NEW DELHI: Several political leaders and other influential people are showing a sudden interest in 'life-cycle costing' — the new methodology adopted by the government for finalizing defence purchases. This vigorous interest of the powerful people has rattled many in the establishment, who suspect that the concept of life-cycle costing could be used to attack some of the major defence contracts being currently negotiated.
Life-cycle cost refers to the price of operating a system during its entire lifetime, including its maintenance, replacement, overhaul etc. The method has been adopted by several countries, including the US, Australia etc.
The selection of Rafale fighter made by French manufacturer Dassault for around $20 billion MMRCA (Medium Multi-Role Combat Aircraft) deal was done on the basis of life cycle costing. The same rule was applied to the selection of Airbus A330 MRTT as mid-air tanker for the Indian Air Force (IAF). In both the cases, the final negotiations with the selected vendors are currently underway.
When the ministry of defence (MoD) selected Rafale for MMRCA contract, the French fighter was the cheapest in both off-the-shelf purchase price and the life-cycle cost among the finalized vendors.
When the MoD selected the Airbus aircraft for mid-air tanker it was also on the basis of its low price point and life-cycle costing. However, the Russian competitor, IL-78 aircraft, was cheaper in off-the-shelf price. The contract is worth around $2 billion.
Over the recent weeks, sources said, the government is finding several important political leaders and other influential people showing undue interest in life-cycle costing. The heightened inquisitiveness, the MoD is worried, could be a sign of what is in store in coming weeks. The cost assessment process could be deployed to attack the selection in these contracts and others, they fear.
A senior opposition leader wrote seeking details of life-cycle costing from the MoD. A young MP took an appointment in the MoD to get a briefing from the officials on life-cycle costing, sources said. "We are seeing such curiosity from various quarters," an official said.
The concern is that the new costing could be used to attack the big- ticket purchases under process. Getting political leaders, influential analysts and others to write to the MoD is one of the standard practices of defence firms to mount pressure against a deal.
In this case, the MoD is expecting several arguments against life-cycle costing. How could the ministry make the selection when there is no contract under life-cycle costing for next 30 years? How could they compare the Russian mode of maintenance to the Western methods?
Until it adopted life-cycle costing, MoD was used to short list the winner based on cheapest off-the-shelf price. However, over the years the military realized that it was very expensive to often maintain the cheapest product. And, thus the government adopted the new concept.
Big-ticket defence deals face life-cycle costing scrutiny - The Times of India
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i had held this all along, the recent selection of weapons were not on pure technical basis, there was inherent bias in the selection, the term 'cost cycle' was used just as a tool to favor one particular contractor over the other, previously the calculations of life cycle cost were never used, and after these calculations were later brought in to tender, Russians started to loose all defense deals to the Americans, even while the rupee to dollar ratio is at its worst and the cost of spares or the hardware in general of the American systems is more than the Russian systems.
perhaps these calculations were intentionally brought in to move away from Russian hardware to western systems.
Big-ticket defence deals face life-cycle costing scrutiny
EDIT: i have changed the heading to highlight the issue at hand.
Life-cycle cost refers to the price of operating a system during its entire lifetime, including its maintenance, replacement, overhaul etc. The method has been adopted by several countries, including the US, Australia etc.
The selection of Rafale fighter made by French manufacturer Dassault for around $20 billion MMRCA (Medium Multi-Role Combat Aircraft) deal was done on the basis of life cycle costing. The same rule was applied to the selection of Airbus A330 MRTT as mid-air tanker for the Indian Air Force (IAF). In both the cases, the final negotiations with the selected vendors are currently underway.
When the ministry of defence (MoD) selected Rafale for MMRCA contract, the French fighter was the cheapest in both off-the-shelf purchase price and the life-cycle cost among the finalized vendors.
When the MoD selected the Airbus aircraft for mid-air tanker it was also on the basis of its low price point and life-cycle costing. However, the Russian competitor, IL-78 aircraft, was cheaper in off-the-shelf price. The contract is worth around $2 billion.
Over the recent weeks, sources said, the government is finding several important political leaders and other influential people showing undue interest in life-cycle costing. The heightened inquisitiveness, the MoD is worried, could be a sign of what is in store in coming weeks. The cost assessment process could be deployed to attack the selection in these contracts and others, they fear.
A senior opposition leader wrote seeking details of life-cycle costing from the MoD. A young MP took an appointment in the MoD to get a briefing from the officials on life-cycle costing, sources said. "We are seeing such curiosity from various quarters," an official said.
The concern is that the new costing could be used to attack the big- ticket purchases under process. Getting political leaders, influential analysts and others to write to the MoD is one of the standard practices of defence firms to mount pressure against a deal.
In this case, the MoD is expecting several arguments against life-cycle costing. How could the ministry make the selection when there is no contract under life-cycle costing for next 30 years? How could they compare the Russian mode of maintenance to the Western methods?
Until it adopted life-cycle costing, MoD was used to short list the winner based on cheapest off-the-shelf price. However, over the years the military realized that it was very expensive to often maintain the cheapest product. And, thus the government adopted the new concept.
Big-ticket defence deals face life-cycle costing scrutiny - The Times of India
---------------------------------------------------------------------------------------------
i had held this all along, the recent selection of weapons were not on pure technical basis, there was inherent bias in the selection, the term 'cost cycle' was used just as a tool to favor one particular contractor over the other, previously the calculations of life cycle cost were never used, and after these calculations were later brought in to tender, Russians started to loose all defense deals to the Americans, even while the rupee to dollar ratio is at its worst and the cost of spares or the hardware in general of the American systems is more than the Russian systems.
perhaps these calculations were intentionally brought in to move away from Russian hardware to western systems.
Big-ticket defence deals face life-cycle costing scrutiny
EDIT: i have changed the heading to highlight the issue at hand.
