Rules Governing Public Procurement

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Dorcas Bruce
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2 Rules Governing Public Procurement General Financial Rules, (GFR) State GFRs. Delegation of Financial Powers Rules (DFPR), Guidelines issued by the Central Vigilance Commission (CVC). Guidelines issued by the Directorate General of Supplies and Disposal (DGS&D) Manuals on the procurement of goods, services and works issued by the Department of Expenditure, Ministry of Finance. Guidelines on procurement issued by individual ministries/departments, PSUs etc. Legislations on procurement enacted by individual states Defence Procurement Procedure, 2013

3 Procedural Framework The Ministry of Finance in the Center and the Department of Finance in the States lay down broad principles of financial propriety in incurring government expenditures including expenditure in the procurement of goods and services and leave it to the procuring agencies to expand these into detailed rules and procedures. Besides Finance, other ministries such as Industry, Public Works, Environment, Agriculture, State Enterprises and others also issue directives on government procurement relevant to their portfolio, e.g., encouragement of small scale industry, environmental standards in government procurement, procedures for purchase of commodities, preferences for state owned enterprises and so on.

4 RATIONALE / General Financial Rules 2005 Five fundamental principles, Open tendering Effective advertisement Non-discriminatory tender conditions and technical specifications Public tender opening (bid evaluations based on a predisclosed criteria and methodology) Award to the most advantageous bidder without any negotiation on price or any other terms

5 Limitations Preference given to registered vendors (in some cases registration is must) Preference given to Indian Public Sector Companies High entry barriers for new entrants Chicken and egg story (should have proven track record) Bureaucratic Hurdles and Complex Procedures Lack of level playing field Foreign Companies are usually targeting high-end technology and capital intensive sectors

6 Types of Procurement Open Tender Enquiry (OTE) (Can be a global tender) Mainly depends on the magnitude of requirement and the high worth of the project In cases of procurement where pool of vendors have been established Limited tender enquiry (LTE) and; Small value tenders Single tender enquiry (STE) Only under exceptional circumstances such as national calamities or other emergencies. Very Low worth requirements Foreign Bidders are Generally allowed to bid for all Global Tenders unless categorically specified

7 Defence Procurements Revenue Procurement (more than 50 per cent of Indian Defence Budget) Maintenance, Repairs, Overhauls, salaries etc. Defence Procurement Manual (DPM) 2009 (Currently being revised) Capital Procurement (Nearly 40 per cent of Defence Budget) Procurements of new platforms, systems, weapons, integrated solutions etc. Defence Procurement Procedure 2013 (DPP 2013) also covers defence offset guidelines (revised version recently released) Defence R&D (nearly 6-7 percent of Defence budget)

8 Creating Indigenous capabilities is important for India India imports about 70% of its defence equipment requirements Import intensity in defense procurement in India is 3-4times more when compared to economies like China, US and UK; India accounts for 10% of global defence exports USD Billion of procurement further expected in next 5 years Countries with much smaller defence spending and lesser leverages have managed to build strong domestic sectors with export capabilities Turkey has built a strong domestic manufacturing base with exports of over USD 700 Mn, ~10 12 sizable companies, ~100 smaller specialized companies, and ~1500 small subcontractors, and direct workforce of ~50,000. New export target of USD 1.5 Billion Brazil allows 100%FDI to expand domestic production capacity and defence export prospects; Helibras, e,g, is owned 85% by Eurocopter Current domestic procurement in India largely made dependent on government owned firms Private sector has invested in building capabilities and has proven expertise but is given only a limited role in procurement so far

9 Defence Offsets: Stated Objectives The key objective of the Defence Offset Policy is to leverage capital acquisitions to develop Indian defence industry by (i) fostering development of internationally competitive enterprises, (ii) augmenting capacity for Research, Design and Development related to defence products and services and (iii) encouraging development of synergistic sectors like civil aerospace, and internal security. A Step to Ensure Self-Reliance and Indigenisation Defence Offsets are not Free

10 Foreign OEMs Obligations can discharge offset obligations through Offset Banking Direct purchas e / Exports FDI for manufacture and maintenance Techn ology Acquis ition by DRDO Offset Discharge Investment in KIND for ToT for manufacture & maintenance Provisioning of equipment and ToT to Govt.enterprises including DRDO for manufacture & maintenance. Investment in KIND in Indian enterprise in terms of Provision of equipment for manufacture & maintenance.

11 Timelines Defence offsets first introduced in 2006 Offset made mandatory for contracts above INR 300 mn ( about $ 55mn) Revised in 2008: Extended eligibility to Indian private companies having Industrial License for the manufacture of defence products. Defence Offset Facilitation Agency was also established 2009: The requirement of Industrial license to be eligible for recipient of offset was removed for Indian companies 2011: Civil aerospace, internal security and training were included as part of defence offsets 2012: Multipliers for procurement from SME and technology transfer were introduced. 1.5 for procurement from SME & up to 3 for transfer of critical technology to DRDO Banking of offsets extended upto 7 years Defence Offset Management Wing (DOMW) was also formed Policy is still Evolving

12 Limitations Foreign OEMs often complain that given the huge volumes involved, nascent Indian Industry does not have the capability to absorb defence offsets Procedures are cumbersome and time consuming New set of offset rules are more flexible but not applicable with retrospective effect for the projects already signed FDI cap of 26 per cent still remains a problem area (CII has suggested raising the FDI cap to 49 percent on a case by case basis)

13 Defence Procurement and Offsets Roughly 40 percent of the Indian Defence Budget ($37bn this year) is earmarked annually for Capital Procurements More than hundred billion dollars of capital procurement in next 8-10 years Foreign OEMs have signed USD 3.8 billion worth of contracts with Indian Offset Partners under offset obligations Out of these, 42 percent are with Public Sector and 58 percent with private sector USD 10 billion worth of Offsets are on the way As per rudimentary estimates Indian private sector may get USD 2 billion worth of offset contracts Dassault, Thales, Safran, DCNS, MBDA are a few important French companies with defence contracts in India

14 India-France Defence Industrial Collaboration: Key Projects Indian navy's indigenously built Scorpene submarine Upgrading of the Indian air force's French-built Mirage 2000 The joint French-Indian Short Range Surface to Air Missile air defense project. 126 Rafale fighters from Dassault, a potential deal worth app.$ 20 billion. Mother of all Defence Deals? The Indo-French Defence Industrial Collaboration is well beyond Buyer-Seller relationship

15 Details of key French contracts P 75 (Scorpene) Major Players: DCNS and Mazagaon Dockyard Limited Worth USD 4.6 billion Short Range Surface to Air Missile nearly worth of $6 billion SR-SAM project is a co-development joint venture between India and France and would be developed by MBDA of France and DRDO from India. To be deployed by the IAF and the Navy. Upgrades of 51 Mirage 2000 (approx USD 2 billion) 490 advanced fire-and-forget MICA (interception and aerial combat missiles) systems to arm the fighters was finalized with French armament major MBDA (USD 1.23 billion)

16 Collaboration based on Reciprocity French companies have advanced technologies, excellent manufacturing lines & practices & investment India has a long term Military Modernisation Programme: Assured and long term business opportunities Several Indo-French Joint Ventures with manufacturing facilities in India Defence, a key sector for job creation in India; has the potential of creating 1 million new jobs Long term sustainable business Quality and Quantity of Human Resources in India Frugal engineering Political Will to create infrastructure

17 Drivers to Propel Indo-French Partnership Shared Values including Democracy Respect for human rights No infringement of IP History of successful collaboration over decades Commitment to Non-proliferation of weapons Integrating Indian supply chain with French Original Equipment Manufacturers for mutual benefit not only in vastindian Market but also for global opportunities

18 Announcing NAMEXPO September 2013, Cochin Port Trust, Cochin, Kerala First ever Naval & Maritime Sector Focused Expo in India, the most lucrative naval and maritime market in the world Exclusive platform to network with who s who of Indian Naval and Maritime Sector- Public as well as Private Official delegations: Key officials from prominent Directorates of Indian Navy, Coast Guard, Entities within Ministry of Shipping, Micro & small enterprises and others Official delegations overseas: expected from 30 nations All the information on

India s Revised Offset Guidelines DIOA / GOCA Fall 2012 Conference Brewster, Mass.

India s Revised Offset Guidelines DIOA / GOCA Fall 2012 Conference Brewster, Mass. Robert S. Metzger 750 Ninth Street, N.W., Ste 710 Washington, D.C. 20001 rmetzger@rjo.com www.rjo.com Where are the markets?