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BEL allegedly violated string of norms to award contracts to German, Finnish firms; ex-CMD, two retired defence officials under scanner

New Delhi: Defence public sector undertaking Bharat Electronics Limited (BEL) handling Indian Air Force's (IAF) confidential Integrated Air Command and Control System (IACCS) awarded a sub-system contract without floating global tender to a German company Mueller Safe GmbH, which had produced only 75 pieces of valves used for such installation.

 BEL allegedly violated string of norms to award contracts to German, Finnish firms; ex-CMD, two retired defence officials under scanner

IAF deal by BEL under scanner. Screenshot from BEL

Another company Pro Hub Hebetechnik GmbH was also selected by BEL for a contract despite submitting the technical proposal after closing time of bid. A Finland-based company Temet OY was given an award on a single tender basis. Interestingly, Temet OY and Pro Hub Hebetechnik GmbH were already mentioned in a detailed project report of IACCS prepared by M/S RD Konsultants in 2013, raising serious questions over conflict of interest. It is learnt that two BEL officers currently working on IACCS project are also under the scanner of the Central Bureau of Investigation (CBI), which recently received source based inputs regarding their activities.

These facts emerging from documents and BEL’s internal inquiry report raise serious questions that Central Vigilance Commission (CVC) rules and BEL’s own purchase procedures 2016, were allegedly violated in the entire process of the project contracts, which began when the UPA government was in power. As reported by Firstpost on 2 April, BEL has come under the cloud by its own inquiry report for allegedly favouring project design consultant M/S RD Konsultants.

Documents reviewed by Firstpost shows BEL, in the gross violation of purchase procedure, awarded plant and machinery contracts worth hundreds of crores to foreign firms including Temet OY of Finland, Pro Hub Hebetechnik GmbH and Mueller Safe of Germany. No open or global tender was floated to select the vendors. Sources confirmed that the government is likely to ask investigative and enforcement agencies to probe into alleged irregularities in hiring design consultant, the award of contracts for the plant and machinery and role of the serving and retired officers in the process.

After Firstpost mailed a detailed questionnaire to MV Gowtama, chairman and managing director (CMD) of BEL, his office said BEL follows standard procedures, guidelines and its business practices conform to C&AG and CVC guidelines.

“The contracts for any project are awarded through competitive tendering and based on capabilities and capacities of partners/vendors. Hence prima facie BEL does not see any irregularity,” the BEL CMD's office said.

Temet OY, Finland citing non-disclosure agreement refused to comment on the contract and chose not to respond on working arrangements and details about its association with M/S RD Konsultants. It, however, claimed M/S RD Konsultants was not Temet’s agent.

“We can confirm that M/S RD Konsultants mentioned below is not and has not been an authorised Temet dealer. Of course, if there is an official investigation in progress, we will cooperate with the relevant authorities,” Tero Hanhinen from Temet OY said.

Temet OY though conveniently suppressed the fact that two of its officers, Likka Elias Kivisarri and Adel Velic were accompanied by M/S RD Konsultants' Vikram Parvathoju to BEL office from 6 to 8 August 2018 for technical discussion with defence PSU officers.

Questionnaire sent to Pro Hub and Mueller Safe, Germany, seeking comments went unanswered. M/S RD Konsultants did not respond to a detailed questionnaire sent on 31 March.

Deal with IACCS design consultant’s foreign affiliates raises a stink

The design firm M/S RD Konsultants in the detailed project report had mentioned that it was working with several foreign companies including Temet OY, Finland and Pro Hub, Germany. The fact has rattled BEL's internal investigators, who alleged that decision to go with a single vendor is surprising as the design consultant is questionable and requires further probe. The design consultant selected for all 10 sites has total control in the choice of sub-systems like electronic items, building management system and other sensitive hardware. By sidestepping the procurement procedure, BEL did not go for open or global tender for the procurement.

As per BEL purchase procedure para 10.1.7: “Open tenders shall be resorted to in case of non-production/ non project materials estimated to cost Rs 1 crore and above. The time allowed for receiving quotations against open tenders can be fixed, depending upon the geographical area covered, effort required to be put in by the vendors and other relevant factors, however shall not be less than 7 days. In case of global tenders, the notice will also be published in Indian Trade Journal and sent to Indian Missions abroad deemed necessary for adequate response in addition to the press advertisement and BEL website.”

None of these guidelines was followed by BEL in the procurement of equipment of IACCS and the competitive bidding for all 10 operation sites was surreptitiously eliminated and firms directly/indirectly linked with the design consultant were roped in. This is what BEL's inquiry report had feared. The report mentioned Temet OY, Finland is represented in India by Stahl Tecniks Private Limited, which is directly/ indirectly linked to M/S RD Konsultants. One of the past directors of Stahl Tecniks was Suruchi Totala, who was also director of RD Designs LLP that was floated in 2015 by M/S RD Konsultants partner SK Anand. Now, the RD Designs LLP is in the process of shutting the shop. The BEL’s report also alleges that being the single vendor for all 10 sites, the design consultant carried out works to make sure that it suits the private vendors of plant and machinery of its choice.

“The civil design for the underground structures would have been carried out keeping in mind the various sub-systems to be installed inside. For example, if blast doors of M/S Temet, Finland are chosen that all the openings for the doors would have been designed suiting the doors from Temet. Same would be the case for hydraulic lifts, air conditioning ducts, opening for blast valves etc. Hence either the systems selected by the consultants have to be used or else minor/major modifications would have to be carried out in the civil structure for interfacing any alternate make sub-system. This also substantiates the fact that if minimum two consultants had been hired then at least the two consultants selected would have proposed multiple vendors for the various sub-systems which would have led to healthy competition between various vendors leading to competitive biddings for various sub-systems,” BEL’s internal inquiry report said.

As indicated in the internal inquiry report, after submission of detailed project report, the IACCS contract signed between BEL and IAF had no other choice but to include several of these companies against the requirement with a condition that something equivalent could also be explored. The CVC guidelines are very clear that any purchase order above Rs 1 crore should be concluded through the tendering process and for foreign vendor’s global tender should be floated. The opaque procurement process of BEL was orchestrated in such a way that it gives an impression of a level playing field by exploring other alternatives other than the vendor already mentioned in the detailed project report.

Documents reviewed by Firstpost reveals that a smokescreen was created by constituting a technical committee within the BEL for procurement of plant and machinery for IACCS. On 24 May 2017, BEL chairman and managing director (CMD) MV Gowtama formed the technical panel to explore and identify vendors for the equipment for IACCS complexes (details withheld). This was an interesting turn of event because BEL purchase procedure, 2016, does not mention the constitution of a technical committee to explore, finalise and recommend the vendors. Nevertheless, the technical committee chaired by Umesh Chandra with Pugazhenthi R, BP Pahuja, Subbarao G, Prashant Ranjan Maurya and Udit Agarwal as members were tasked to finalize specifications, identification, shortlisting of original equipment manufacturers/ vendors for supply, finalization of quotation for the equipment and evaluation of suitable make/model for each of the items required for seamless integration with the civil structure of IACCS.

How the contract process was manipulated?

The internal investigation report of BEL gives an indication that the procedures to select vendors for the project was handled through a very simple method of picking the names from the documents submitted by the design consultant, which had prepared a detailed project report mentioning the name of foreign companies it was working with. The project report submitted to BEL was later forwarded to IAF which signed the contract and sent it back to BEL. Subsequently, BEL formed a technical committee to purchase IACCS associated equipment. Thereafter, the technical committee went for shopping at companies first mentioned by M/S RD Konsultants in the detailed project report.

Documents reveal the Finnish firm Temet OY was given the contract for regenerative Carbon Dioxide Removal System for IACCS sites for more than Rs 60 crore without floating global tender. Interestingly, purchase order said that technical committee headed by Umesh Chandra had recommended searching more vendors and two other firms M/S Parker and M/S Airef were explored but both were found not capable of manufacturing Cabon Dioxide removal system with required specifications. Why and how these two companies were selected by the technical committee to explore more option instead of going for an open or global tender remain in the domain of speculation. A BEL officer in the finance division noted in the file that price of the system given to Temet OY needs to be justified since it was on a single tender basis.

“As per company's policy, the price needs to be justified by technical evaluation or by comparing similar product available in the market not considered for the bidding," Sanjoy Kumar Pal, senior deputy general manager, finance wrote on 22 August 2018.

There is some interesting observation in the documents, which expose the alleged irregularities. RK Sharma, an officer from the material management division (Network Centric System) gave a contradictory statement in a bid to clarify the pricing based on a single tender. He said price quoted by Temet OY was well below the unit cost considered for the selling price, however, he further went on to say that there was no procurement history of similar items and prices of this system is not readily available in the market.

Subsequently, the technical committee recommended that enquiry for carbon dioxide removal system be sent to Temet OY, Finland only. The proposal was on a single tender basis and Temet OY, Finland was called for technical-commercial negotiations, which was held from 6 to 8 August 2018. Besides BEL and Temet OY officials, Vikram Parvathoju from design consultant M/S RD Konsultants was also present in the meeting.

While appointing the technical committee in May 2017, the CMD, BEL had clearly mentioned that representatives of design consultant, project management consultant and the third-party inspection and certification agency should be involved in the proceeding but neither project management consultants nor officials from third party inspection agency were present in technical and price negotiation meetings. After technical committee recommendation, the single tender proposal was approved.

Just a day after the committee meeting on 8 August 2018, which was attended by senior BEL officers including Joydeep Majumdar (General Manager, Network Centric System), BP Pahuja ( Assistant General Manager, Infrastructure, Network Centric System) and two representatives of Temet OY, the defence PSU started placing the purchase order for Temet OY, Finland. The total quantity of carbon dioxide removal system (details withheld) is mentioned on the 20 August 2018 note, which further said, “The total quantity was indicated by Infra group based on the design and requirements finalized by design consultant M/S RD Konsultants.”

“Technical committee recommended that enquiry for Carbon Dioxide Removal System be sent to M/S Temet OY only. The proposal is on a single tender basis,” the note said.

German company favoured despite submitting the technical proposal after closing time

Another foreign company under the cloud is Pro-Hub Hebetechnik GmbH based in Germany that was awarded the multi-crore contract of goods lifts for the IACCS project. The company was mentioned by M/S RD Konsultants in the detailed project report submitted during the UPA regime. M/S RD Konsultants had claimed that it provides design consultancy to the Pro Hub Hebetechnik GmbH. This issue has been raised in the internal investigation report of BEL, recommending further probe to ascertain conflict of interest.

Satyaprem from M/S RD Consultants was present in the technical meeting on 16 July 2018 between officials from BEL and Pro Hub Hebetechnik GmbH. No representatives from the project management consultant and third-party inspection and certification agency were present in the meeting. Documents reviewed by Firstpost shows technical committee had selected two companies for goods lift -- Pro Hub Hebetechnik GmbH and M/S Maspero Elevatori.

Documents reveal that Pro Hub Hebetechnik GmbH technical response vide 11 emails were received on 26 June 2018, after the closing time of bid. However, it was not disqualified. This move triggered suspicion among the BEL officer’s ranks and Sanjoy Kr. Pal, Senior Deputy Manager, Finance division, BEL on 26 July 2018 objected the move. He questioned on the proposal file for awarding the contract to Pro Hub Hebetechnik GmbH asking as to why late tender is being entertained and why purchase clause is not being followed in this case.

“The proposal is put up to CMD under what Sub Delegation of Powers (SDOP) clause? As per clause 10.2.7 of the purchase procedure, no late tender should be entertained. Why purchase procedure clause was not followed? Pal questioned.

On 27 July, RK Sharma, deputy general manager, Material Management (Network Centric System), BEL clarified that since the happenings and the facts related to the receipt of bids after closing time are in variation of the actually prescribed process in purchase procedure 2016, approval is sought of CMD for the process followed by Strategic Business Unit (SBU) of BEL. He further said that Pro Hub Hebetechnik GmbH was not disqualified because a ‘conscious decision’ was taken by the SBU, keeping in view the project requirements.

Sanjoy Kumar Pal, BEL officer from finance division, however, was not satisfied with the clarification and he clearly said that proposal was in violation of purchase procedure.

“The proposal is in deviation of purchase procedure and accordingly it is put up to CMD,” Pal wrote.

Despite the proposal contested by his own officer in finance division, CMD MV Gowtama approved the proposal on 27 July 2018.

Technical capability? Produced just 75 valves but selected by BEL

Another deal that has come under the scanner is blast valves, gastight valves and wall sleeves for the IACCS sites. The contract has been awarded to German company Mueller Safe GmbH, which primarily deal in safe and very recently ventured into valve manufacturing and till May 2018 had only produced 75 pieces. On the other hand, a UK company, European EMC Products Ltd (EEP), which had produced and supplied more than 2,000 valves was simply disqualified on the basis of not meeting the criteria for average annual turnover for last three years, which was vigorously contested by BEL officer Nataraj Krishnappa, Director arguing that EEP is technically suitable and competent.

“M/S EEP, UK has been dropped based on the criteria that annual turnover of the company for the last 3 years does not meet the desired requirement. This vendor is technically suitable and competent. Why cannot they be considered for Request for Quotation (RFQ) purpose? The site visit report of the committee does not indicate any reason for the disqualification of the vendor,” Krishnappa wrote on 28 May 2018.

Joydeep Majumdar, general manager (Network Centric System) wrote that the technical committee felt EEP being a small organisation with low turnover will not be able to handle contract estimated to be worth Rs 200 crores. Subsequently, the EEP, UK was dropped and instead of going for global tender, Request for Proposal (RFP) on the restricted tender basis was sent to Mueller Safe GmbH and Temet OY, a world leader in valve business, which had supplied more than 60,000 valves till May 2018 globally.

The bid was invited on 15 June 2018 and while the response from Temet OY was submitted before the expiry of bid submission time, Mueller Safe GmbH bid was received after closing time. Subsequently, Mueller Safe GmbH, which had no expertise in manufacturing valves was declared L1 and it was called for techno-commercial negotiations, which were held from 9 to 14 July 2018. Questions were raised within BEL as to why Mueller Safe, an inexperienced company in making valves, was given contract and why not re-tendering process inviting more companies was initiated by the BEL.

Documents reviewed by Firstpost reveals that an officer in the finance division had warned just before the finalisation of the contract to Mueller that “selection should be as per the technical manufacturing capability”. But, that was ignored. Even after Mueller Safe GmbH was awarded the contract, Naresh Kumar, deputy general manager of the finance division, BEL said that the bid of M/S Mueller Safe GmbH is received after the closing time and approval for bid acceptance received after closing time requires CMD approval. Another officer V Muralidharan, General Manager (Finance) also flagged the concerns on 26 July 2018 that since the proposal was accepted after the closing time of bid, CMD post facto approval of deviation would be required. The proposal was approved by the CMD on 27 July 2018.

Documents reviewed by the Firstpost also revealed Mueller Safe GmbH was not mentioned in the RD Konsultants documents and thus it appears that no representatives from the design consultants attended the meetings. No one from the project management consultant and third-party inspection and certification agency was present either. Also, the meetings held between 11-12 July 2018 at BEL office with the Mueller Safe GmbH functionaries had not representatives from the above-mentioned group.

It is further learnt that original equipment manufacturer for valve refused on Transfer of Technology (ToT) arguing that its business will be adversely affected in the case full know-how is given to BEL as defence PSU will become the competitor in the market. The technical committee agreed upon partial ToT and gave its go-ahead for the contract.

The BEL internal inquiry report has recommended further probe into the installation of the sub-systems of IACCS observing that site design might be designed keeping a particular company in mind.

“It is also claimed that ‘M/S RD Konsultants’ has designed the underground RCC structure taking into consideration a particular make of doors, hatches, blast valves, lifts, air conditioning, building management systems etc. All the reinforcement, cut-outs etc in the RCC structure were designed for interfacing with the particular brand (example for the doors the steel reinforcements in the opening were designed as per the hinge locations in the particular band of blast doors). Since the RCC structures have been made at many sides even before the finalization of the sub-systems to be installed hence it needs to be studied what was the repercussion in the change in scope of RCC structure already built and what was the cost repercussion BEL had to bear," the internal inquiry report said.

Similarly, the order for radio and its accessories worth more than Rs 9 crore, was also given to a Germany based company (details withheld) on a single source basis without inviting tender. It appears this German firm selected without tendering process was not the original manufacturer. A key document reviewed by Firstpost said, “The firm indicated that most of the hardware being delivered by them is third-party hardware.”

IACCS prototype makers joined fugitive arms dealer Sanjay Bhandari firm

It is learnt that two senior officers of defence PSU, BEL, who were instrumental in designing prototype for Indian Air Force's confidential IACCS project in 2007 joined fugitive arms dealer Sanjay Bhandari's firm OIS Advanced Technology Private Limited after retirement in 2011. Interestingly, BEL was preparing to formally launch the IACCS project by inviting preliminary project report for 10 automated air operation centre for Indian Air Force around the same time. The two officers, who joined arms dealer’s company at senior positions, are now under the scanner of Enforcement Directorate (ED), which is probing alleged kickbacks linked to Bhandari in Swiss basic trainer aircraft Pilatus during UPA regime in 2012. Incidentally, BEL is the offset partner of Pilatus.

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Updated Date: Apr 09, 2019 17:44:12 IST

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