Indian Defence Procurement Procedure, Procurement Manual - 2006

2006-08-30 The following document is the official text of the Indian Government's Defence Procurement Procedure and Procurement Manual for the year 2006.

'Make' procedure to boost indigenous research development and production facilities, amplification of Defence Offset Implementation policy, introduction of vendor registration through internet, transparency in conduct of field trials, pre-contract integrity pact and level playing field for Indian industry are some of the important features of the Defence Procurement Procedure (DPP) - 2006 and Defence Procurement Manual (DPM) - 2006 released here today by the Defence Minister Shri Pranab Mukherjee.

Make Procedure to Boost Indigenous Research Development and Production Facilities

The resurgence in Indian industry today offers scope for their greater involvement in the Defence sector, due to availability of requisite skills and infrastructure for undertaking defence production and even research and development in some fields. Private Sector can today harness available expertise of management, scientific and technological skills and also raise resources for investment in research and development. One area that had not been addressed so far was a procedure for acquisition of defence equipment developed based on indigenous research. The 'Make' procedure bridges a critical gap that existed in our procurement procedure and paves the way for increased participation of Indian Industries in defence sector and attaining the goal of self reliance in defence production.

The objective of the 'Make' procedure is to ensure Indigenous Research, Design, Development and Production of capabilities sought by the Armed Forces in prescribed timeframe while optimally utilising the potential of Indian Industry. These activities would be undertaken by Ordnance Factory Board (OFB), Defence Public Sector Undertakings (DPSUs) and licensed Indian Industry and industries identified as Raksha Udyog Ratna (RUR) / Consortia on a level playing field on shared development cost.

Multi Disciplinary Integrated Project Management Teams (IPMTs) would be nominated for each project which would make a detailed assessment of the responses received from the developing agencies. This would include an assessment of the manufacturing and design capability of all the industries/Consortia who are interested in participating in the programme. The contribution of the Indian industry in the critical technology areas would be the key criterion in assessment of various proposals. In case of projects which are funded by MoD, the Intellectual Property Rights would belong to the MoD.

Minimum of two production agencies would be short listed. An essential requirement for short listing of development agency / agencies is identification of firms with proven excellence with capability to contribute due to their technical, managerial and financial strengths.

In case where the system configuration is complex, development lead time is relatively long, technological risks are substantial, the Defence Acquisition Council (DAC) would approve the sharing for the development cost with the developing agency / agencies. The IPMT would identify important milestones during the development of prototypes. Funds would be released as per schedule of release of payments linked to achievement of milestones. In case the project does not proceed according to the predetermined milestones and there are time and cost overruns the project may be foreclosed as per pre determined exit criteria.

The two agencies selected would under take the design and development of prototype. The prototype would be subjected to technical and field trials to assess the overall performance of the systems. The testing may require specialized facilities like conduct of proof firing and extensive firing trials for weapon systems. Such facilities, specifically required for military applications, are national resources, and are mostly available at selected centres of DRDO and Directorate General of Quality Assurance which would be made available to the development agency. The developed prototype should have minimum 30 per cent indigenous content.

If both the developing agencies successfully develop the prototype the contract for minimum order quantity would be awarded to the lowest bidder.

Amplication of Defence Offset Implementation Policy

The Offset Policy for defence procurement was introduced in June, 2005. It stipulates that all contracts over Rs. 300 crores must have a minimum offset of 30% and the offset obligation should be discharged concurrently with the main contract. It is estimated that offsets to the extent of $ 10 billion will be generated during the 11th Plan period. The offset policy can be discharged in any of the forms given below:


(a) Direct purchase of, or executing export orders for, defence products and components manufactures by, or services provided by, Indian defence industries, i.e., Defence Public Sector Undertakings, the Ordnance Factory Board, and any private defence industry manufacturing these products or components under an industrial license granted for such manufacture. For the purpose of defence offset,