Key highlights of the DPP 2016

The Defence Minister Manohar Parrikar in his inaugural address stated the need for India to develop its indeginious platforms and production. He also mentioned the release of the Defence Procurement Procedure (DPP) 2016, which has been a topic of discussion over a number of years with the government releasing its versions over a period of time. The Ministry of Defence (MoD) released certain portions of the DPP 2016 a few weeks back. It is not the ‘complete’ document though but includes the various annexes (including offset policy) will be made available in a couple of weeks’ time. The Strategic Partnership Model will take longer to be implemented as well. Some of the key features of the policy are as below:

• Introduction of a Preamble that will act as a guiding light for all capital acquisitions; special emphasis on medium, small and micro enterprises; ‘Make in India’; Strategic Partnership Model; swift decision making and striking a balance between various competing requirements.
• Increased Priming of contracts by Indian vendors with a higher Indigenous Content (IC); 40 per cent for Buy (Indian) and 50 per cent for Buy & Make (Indian).
• Introduction of a new category IDDM – ‘Indigenous Design Develop and Manufacture’ as the most ‘preferred’ acquisition option.
• Introduction of IC on Buy & Make (for foreign OEMs) or else a balance between SKD; CKD and IM kits in order to ensure meaningful value addition in India.
• Defining an Indian vendor for defence articles requiring an industrial licence as well not requiring an industrial licence.
• Introduction of two new concepts in the RFP:
  • Essential parameters A&B.
  • Enhanced performance parameters; moving from a plain vanilla L1 model to a L1-T1 model with up to 10 per cent leverage on price.
• Provision for using expert resources (outside technical experts) for the formulation of SQR’s.
• AON (acceptance of necessity) validity reduced to six months Buy; Buy & Make categories. Buy & Make (Indian) AON to have a validity of one year.
• Offsets applicable only on cases of about $300 million and above ( 2,000 crore)
• Change in name of the vendor is permitted at any stage of the bidding or contract execution process. Due steps to be taken by the OEM for the same.
• Provisions for the progress of single vendor cases at the bid submission stage itself have been introduced.
• FET (field evaluation trials) have been limited and in certain conditions even re-imbursement can be made by the MoD.
• The standard contract document terms and conditions can be changed in accordance with G2G agreements in single vendor cases only.
• DPP 2016 to be valid from April 1, 2016, for all AONs issued on or after this date.
  • For cases where AON has been provided but RFP not released, the previous DPP will continue to remain valid. This can be waived by the DAC.

A total of five chapters plus Preamble have been released. The above is a high level analysis of Chapter 1 and 2 only according to Ernst & Young with the other analysis to follow soon.