DEFENCE ACQUISITION International Best Practices DEFENCE ACQUISITION International Best Practices Edited by Laxman Kumar Behera Group Captain (Retd) Vinay Kaushal INSTITUTE FOR DEFENCE STUDIES & ANALYSES NEW DELHI PENTAGON PRESS First Published in 2013 Copyright © Institute for Defence Studies and Analyses, New Delhi ISBN 978-81-8274-711-1 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without first obtaining written permission of the copyright owner. Disclaimer: The views expressed in this book are those of the author and do not necessarily reflect those of the Institute for Defence Studies and Analyses, or the Government of India. Published by PENTAGON PRESS 206, Peacock Lane, Shahpur Jat, New Delhi-110049 Phones: 011-64706243, 26491568 Telefax: 011-26490600 email: [email protected] website: www.pentagonpress.in In association with Institute for Defence Studies and Analyses No. 1, Development Enclave, New Delhi-110010 Phone: +91-11-26717983 Printed at Syndicate Binders, A-20, Hosiery Complex, Phase II, Noida-201305 Contents Foreword ix Keynote Address xi Acknowledgements xiii List of Contributors xv Introduction xvii 1. Categorisation Options: User’s Dilemma 1 A.K. Nagalia 2. Challenges of Commercial Evaluation 12 Harish Masand 3. Cost Estimation for Determining Reasonable Price in Capital Acquisitions: MoD Experience 26 Rajnish Kumar 4. Towards an Optimal Procedural Framework: The Indian Experience 41 R.K. Ghose 5. Fine Tuning Procedural Framework to Achieve Balance in Defence Acquisitions 55 Alina Arora and Yohan J. Balan 6. Defence Acquisition: Indian Army’s Perspective 76 Viney Handa 7. Challenges of Defence Procurement: A User Perspective 88 Aftab Khan and HS Jhajj 8. Perspective of the Indian Air Force on Key Issues of Defence Acquisition and the Reform Measures: Needed to Expedite Defence Procurements 99 S.K. Jha 9. A Critique of the US Defense Acquisition Process 110 Terrence Elemendorf vi Defence Acquisition: International Best Practices 10. Complex Programme Management in Defence 124 Michael Christie 11. Indian Experience in Contracting/Post Contract Implementation and Project Management Challenges 132 R.K. Arora 12. Logistics Management: The French Experience 147 Alain Costes 13. Harnessing the ‘PPP’ Model in Defence Acquisition and Construction Works to be a Catalyst for Participation of the Private Sector 163 Vinay Kaushal 14. Perspectives on Performance Based Logistics 187 Shobhana Joshi 15. Review of International Offset Experience 198 Thomas Mathew 16. International Offset Experiences and Policy Prescription 216 Kogila Balakrishnan 17. Impact of India’s Offset Policy on Military Industrial Capability and Self-Reliance 231 S.N. Misra 18. Explaining China’s Improving Defence Industrial and Innovation Capabilities 250 Tai Ming Cheung 19. Self-Reliance Through Smart Acquisition 262 Prahlada 20. Indian Ordnance Factories: An Agenda for Change 271 Anuradha Prasad 21. Defence Acquisition: A Shipyard Perspective 289 PR Raghunath 22. FDI in Indian Defence Industry 301 Laxman Kumar Behera 23. Transparency and Oversight in UK Defence Acquisition 317 Tim Banfield 24. The Indian Defence Acquisition System: Improving Oversight and the System 340 K Subramaniam Contents vii 25. Defence Acquisition Systems: A Look at Selected Nations 354 Mrinal Suman 26. Organisational Structure and Procedural Framework for Defence Acquisition in Brazil: The Challenge of Technology Transfer 375 William de Sousa Moreira 27. Capacity Building for Defence Technology Acquisition and Oversight 389 Ravinder Pal Singh 28. Defense Acquisition Workforce Management in the United States 403 Greg Beckham 29. Best Practices in U.S. Defence Procurement 412 Richard P. Rector and Dionis M. Gauvin Index 426 Foreword The international seminar on defence acquisition (held at IDSA in July 2011) aimed at examining the best practices in defence acquisitions. It was a platform to bring together functionaries from the MoD, the Armed Forces, and the industry of major developed and developing countries and experts on the subject for a three day long discussion. It was indeed a proud day for IDSA and we had an overwhelming response and participation for the first ever international seminar devoted to the myriad facets of defence acquisitions. The Honourable Defence Minister Sh AK Antony’s presence for the inaugural session and his candid address set the sense of the purpose and professional focus for the deliberations over the 3 day period. To our good fortune, we were able to bring together a significant number of highly accomplished speakers and chairpersons for the ten working sessions for this seminar. Together, they brought to the forum some unmatched, cross- country experiences and insights into the key concerns and policy dimensions in the realm of defence acquisition. The seminar offered unprecedented opportunity to India in particular and indeed equally to stakeholders and practitioners from all the countries represented for enhancing the effectiveness of policies, precepts and practices in this vital national empowerment effort. The major issues that were discussed included: technical requirements and capability definitions; technical and commercial evaluation challenges; structural elements for efficient acquisition; contract and project management; IT opportunities in defence acquisition; empowering the defence industrial and R&D base; role of offsets in acquisition, and efficient logistics management. The presentations made by the distinguished speakers exposed the participants to the need of having a mechanism for quick disposal of frivolous complaints and DPP deviations and the setting up of an Ombudsman or a regulatory authority to oversee the entire gamut of defence procurement. The technical and operational evaluation of a weapon system is a demanding exercise for all stakeholders and is best achieved through planning, discipline, rule-based execution and expertise. The importance of team composition and size for a time-bound evaluation campaign where the buyer and seller should designate respective team leader with the full responsibility, were highlighted for a successful conduct of evaluation. The discussions clarified that most cost growth occurs early in the development, although increases continue until the end of x Defence Acquisition: International Best Practices production and the main sources of cost growth are in “errors” and “decisions”. Cost growth in system development can be controlled if high-risk technology has matured sufficiently before development. It was also brought out that total cost of ownership (TCO) is very important and the comparison of figures of different weapon systems and manufacturers is difficult. It was highlighted that SQRs should be framed in a comprehensive and holistic manner and there should be no change necessary in the SQRs once they have been framed. RFPs should be formulated with due care and diligence in consultation with all concerned. There should be no change in the terms or specifications of the RFP after its issue. RFPs should progressively include integrated logistics and maintenance programs for as extended a period as practically possible. The need to strengthen financial scrutiny of procurement proposals at each stage of the procurement process so as to obviate the possibility of observations at later stages when remedial action may be difficult was also highlighted. The need to reinforce the acquisition wing by personnel possessing the requisite skills and knowledge for benchmarking, cost analysis and financial analysis also emerged. Clearly, the ultimate goal should be for establishing a separate professional organization that would deal with all defence procurements in a holistic manner. We received a very generous feedback from the participants and their suggestions have been forwarded to the MoD. One of the suggestions was for a copy of the presentations and papers presented. I had also mentioned in my address in the inaugural session that we propose to bring out the seminar proceedings including various papers contributed by the authors in the form of an edited volume. This volume contains the edited papers presented as well as papers contributed for the seminar. Our hope that the MoD would consider seriously the need for establishing a dedicated acquisition institute with necessary specialisations for the lasting benefit of all the stakeholders and practitioners in this vital area of work appears to be on course and MoD had tasked the IDSA to prepare a feasibility cum detailed project report in this behalf. This work has since been completed. We, at the IDSA, hope to carry this initiative further and the large Indian defence acquisition community would welcome similar initiatives to be undertaken on a sustained basis. VK Misra Former Secretary, Defence (Finance), Ministry of Defence, Government of India & Distinguished Fellow, IDSA Contents xi Keynote Address* At the outset, before I share my views on the crucial issue of defence acquisition, I wish to welcome our foreign guests and hope you all have a pleasant stay in this country. Over the next three days, this distinguished gathering of the strategic community will discuss threadbare, various issues related to defence acquisition. The Institute for Defence Studies and Analyses seeks to study and analyse the core concerns in the realms of diplomacy, defence, security