Dpp 2011 – An Analysis

DPP 2011 – An Analysis
Changes Vis-à-vis Amendments issued to DPP 2008 in
the year 2009 and DPP 2008
Ankur Gupta
Senior Consultant – Aerospace and Defence
Ankur4.Gupta@in.ey.com

In collaboration with:-
Rahul Gangal
Director – Defence Advisory and Investments
Rahul@Aviotech.com

Policy Changes

Table of Contents / Renaming of broad categories
Defence Procurement Procedures Defence Procurement Procedures
Implications
2008 2011
“Indigenous Naval Ship Building
“Procedure for Defence Ship Building” Dropping of the term Indigenous
Procedure”

Introduction of DPP
Implications
2008 2011
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

Page 2 Presentation title

Policy Changes
Chapter 1 – Defence Procurement Procedures for ‘Buy’ and ‘Buy & Make’ Categories
Para No. Implications
2008 2011
Formal Incorporation of Clause 9A
This clause requires sharing of 15 year
9A from Ammendments issued to DPP
perspective plans with the Industry
2008 in the year 2009 amendments
DPP 2011 tries to make the SQRs more
realistic and more in-sync with globally
Formal Incorporation of Clause 13 available/under development equipment
13 from Ammendments issued to DPP thereby minimizing unrealistic functional
2008 in the year 2009 amendments characteristics which had earlier adversely
impacted several capital acquisition
programmes
Formal Incorporation of Clause 15
15 from Ammendments issued to DPP
Formal Incorporation of Clause 18
Addition to Clause:-

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


Policy Changes
Chapter 1 – Defence Procurement Procedures for ‘Buy’ and ‘Buy & Make’ Categories
2008 2011
Formal Incorporation of Clause 25A
This clause requires sharing of 15 year
25A from Ammendments issued to DPP
perspective plans with the Industry
The Indian entity could be a company
incorporated under The Companies
Act 1956, including DPSUs or entities DPP 2011 has removed the mention of
The Indian firm to be selected would like OFB / Army Base Workshops/ RUR. It has also broadened the recipients
be from a list of public or private firms Naval dockyards / Base Repair of MTOT. Also previously, the foreign
which would be specified in the RFP. Depots of Air Force. This entity would OEM would be free to select any of the
28
These firms would be DPSUs / OFB / be nominated by DDP at Indian entities listed in the RFP as a
Raksha Udyog Ratnas (RURs) or any SCAPCHC stage and would be recipient of MTOT. Now, the choice would
other firm as selected by the DDP. included in the recommendations of be made by the MoD while seeking the
SCAPCHC as also in the SoC AON from the DAC.
submitted to DAC for seeking
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
Headquarters from their respective
41 equipment at the designated location
Vice Chief keeping in view the
ensuring that all the shortlisted vendors are
practical time period necessary for
present in the trial process
trials. Equal 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
acquisition process
and should not be involved with that
acquisition case.

Policy Changes
Appendix A (Refers to para 18 of chapter 1)
2008 2011
Introduction of DPB in categorisation
Security This appears to be a harmonisation of the
status as well as on Reference
Classification chart vis-à-vis the text in Para 18.
Number Allocated
Formal Incorporation of clause 3.(G)
Security
(ii) and 3.(G)(iii) from Ammendments
Classification
issued 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
Security timelines given at Appendix C to
to be accounted for and justified beforehand
Classification Chapter 1 of DPP? If so, deviations
for consideration of SCAPHC/DPB and DAC
and week-wise targets to be proposed
as per the value of the programme.
by SHQ with 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
Classification Make, 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


Policy Changes
Appendix (Refers to para 3(p) of Appendix A)
2008 2011
Addition of Annexure detailing
proposed timeline for procurement

Notes to Appendix A1 (Refers to para 18 of chapter 1)
2008 2011
Clarification and addition of reference
Notes to notices issued in 2006 and 2007
Point (e) vis-à-vis the delegation of powers at
Point (f) level of SHQ/IDS and Quantity vetting
and composition of CNC

Appendix B (Refers to Para 47 of chapter 1)
2008 2011
Addition of an introduction to the
appendix Bin lieu of note at the end of
clause in DPP 2008 (Approval of DG
Standard CNC composition can be altered
Acq.) to be solicited for any change in
with prior permission of DG (Acq.) and other
Introductory the compositions mentioned above.
members may additionally be nominated
clause However, in the delegated power
from other agencies with prior approval of
cases member of any other agency
Vice Chiefs /CISC and DGICG
apart from the prescribed members
can be associated with the approval of
Vice Chiefs/CISC/DG ICG.)


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

2008 2011
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 the RFP from the receipt This may make it challenging for OEMs to
of Pre-Bid reply is only 3 weeks now. respond in time.
However the total time period from
Issue of RFP to receipt of responses
remains at 12 weeks.


Policy Changes
Appendix D (Refers to Para 22 of Chapter 1) Provisions for implementation of Offsets
2008 2011
This has very significant implications
whereby it allows the new offset guidelines
to be applicable on all eligible capital
Introduction Removal of mention of version of DPP acquisition 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
1.3 from 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” DPP 2008 : 2.1.a) has been modified
2.1.a) This allows for addition of Training services,
“Indian Defence Industries” to the extent of DPP 2011 2.1.c)
tools and products including simulators to
related to Services being categorized
be counted as offset
under a separate point. Training has
been added as an item in the services
list


Policy Changes
Appendix D (Refers to Para 22 of Chapter 1) Provisions for implementation of Offsets
2008 2011
Formal Incorporation of clause 6.3
6.3 from Ammendments issued to DPP

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
2 • Specialized equipment for surveillance including hand held devices and 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.


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
Civil Aerospace Products Aerospace Products as
• All types of fixed wing as well as rotary aircraft including their air offset qualifiable products
frames, 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
• Flying training institutions and technical training institutions (excluding thereby making the product
civil infrastructure). scope for offset obligation
fulfillment easier

Appendix E1 (Refers to Para 24(b) of Chapter 1)
2008 2011
The DPP 2011 allows for one single
combined Performance cum warranty bond
of 5% the Total contract value instead of two
Performance-cum-Warranty Bond both
separate bonds of 5% each as Performance
Part 1 equal to 5% value of the contract is
Bond and Warranty Bond in DPP 2008
5(j) required to be submitted after signing
thereby bringing in some savings to bidders.
of contract.
This is also reflected in the Appendix B to
Schedule I


Policy Changes
DRAFT RFP FORMAT
2008 2011
Formal Incorporation of clause 16A
16 A from Ammendments issued to DPP

APPENDIX F to Schedule 1
2008 2011
Modification to Clause
This is a departure from DPP 2008 wherein
An LC can be established in any of the an Irrevocable LC could have been
5
Four Public Sector Banks i.e. S.B.I , established in any of the 27 public sector
Bank of Baroda, Canara Bank or banks besides SBI
Syndicate Bank
Change of validity of the performance cum
The Performance-cum- Warranty
The Performance Bond should be warranty bond which is now valid for 3
Bond should be valid for a period of
valid for a period until three months months from end of warranty period. This
three months beyond the warranty
7 from the date of receipt of last has arisen due to a combined performance
period as specified in the contract and
consignment and should be furnished cum warranty bond in DPP 2011 instead of
should be furnished within 30 days of
within 30 days of signing the contract. separate performance and warranty bonds
signing the contract.
in DPP 2008
Indemnity Bond : With regard to
Payment Clauses including Bank
Guarantee for Advance and
Performance cum Warranty, for
The mention of Indemnity bond in para 7 of
Defence PSUs being issued RFPs as
8 Appendix F of schedule 1 has now been
a nominated production agency or on
elaborated into a separate point.
an ab-initio single vendor basis,
submission of BGs need not be
insisted upon. They should give
Page 11 Presentation title Indemnity Bond.

Policy Changes
APPENDIX F to Schedule 1 – Payment Terms

2008 2011
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 This is also reflected as an additional
Indian vendors under Buy ‘Global’ paragraph 1A in annexure III to Appendix F

ANNEXURE 1 to Appendix F – Application of DCF technique
2008 2011
Change of Borrowing rate
Reduction in borrowing rate to be
3 9.5%
considered while applying DCF technique
9%

ANNEXURE 3 to Appendix F – Guidelines to protection of ERV in contracts
2008 2011

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

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


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

2008 2011
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
worksheet. Elaboration on the documents which are to
4
(b) Banker's Certificate / debit advice be presented to claim ERV benefit
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.


Policy Changes
ANNEXURE 1 to APPENDIX H to SCHEDULE 1
2008 2011
Formal Incorporation of clause 16A

ANNEXURE H to Schedule 1 – Agents / Agency Commission
2008 2011
Modification of existing clause

Refund to the Government of India
19
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)
2008 2011
Renaming of this clause to Integrity
Pact Bank Guarantee (IPBG)

A list of specific banks has been
Ernest Money / Security Deposit
included in lieu of any Indian
Nationalised Bank in DPP 2008 Reduced burden on bidders who are not
8
successful.
Validity of EM/SD at 5years or
The validity of the IPBG is 45 days
conclusion of contractual obligations
post validity of commercial offer. For a
successful bidder this would be
extended unto the completion of
Page 14 Presentation title contract.

Policy Changes

ANNEXURE IV to Appendix F – Draft Copy of Performance-Cum-Warranty Indemnity Bond
2008 2011

New Annexure Added


Policy Changes
Chapter 3 – Procedure for Defence Ship Building
2008 2011
Addition of New subsections that
clearly demarcate the procedures to
be followed for naval vessels built on
Private shipyards now have a more sound
a nomination basis at DPSU shipyards
chance to participate in India’s Naval
3 and naval vessels built on a
programs. This would be of particular
competitive basis by DPSU or Private
benefit to L&T, Pipavav and ABG.
shipyard.

Chapter 4 – Fast Track Procedure

2008 2011
Liquidated Damages (LD) : In case of
delay in supplies, the vendor will run Liquidated Damages (LD). In case of The removal of the Blacklisting clause will
the risk of delay in supplies, the vendor shall be make OEM’s less apprehensive in
imposition of LD @ 1% per week levied LD participating in the Fast Track Procedure
27
subject to maximum of 10% of value of @ 1.5% per week subject to maximum programs. However the total Liquidated
delayed store apart from the getting of 15% of value of delayed store. Damages has increased from 10 to 15% of
black listed and debarred from future the delayed store.
dealing with the Govt of India.


Dpp 2011 – An Analysis

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