New defence 'Make' procedure heads for clearance

The defence ministry believes the "Make" procedure, which DPP-2013 explicitly favours, is the key to indigenising the production of complex defence systems

On Thursday, the ministry of defence (MoD) will take an important step towards galvanising indigenous defence capability, when the Defence Procurement Board (DPB) will consider, and probably approve, a new procedure for “Make” category procurements. This will simplify and modify the Make procedure formulated in 2011.

The Make procedure would bring together Indian companies in designing, developing and building defence equipment the military requires several years down the road. The MoD pays 80 per cent of the development costs.

The Make category is a part of the Defence Procurement Policy, the latest version of which —DPP-2013 — was released on June 1. Every equipment purchase is “categorised”, depending upon whether the equipment will be developed and built in India (Buy Indian and Make categories); built in India by an indigenous consortium with foreign technology partners (Buy & Make Indian); built in India with transfer of technology from abroad (Buy & Make with ToT); or bought over-the-counter from a foreign vendor (Buy Global).

The MoD believes the Make procedure, which DPP-2013 explicitly favours, is the key to indigenising the production of complex defence systems. The new DPP-2013 made no changes to the Make procedure because the MoD was evaluating far-reaching changes to that specific category.

These changes have now been finalised. After approval by the DPB on Thursday, it will go to the apex Defence Acquisition Council (DAC), chaired by the defence minister. Then, it will be promulgated as policy.

The key changes to the Make procedure include — allowing intellectual property rights (IPR) to vest with the companies that develop the intellectual property; laying down clear guidelines for evaluating bids and choosing a company as the development agency (DA); laying down schedules for paying the DA; imposing financial costs on the MoD if equipment specifications are changed during the development process; and writing out the procedure in clear and simple prose.

“Whoever wrote the earlier Make procedure was more inclined to aspirational statements about indigenisation. The new document avoids grandiose prose, laying down the procedure in simple, understandable prose,” says an MoD official.

IPR has been a long-running point of dispute, with the MoD insisting on acquiring it, having provided majority funding. The MoD has now realised that it does little with the IPR, while industry would develop the IPR into more advanced systems. While allowing the DA to retain the IPR, the new Make procedure gives the MoD a perpetual licence to use it.

Lack of clarity on how the MoD would choose a development agency (DA) has already derailed one Make project — the future infantry combat vehicle (FICV). The new procedure lays down explicit guidelines for selecting a DA out of the companies that give a detailed project report.

The earlier procedure, while committing the MoD to funding 80 per cent of the development cost, did not specify when funds would be released. The new procedure specifies development landmarks and the quantum of funding to be paid out at each stage.

Indian DAs have long complained that the military tends to change specifications during development, adding to the cost and delaying the project. The new procedure levies financial penalties for changing specifications mid-way. This could add a measure of discipline to the often ill-considered formulation of specifications.