Modi’s Rafale deal 2.86% cheaper than Congress’, saved Rs 27,000 crores

New Delhi – Performance Audit Report No. 03 of 2019 of the Comptroller and Auditor General of India on ‘Capital Acquisition in Indian Air Force’ was tabled in Parliament today, the 13th February 2019.

This Report contains two volumes – Volume I consisting of seven chapters discusses the systematic issues in the acquisition process. It includes details of ten acquisition contracts.

Volume-II consists of audit findings relating to the acquisition of Medium Multi Role Combat Aircraft through an Inter Government Agreement (IGA) with the Government of France. This includes examination of the pricing. However, prices have been redacted in the Report based on the insistence of the Ministry of Defence citing the Indo French Agreement of 2008 and the provisions of IGA.

Audit examined the system of capital acquisition of air assets to assess its ability to meet the required capabilities, at the optimum price and the given timeframe. To acquire the right product at the right price, it is essential that the qualitative requirements (Air Staff Qualitative Requirements in the IAF-ASQRs) truly reflect the users functional need; maximum possible competition is generated; and technical and price evaluation is done objectively.

Audit noted that IAF did not define the ASQRs properly. As a result none of the vendors could fully meet the ASQRs. ASQRs were changed repeatedly during the procurement process. This created difficulties during technical and price evaluation and affected the integrity of competitive tendering. It was also one of the main reasons for delays in acquisition process. The objectivity, equity and consistency of the technical evaluation process was not evident in the Technical Evaluation Report.

Audit noted that the vendor response to solicitation of offers was low, which restricted competition. Number of vendors who responded to the Request For Proposal (RFP) was far less than the number of vendors who were invited to bid.

Ministry faced difficulties in realistically estimating the Benchmark price, making itdifficult to establish the reasonability of price. This also caused delay in price evaluation and contract negotiations. The model used for calculating the Life Cycle Cost of acquisitions had several deficiencies and needs to be fine-tuned and improved further.

There were severe delays at various stages of the acquisition process. Against three years envisaged in Defence Procurement Process, four cases took more than three years and seven cases took more than five years to reach the contract conclusion stage. Delays in acquisition were essentially due to a complex and multi-level approval process, where objections could be raised at any stage.

Overall the capital acquisition system, as it exists, is unlikely to effectively support the IAF in its operational preparedness and modernization.

Audit, therefore recommends that IAF should improve its process of formulation of ASQRs to ensure that they correctly reflect the users functional parameters.

Audit is of the view that the present ‘Lowest Price Technically Acceptable (LPTA)’ method of bid evaluation wherein the contract is awarded to the lowest priced offer which is technically acceptable, needs reconsideration. For procuring highly technical products use of the Best Value method or a quantitative assessment method may ensure better value for money.

Ministry needs to revisit the entire process of acquisition, to weed out redundant activities and simplify the process. The acquisition wing, headed by the DG (Acquisition) was envisaged as an integrated defence organization. In reality, this has perhaps not happened, with bulk of the acquisition related activities still carried out in Services Headquarters.