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Every major defence deal has been put to public and media scrutiny
in the recent past, generally with adverse fallout. Numerous
aspersions have been cast directly or indirectly. Almost all major
deals have been referred to enquiry commissions or investigative
agencies. Extensive media coverage, both informed and uninformed, has
fuelled doubts about the probity of the whole procurement regime.
The above state of affairs has had a highly debilitating influence on
the modernisation of the armed forces. Some other discernible effects
are as follows:-
| (a) |
There is a perceptible lack of faith in the
uprightness of the whole system. People appear to be convinced
that all defence deals are tainted and view all procurement
functionaries to be lacking in required integrity. This has come
to affect national morale, wherein a degree of despondency and
resignation has set in.
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| (b) |
As all procurement activities come to be
viewed with suspicion, functionaries become wary of taking
decisions. Deferring decision making is considered a more
intelligent course of action than having one's integrity
questioned later on. Hence, the whole procurement process
suffers due to delays and vacillation at various levels.
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| (c) |
The environment gets vitiated to the extent
that vendors feel compelled to factor in illegal commissions in
their commercial quotes, under the mistaken belief that they
would lose out unless they resort to such practices.
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| (d) |
Reputation of many upright leaders and
functionaries gets tarnished with adverse media reporting, based
on conjectures and stories planted by losing vendors.
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| (e) |
And most seriously, troops tend to lose faith
in the leadership. They wonder if the equipment being procured
meets qualitative parameters or they are being saddled with
sub-standard or unreliable hardware that may fail them in war. |
Major Initiatives Taken
The Government is seized of the matter and has initiated major steps
to overhaul and strengthen the complete procurement procedure. Defence
Procurement Procedure - 2006 (DPP-2006) is an extremely comprehensive
document. It is perhaps the only document of its kind in the whole
world that covers the complete gamut of all procurement activities.
The Government's intent to infuse transparency and impartiality is
clearly discernible in various provisions of the procedure. With a
view to generating competition, tenders are now issued to a much
larger number of vendors. Formulation of qualitative requirements has
been made more broad-based to widen vendor participation. Two-bid
system has been adopted to prevent subsequent raising of commercial
quotes by successful vendors.
In a bold move, vendors have been permitted to attend field trials of
their equipment and results are conveyed to them at the trial site
itself. Price negotiations have been eliminated in competitive bids.
Single-vendor procurements have been minimised to the barest
inescapable ones. And finally, an innovative Integrity Pact has been
introduced for all high-value contracts.
Pre-Contract Integrity Pact
As per DPP-2006, 'Pre-Contract Integrity Pact' would be signed between
government department and the bidders for all procurement schemes over
Rs 100 crores. It is a highly laudable step. It is a binding agreement
between the Government procurement agency (buyer) and the vendors
(bidders). Salient features of the Pre-Contract Integrity Pact are as
follows:-
| (a) |
The buyer undertakes that no official of the
buyer will demand or accept any bribe, directly or through
intermediaries.
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| (b) |
The bidder undertakes not to offer, directly
or through intermediaries, any bribe, commission or inducement
to any official of the buyer.
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| (c) |
The bidder commits to refrain from giving any
complaint directly or through any other manner without
supporting it with full and verifiable facts.
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| (d) |
The buyer will appoint independent monitors
for this Pact, in consultation with the Central Vigilance
Commission (CVC). As soon as the Monitor notices, or believes to
notice, a violation of this agreement, he will so inform the
Head of the Acquisition Wing.
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| (e) |
The following set of sanctions can be imposed
by the buyer for any violation by a bidder
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| (1) |
Denial or loss of contract.
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| (2) |
Forfeiture of the bid security and performance
bond.
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| (3) |
Liability for damages to the principal and the
competing bidders.
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| (4) |
Debarring for an appropriate period of time.
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| (f) |
The decision of the buyer to the effect that a
breach of the provisions of this Integrity Pact has been
committed by the bidder shall be final and binding on the
bidder. However, the bidder can approach the monitor(s).
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Deficiencies in the Integrity Pact
Though well intended, the Integrity Pact appears to have been
incorporated in a hurry. Some of the major infirmities are discussed
in the succeeding paragraphs.
Limited Applicability
Integrity Pact is required only in cases where the contract value is
above Rs 100 corers. Interestingly, most of the contracts signed
normally are of value less than Rs 100 crores. For example, a total of
123 contracts were signed in the wake of the Kargil War and their
gross value was Rs 2163.09 crores. Almost all of them were less than
Rs 100 crores. The much publicised casket contract was for under Rs 6
crores. Contract with Denel for anti-material rifles and ammunition
was for Rs 23.22 crores (Denel has since been debarred for using undue
influence).
It will thus be seen that the newly introduced Integrity Pact will
apply to a handful of big ticket contracts only. Majority of
procurements cases will stay outside its purview. It is an odd
provision and conveys an impression that it is not essential to ensure
integrity in cases of lesser value.
Pact is Loaded against Bidders
The Integrity Pact is between the buyer and the bidder. But all the
provisions are loaded against the bidder. The bidder has to give
numerous undertakings and also agree to accept sanctions as imposed by
the buyer. Interestingly, it is for the buyer to decide that a breach
of Integrity Pact has taken place. On the other hand, the buyer
undertakes to initiate disciplinary criminal proceedings against his
defaulting officers. It is an infructuous undertaking. Even under the
existing criminal laws in force and service rules, the Government is
duty bound to initiate action against delinquent officials, even for
lesser value contracts which are not covered by the Pact.
Ineffective Independent Monitors
Independent Monitor will be nominated by the buyer on case to case
basis, albeit in consultation with CVC. In all probability, it would
be a well connected bureaucrat seeking post retirement rehabilitation.
He will neither be independent nor, effective as it will be prudent
for him to remain 'amenable' to secure repeat assignments.
Additionally, the role assigned to him is totally imprecise and
perfunctory. He is required to inform Director General Acquisition
(the buyer) if he notices, or believes to notice, a violation of this
agreement. It is for the buyer to proceed as deemed fit. As there is
no mention of his functioning, it is a matter of speculation as to how
a monitor shall detect violations.
Another interesting aspect relates to the power given to the buyer to
rule that the bidder has violated provisions of the Pact. Such a
decision is 'final and binding'. The Pact, however, permits the
aggrieved bidder to approach the Monitor. But there is no mention as
to what the Monitor can do when the decision of the buyer is already
'final and binding'.
Lack of Complaint Redressal Mechanism
No arrangement can be credible unless an effective and prompt
complaint redressal mechanism is put in place. The Integrity Pact has
overlooked this critical requirement totally. An aggrieved bidder has
to report the matter to the buyer 'with full and verifiable facts'.
Thereafter, it is for the buyer to initiate action against the accused
official for alleged misdemeanour. The Pact is totally silent as
regards dispensation of justice to the wronged bidder.
Every pact has to have an independent adjudicator to resolve disputes
between the contracting parties after hearing both sides. However, in
the Integrity Pact this authority has been abrogated by the buyer to
himself. Such an arrangement dilutes the value of the Pact and makes
it appear as a pretense rather than a serious attempt to promote
probity.
Necessity of a Credible Probity Assurance Mechanism
The primary aim of the government should be to convince the nation
that it is serious about ensuring probity in defence procurements and
restore people's faith in the system. As has been discussed earlier,
India needs an arrangement with the following essential imperatives:-
| (a) |
Ensure probity and uprightness in all defence procurements of capital nature, irrespective of their
value. The system should be acknowledged by all to be
transparent and principled.
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| (b) |
Dealing officials should fear punitive
provisions for their subjective decisions.
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| (c) |
Bidders should have total confidence in the
fairness of the system and should be convinced that their
competitors would draw no inequitable benefit, even if they
attempt to resort to iniquitous practices.
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| (d) |
Aggrieved parties should be able to get
redressal speedily.
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| (e) |
The armed forces must feel confident of the
quality of weapon systems provided to them. |
The recently introduced Integrity Pact falls woefully short on all
counts and the probity of defence procurements will continue to remain
suspect
Defence Procurements Oversight Commission
India needs an oversight system which enjoys the confidence of all and
which acts as a watchdog. India should set up a Defence Procurements
Oversight Commission (DPOC). It should be a semi-judicial ombudsman
and be of permanent nature.
Constitution
DPOC should consist of a Chairman and three members : Technical,
Commercial and Legal. They should be selected by a committee
consisting of the Defence Minister, Leader of the Opposition and a
sitting judge of the Supreme Court. As the entire success of this
mechanism depends on the credibility enjoyed by the Commission, all
politically aligned personnel must be scrupulously kept away.
The Chairman should be a retired judge of the Supreme Court. He should
be a man of impeccable reputation and standing. His name should invoke
respect and confidence. All members of the Commission should have a
fixed tenure of five years. Member Technical should be a retired
service officer with experience in defence procurements. Member
Commercial should be an economist of repute from academic field or an
expert from private financial sector. And Member Legal should be a
specialist in contract management and international trade. It will be
prudent not to have retired bureaucrats, as their erstwhile long
association with the government may compromise their independence in
the eyes of the people.
Role
DPOC will perform three major roles:-
| (a) |
Monitoring Functions. It
will monitor and oversee that all procurement activities from
evolution of parameters to post-contract implementation are
carried out as per the laid down procedures and in the true
spirit of the Integrity Pact. It can ask for any file and attend
any meeting being held between the buyer and the bidders to keep
itself abreast of the developments. On noticing any violation by
either party, it could take immediate remedial measures to
correct the infirmity. Such a timely intervention will prevent
the whole process getting vitiated beyond redemption.
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| (b) |
Advisory Functions. The
Commission can be of immense help in rendering pre-activity
independent advice to the buyer. Presently, the Ministry of
Defence is devoid of any pre-audit advice. It has been
requesting that either CVC or any other statutory body should
render probity advice to it before a contract is signed. DPOC
will fulfill this need ideally. When in doubt about the
correctness of an intended action, the buyer can approach the
Commission for advice. Such an arrangement will help officials
take well-considered decisions without vacillation.
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| (c) |
Adjudicatory Functions. Both
sides (the buyer and the bidders) should be permitted to bring
violation of the Integrity Pact to the Commission's notice. It
should be for the Commission to seek full details and carry out
its assessment of the issues involved. However, adjudicatory
proceedings should not impinge upon the normal progress of the
case. Depending on the gravity of the violation, the Commission
could either, call involved parties to reconcile differences or,
suggest remedial action. The power to recommend action against
delinquent official or imposition of sanctions on defaulting
bidder(s) should rest with the Commission which should send its
report to the Defence Minister. The Commission may even
recommend abrogation of a procurement proposal, if it suffers
from major irregularities. |
Reporting Channel
DPOC should submit its reports to the Parliamentary Committee on
Defence through the Defence Minister.
Functioning
DPOC is not intended to be a super Acquisition Wing. It must not
interfere in routine procurement functions and decision making.
Procurement officials should never feel constrained and curtailed.
They must have full freedom of action.
The Commission should generally stay out of allocation of priorities
to various proposals, acceptance of necessity and quantity vetting.
Its interest in the formulation of parameters should be restricted to
ensuring that they are broad based and not any vendor-specific.
Similarly, it should leave the modalities of field trials to the
services. Ideally, the Commission should place itself as an advisory
and protective body to save the officials from subsequent harassment
for decisions taken in good faith. The current provision for technical
oversight by an independent committee in respect of contracts of value
above Rs 300 crores should be dispensed with.
Likely Opposition
The opposition to the constitution of DPOC should not be
underestimated. It will be strident and vehement. Change is the very
anti-thesis of bureaucratic inertia. Additionally, old mindsets and
intellectual apathy spawn numerous arguments to stress non-viability
of all new ideas. Opposition to DPOC is anticipated on the following
counts:-
| (a) |
It will curb freedom of officials. On
the contrary, the presence of the Commission will embolden the
officials as they would know that they have a protective shield
of the Commission to vouchsafe their conduct. Additionally, when
in doubt the officials can seek guidance from the Commission in
complex cases. |
| (b) |
Additional tier will cause delays. This
is a misplaced apprehension. The Commission will perform its
functions concurrently. It will not be another link in the
official hierarchy. The Acquisition Wing will continue with its
regular activities. In fact, the Commission will facilitate
speedier progress of cases as officials will have to justify
excessive time taken over files. Oversight by DPOC will also
save months and years spent on rescinding flawed procurement
cases and re-initiating proposals. |
| (c) |
Additional set-up will entail extra
expenditure. Undoubtedly, there will be additional
expenditure. However, it will be miniscule compared to the
expenditure presently incurred on various commissions of
inquiries set up, after almost all defence deals. Most
importantly, strict adherence to integrity and probity norms
will enable India to obtain best value for money. Even a nominal
five per cent reduction in contracted prices will result in a
saving of USD 1.5 billion during the 7th Plan Period (2007-12),
as India is likely to spend USD 30 billion on defence
procurements during that period. |
Conclusion
Regular questioning of the uprightness of Indian defence
procurements has caused immense damage to the national psyche and
the morale of the armed forces. Media has been highlighting
irregularities and creating doubts about the sanctity of the
complete procurement process. Another fall-out has been tardy
modernisation of the armed forces. It is an extremely grave
situation and requires drastic steps.
The government has taken a number of commendable measures. But the
people continue to be skeptical. Therefore, the government needs not
only to ensure probity but also, and may be more importantly,
convince the environment of Its earnestness. The system must be
accepted and acknowledged by all to be impartial, transparent and
objective.
Pre-Contract Integrity Pact is a move in the right direction but
needs to be made more equitable and stringent. Any worthwhile
complaint resolving authority has to enjoy widespread credibility
and all parties involved must have full faith in its impartiality.
It should be easily approachable and should be able to dispense
justice speedily.
Formation of an independent and credible oversight Commission is
essential to provide reassurance that defence procurements are above
board. The Commission should act as a watchdog and an ombudsman on
behalf of the public. That will be the only way to strengthen public
confidence in the genuineness of the government's commitment.
Inadequate measures will prove Illusory and wasteful.
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