CAG report on Rafale: Defence ministry needs to 'revisit entire acquisition process'; full text of executive summary

The Narendra Modi government on Wednesday claimed vindication after a controversial report tabled in Parliament said that the NDA administration’s deal on Rafale fighter jets is 2.86 percent cheaper than the agreement that the UPA government had negotiated. The Centre tabled the Comptroller and Auditor General’s (CAG) ‘Performance Audit Report’ on Capital Acquisition in the Indian Air Force in the Rajya Sabha, which also said that the delivery schedule of the first 18 Rafale aircraft is better than the one proposed in the 126-aircraft deal. The CAG report also noted that the failure of the defence ministry’s Contract Negotiations Committee to estimate a benchmark price had caused a delay in price evaluation and contract negotiations. “The model used to calculate the life cycle cost of acquisitions had several deficiencies and needs to be fine-tuned and improved further,” the report said. Follow LIVE updates on the Rafale deal and the CAG report here. Here’s the full text of the Executive Summary of the CAG report on the Rafale deal: The Indian Air Force (IAF) is tasked to defend the nation and its airspace against air threats for which it must maintain high state of operational preparedness. Acquisition of the required air assets, at the right time, is critical for the preparedness and modernization of IAF. Audit, therefore 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, instead of defining in the ASQRs in terms of functional parameters, made it exhaustive and included detailed technical or design specifications. That had several consequences such as none of the vendors could fully meet the ASQRs; user needs were sometimes overridden; ASQRs were changed repeatedly during the procurement process; waivers had to be obtained for some ASQRs; and some ASQRs were shifted to Contract Negotiations Committee (CNC) to negotiate, though these were technical issues. The objectivity, equity and consistency of the technical evaluation process was consequently affected. This created difficulties during technical and price evaluation and affected the integrity of competitive tendering, and also became one of the main reasons for delays in the acquisition process. Audit noted that the vendor response to the solicitation of offers was low, which restricted competition. The number of vendors who responded to the Request For Proposal (RFP) was far less than the number of vendors who were invited to the bid. The complexities and delays in the acquisition system, narrow, over defined ASQRs and selection on the basis of L1 rather than quantitative methods of the best value for money seem to be some of the reasons for poor response from vendors. The CNC repeatedly failed in realistically estimating the benchmark price, making it difficult to establish the responsibility of price. This also caused a delay in price evaluation and contract negotiations. The model used for calculating the life cycle cost of acquisition 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 the 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. Exhaustive ASQRs with detailed technical or design specifications should be avoided unless they are functionally necessary. In the process of acquisition, the involvement of academic experts, in relevant fields, such as aerospace engineering is advisable in the view of the fact that latest and most complex technologies, evolving rapidly, are being used in almost all defence systems and weapons. It would be impractical to expect that in-service officers, doing full-time jobs, can keep up with the rapid development to the extent that academicians, devoted to that subject, might. Audit is of the view that it needs to be considered whether 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, is suitable for all procurements. For procuring highly technical products use of the Best Value method or a “Quality cum Cost” assessment may yield 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 organisation. In reality, this has perhaps not happened, with the bulk of the acquisition-related activities still carried out in the Services’ Headquarters; which is not unexpected and is needed. However, in that case, it needs to be seen if the Acquisition wing is serving the purpose it was set up for, or some Business Process Reengineering is required to achieve the purpose.