https://www.stratpost.com/7-ways-to-bullet-proof-mmrca-2-0/
7 ways to bullet-proof MMRCA 2.0 Lessons learned from the earlier MMRCA can prevent a repeat of that result
by Saurabh Joshi • July 6, 2018
Saurabh JoshiJuly 6, 2018
Art: Saurabh Joshi/StratPost
The first stage of the next attempt of the Indian Air Force (IAF) to acquire new fighter aircraft is about to kick-off with the deadline for submission of responses from six manufacturers to a Request For Information (RFI) ending on Friday – the same six that contested the earlier Indian competition for 126 Medium Multi Role Combat Aircraft (MMRCA).
Airbus and Dassault confirmed to
StratPost last week that they would be offering information on the Eurofighter Typhoon and Rafale, respectively. Four other contestants have already confirmed their intention to participate in the new process.
Origin Manufacturer Aircraft Engines
Sweden Saab Gripen E 01
U.S.A. Lockheed Martin F-16 Block 70 01
U.S.A Boeing F/A-18 Block III 02
Russia RAC/UAC/MiG MiG-35 02
France Dassault Rafale 02
Germany/U.K./Italy/Spain Airbus Eurofighter Typhoon 02
Although this contest appears to be a replay of the MMRCA with the same contestants all over again, there are ways in which it can be different – especially in terms of being run as a more robust process.
In this analysis, we examine lessons learned from the MMRCA contest and look at ways to strengthen the process to prevent a repeat of the earlier abortion.
1. Clarity of Intent
The defence ministry needs to come out with a clear statement of national intent. This means specifying a maximum budget for the acquisition and a clear approach on the process to be followed. And if you’re eventually going to go G2G (government-to-government), don’t issue an RFP (Request For Proposal) and waste everyone’s time and money.
2. Clarity on Budget
Cost is something that comes into play much later in the process, but can be prevented from becoming a problem at that stage, if it is taken seriously at the beginning.
The structure of the Indian defence procurement process incorporates a two-bid system. The first is the technical bid and the second is the commercial bid.
The closest the defence ministry or service headquarters come to budgeting for a particular procurement case is an estimate of cost called Acceptance of Necessity (AoN), which can be adjusted according to benchmarks when the commercial bids are eventually opened.
This can and does cause problems because of a disconnect between defence ministry estimates and eventual real-world market prices plus inflation. There have been cases where estimates and benchmarks have a wide variance from an apparent L1 figure. The MMRCA contest is one such example and the result was sticker shock, paralyzing the process and sending it into a black hole.
The problem here is the two-bid system. No one has any idea how much an order could cost until the opening of the commercial bids, after the technical shortlist. The shortlist tends to include the most expensive bids because it is created only on the basis of technical capabilities and compliance with SQRs. The shortlist ended up including only the two most expensive bids in the case of the MMRCA.
While it’s all very well to aspire to the best possible kit with all the bells and whistles, it defies reality and leads to inevitable, infructuous disappointment. There is no point considering platforms and equipment if the kit is going to be unaffordable.
Just as there is a minimum technical cut-off in terms of compliance requirements with the SQRs (Staff Qualitative Requirements), there should also be a maximum pricing cut-off. There’s a word for it. It’s called a budget. The Acceptance of Necessity is supposed to serve this purpose, but it fails to do so.
A budget for a procurement case should be nailed down before an RFP is issued, catering for inflation over a reasonable period of time allowed for the conclusion of the tender.
The new Defence Planning Committee headed by the National Security Advisor (NSA) Ajit Doval, in which the finance secretary and the defence secretaries are also members (besides the service chiefs), can serve as a clearing house to approve such a budget before an RFP is issued. This will ensure not only in-principle budgetary approval from the finance ministry but also a buy-in from the finance ministry into the acquisition process.
And although the contest can still follow the approach of technical shortlist and then L1 discovery, only those bids should be considered that fall within the budget. In fact, it might not be a bad idea to declare a budget and invite only those bids that fall within that number, with vendors being required to declare that their bid will fall within the budget.
This way the defence ministry and service headquarters can ensure they’re only considering bids that they can afford.
The alternative is potentially running tenders over and over again in the hope that some day there will be money for the best available kit, without any acquisition and modernization over years – decades, more likely.
This applies not only to the fighter acquisition program before us, but all procurement cases. There is good sense in defining how much you plan to spend. Otherwise the defence ministry might end up with a
Taj Mahal ka tender.
3. Single-Engine or Twin-Engine
The next bit is the structure and format of the fighter buy. Former defence minister Manohar Parrikar had arrived at the conclusion that the Indian Air Force (IAF) should focus on single-engine aircraft for the present, because single-engine and twin-engine aircraft should not be considered simultaneously because they can vary dramatically on cost and capability and, presumably, because an acquisition of single-engine aircraft would be cheaper, lower-hanging fruit.
The reason for this is, again, the MMRCA experience. With two single-engine aircraft and four twin-engine aircraft in the mix, a wide variance in cost and capability was inevitable. Also inevitable was the selection of the two most expensive platforms on the basis of their technical specifications, without cost being a consideration till that stage.
Think of it as buying a new car. It would be something like considering SUVs and crossover hatchbacks at the same time. If you have the budget for an SUV, why consider a crossover hatchback? And if a crossover hatchback will serve your commuting purpose, for example, why consider an SUV?
In belying expectations that the IAF would move to issue an RFI for single-engine aircraft, the bureaucracy has betrayed its insecurity and abdication of responsibility for the decision, kicking the can down the road to their successors’ successors and so on.
This is, perhaps, not entirely unexpected in the wake of the charges filed in the AgustaWestland case, which also involved specification of the number of engines for the helicopters bid in the tender. This decision is even less of a surprise considering that #RafaleScam has trended on Twitter over the last year.
Clearly and unsurprisingly, no one in government wants to be seen to be restricting the competition for fear of being perceived as favouring certain types of bids, even if it will lengthen the acquisition cycle and increase uncertainty about the tender.
But, as has been pointed out, this is an RFI. The IAF can still be clearer about their requirements in the following RFP and specify the number of engines they want their next fighter to have.
The alternative is running the
same MMRCA contest, all over again, which would raise the question whether there is an expectation of the same result or a different result?
4. Trials and Paperwork
Chapter 07 of the DPP which governs strategic partnerships, allows for sections of the trial process to be skipped where they have been carried out before. The defence ministry and IAF should take advantage of this provision and conduct trials only for those technological capabilities that have not been tested earlier or for those capabilities that vendors can justifiably claim have been significantly improved by them. This will save both time and money.
To ensure the tender proceeds without any hiccups, the defence ministry and IAF must ensure a high bar for the paperwork submitted by the vendors. In the last MMRCA, some vendors were dismissive about answering questions in the paper evaluation and were ejected from the contest, only to be brought back in later.
If a vendor is unable to demonstrate the minimum require technical capability in their paperwork, there should be no reason to allow their bid to be considered further in the process.
5. Derisking the Process with a Provisional L1
L1 is, as we know, the lowest technically qualified bid. But as
StratPost has pointed out before, there is nothing to prevent a vendor from submitting false or incomplete numbers in their bid to ensure they end up as L1. Under the rules governing tenders laid down by the
Central Vigilance Commission (CVC), the defence ministry has no option to move to the next-lowest bid or L2 after an L1 has been declared, in the event that the apparent L1 is not actually L1 or is unable or unwilling to satisfy the terms of the RFP in any other manner.
This is exactly what happened in the earlier MMRCA contest.
This results in the L1 vendor being able to hold the defence ministry
hostage – with it’s only alternative under CVC rules being to re-tender. A re-tender would result in the loss of many years of work on the acquisition program with no net modernization benefit to the service in question.
Instead of declaring an L1 bid upon opening the shortlisted commercial bids, the defence ministry should declare a provisional L1, to be certified later as L1 only upon complete scrutiny of offer and negotiation. If it is discovered that the provisional L1 bid is not actually the lowest technically qualified bid or the L1 vendor is unable or unwilling to satisfy the terms of the RFP, the defence ministry would be free to move the next-lowest bid and treat that as the provisional L1.
This would go a huge distance in derisking the acquisition process for the defence ministry and the armed forces. by removing the possibility of a forced re-tender to a large extent. Again, this needn’t apply only to the fighter acquisition program, but also all other procurement cases as well.
6. Clarity on technology transfer and domestic production
Any RFP should be as specific as possible in terms of the requirements for technology transfer and domestic production under Chapter 07 of the Defence Procurement Procedure (DPP) governing strategic partnerships.
Program managers for the earlier MMRCA tender failed to pay enough attention to this aspect of the acquisition case. In fact, the IAF – with it’s priority being solely selection and acquisition of an aircraft, being dismissive of the role Hindustan Aeronautics Limited (HAL) would have to play in the acquisition, virtually ignored the requirements of technology transfer and licensed production to the point where the L1 vendor was able to resist the application of the terms of the RFP to a stalemate.
This was the final point of failure of the MMRCA tender process.
Detailed clarity in the RFP and mandatory compliance of participating vendors with the terms for technology transfer and domestic production will prevent such a situation from arising.
7. Have the Money Ready
Finally, plan for the expenditure. There have been cases where L1 vendors have simply been unable to extend the validity of their bid because so much time has lapsed between selection and negotiation that their numbers no longer make a business case because of inflation or, in some cases, because they’ve simply had to shut down production of the platform or equipment.
If the money isn’t going to be made available, there is no point to this process at all.
