the capital procurement
procedures as laid out in DPP 2006/ DPP 2008.
Addition to the clause

1.2 Offset obligations may be discharged only


with reference to “eligible” products and
eligible services.
Formal Incorporation of clause 1.3 from
1.3 Ammendments issued to DPP 2008 in the
year 2009
“eligible products” This has been done to include items and
“Indian Industries” manufacturers /service providers of Homeland
Security and Civil aerospace
“Defence Products”
2.1.a) DPP 2008 : 2.1.a) has been modified to This allows for addition of Training services,
“Indian Defence Industries”
the extent of DPP 2011 2.1.c) related to tools and products including simulators to be
Services being categorized under a counted as offset
separate point. Training has been added
as an item in the services list

1/6/2011

Defence Advisory INDIA : Sewa Corporate Tower, Sector 25, MG Road, Gurgaon 122002
Investments UK: 31A - St James`s Square, London SW1Y 4JR
Policy Changes

Appendix D (Refers to Para 22 of Chapter 1) Provisions for implementation of Offsets


Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

Formal Incorporation of clause 6.3 from


6.3 Ammendments issued to DPP 2008 in the
year 2009

6.4 Greater clarity to the clause

Annexure VI to Appendix D (Refers to Para 2.1a to Appendix D)


Defence
Para No. Procurement Defence Procurement Procedures 2011 Implications
Procedures 2008
Products for Internal Security
• Arms and their ammunition including all types of close quarter weapons.
• Protective Equipment for Security personnel including body armour and
helmets.
• Vehicles for internal security purposes including armoured vehicles, bullet
proof vehicles and mine protected vehicles.
• Riot control equipment and protective as well as riot control vehicles.
Introduction of Internal
• Specialized equipment for surveillance including hand held devices and
2 security items as offset
unmanned aerial vehicles.
qualifiable products
• Equipment and devices for night fighting capability including night vision
devices.
• Navigational and communications equipment including for secure
communications.
• Specialized counter terrorism equipment and gear, assault platforms,
detection devices, breaching gear, etc.
• Training aids including simulators and simulation equipment.
1/6/2011

Defence Advisory INDIA : Sewa Corporate Tower, Sector 25, MG Road, Gurgaon 122002
Investments UK: 31A - St James`s Square, London SW1Y 4JR
Policy Changes

Annexure VI to Appendix D (Refers to Para 2.1a to Appendix D)


Defence
Para No. Procurement Defence Procurement Procedures 2011 Implications
Procedures 2008
Introduction of Civil Aerospace
Civil Aerospace Products Products as offset qualifiable
• All types of fixed wing as well as rotary aircraft including their air frames, products
aero engines,
• aircraft components and avionics. Another key aspect is the
3 • Aircraft design and engineering services. introduction of the Raw
• Technical publications material and semi-finished
• Raw material and semi-finished goods. goods in the DPP 2011 thereby
• Flying training institutions and technical training institutions (excluding civil making the product scope for
infrastructure). offset obligation fulfillment
easier

Appendix E1 (Refers to Para 24(b) of Chapter 1)


Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

The DPP 2011 allows for one single combined


Performance cum warranty bond of 5% the
Total contract value instead of two separate
Performance-cum-Warranty Bond both
bonds of 5% each as Performance Bond and
Part 1 equal to 5% value of the contract is
Warranty Bond in DPP 2008 thereby bringing in
5(j) required to be submitted after signing of
some savings to bidders.
contract.
This is also reflected in the Appendix B to
Schedule I

1/6/2011

Defence Advisory INDIA : Sewa Corporate Tower, Sector 25, MG Road, Gurgaon 122002
Investments UK: 31A - St James`s Square, London SW1Y 4JR
Policy Changes

DRAFT RFP FORMAT


Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

Formal Incorporation of clause 16A from


16 A Ammendments issued to DPP 2008 in the
year 2009
APPENDIX F to Schedule 1
Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

Modification to Clause
This is a departure from DPP 2008 wherein an
5 An LC can be established in any of the Irrevocable LC could have been established in
Four Public Sector Banks i.e. S.B.I , Bank of any of the 27 public sector banks besides SBI
Baroda, Canara Bank or Syndicate Bank
The Performance-cum- Warranty Bond Change of validity of the performance cum
The Performance Bond should be valid for
should be valid for a period of three warranty bond which is now valid for 3 months
a period until three months from the date
months beyond the warranty period as from end of warranty period. This has arisen
7 of receipt of last consignment and should
specified in the contract and should be due to a combined performance cum warranty
be furnished within 30 days of signing the
furnished within 30 days of signing the bond in DPP 2011 instead of separate
contract.
contract. performance and warranty bonds in DPP 2008
Indemnity Bond : With regard to Payment
Clauses including Bank Guarantee for
Advance and Performance cum
The mention of Indemnity bond in para 7 of
Warranty, for Defence PSUs being issued
8 Appendix F of schedule 1 has now been
RFPs as a nominated production agency
elaborated into a separate point.
or on an ab-initio single vendor basis,
submission of BGs need not be insisted
upon. They should give Indemnity Bond.
1/6/2011

Defence Advisory INDIA : Sewa Corporate Tower, Sector 25, MG Road, Gurgaon 122002
Investments UK: 31A - St James`s Square, London SW1Y 4JR
Policy Changes

APPENDIX F to Schedule 1 – Payment Terms


Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

Amplification of Clause This benefit has been expanded from its earlier
coverage of DPSUs only.
11 ERV scope has been expanded and now
covers Rupee contracts with Indian This is also reflected as an additional paragraph
vendors under Buy ‘Global’ 1A in annexure III to Appendix F

ANNEXURE 1 to Appendix F – Application of DCF technique


Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

Change of Borrowing rate


Reduction in borrowing rate to be considered
3 9.5%
while applying DCF technique
9%

ANNEXURE 3 to Appendix F – Guidelines to protection of ERV in contracts


Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

1.(b) Deletion of clause 1.(b).2 Rationalisation of the clause

Elaboration on the ERV clause and limiting This change makes it impossible for DPSUs to
1.(b).(iv) its applicability only to cases where delay claim ERV benefit when the delays if any , are
is on account of the buyer on their account.

1/6/2011

Defence Advisory INDIA : Sewa Corporate Tower, Sector 25, MG Road, Gurgaon 122002
Investments UK: 31A - St James`s Square, London SW1Y 4JR
Policy Changes

ANNEXURE 3 to Appendix F – Guidelines to protection of ERV in contracts


Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

New Clause Added


This is a change from DPP 2008 where the
3
Paying authority, is to undertake a pre- authority conducted a post audit
audit of the documents before payment.
New Clause Added

Documentation for Claiming ERV:- The


following documents would need to be
submitted in support of the claim on
account of ERV :-
(a) A bill of ERV claim enclosing
Elaboration on the documents which are to be
4 worksheet.
presented to claim ERV benefit
(b) Banker's Certificate / debit advice
detailing Foreign Exchange paid and
Exchange rate as on date of transaction.
(c) Copies of import orders placed on the
suppliers.
(d) Invoice of supplier for the relevant
import orders.

1/6/2011

Defence Advisory INDIA : Sewa Corporate Tower, Sector 25, MG Road, Gurgaon 122002
Investments UK: 31A - St James`s Square, London SW1Y 4JR
Policy Changes
ANNEXURE IV to Appendix F – Draft Copy of Performance-Cum-Warranty Indemnity Bond

Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

New Annexure Added

ANNEXURE H to Schedule 1 – Agents / Agency Commission

Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

Modification of existing clause

19 Refund to the Government of India from


Indian companies will be at 2% per
annum above the Base Rate of SBI

ANNEXURE 1 to Appendix H – Integrity Pact Bank Guarantee (IPBG)

Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

Renaming of this clause to Integrity Pact


Bank Guarantee (IPBG)
Ernest Money / Security Deposit Reduced burden on bidders who are not
A list of specific banks has been included
successful.
in lieu of any Indian Nationalised Bank in
8
DPP 2008
Validity of EM/SD at 5years or conclusion This is also reflected in the relevant annexure of
The validity of the IPBG is 45 days post
of contractual obligations Format of Integrity Pact Bank Guarantee (IPBG)
validity of commercial offer. For a
successful bidder this would be extended
unto the completion of contract.
1/6/2011

Defence Advisory INDIA : Sewa Corporate Tower, Sector 25, MG Road, Gurgaon 122002
Investments UK: 31A - St James`s Square, London SW1Y 4JR
Policy Changes
ANNEXURE 1 to APPENDIX H to SCHEDULE 1
Para No. Defence Procurement Procedures 2008 Defence Procurement Procedures 2011 Implications

Formal Incorporation of clause 16A from


12 Ammendments issued to DPP 2008 in the
year 2009

1/6/2011

Defence Advisory INDIA : Sewa Corporate Tower, Sector 25, MG Road, Gurgaon 122002
Investments UK: 31A - St James`s Square, London SW1Y 4JR