Defence Buying 2.0: Sturdier L1 formula & more to boost ‘Made in India’

New Delhi: In a major overhaul of defence procurement rules, the government is set to tweak the age-old L1 formula to give extra credits to Indian companies and startups that focus on research and development and invest in owning intellectual property rights (IPR) rather than just obtaining technology transfers.

The draft Defence Acquisition Procedure (DAP), which will determine how the armed forces spend their $23 billion annual capital outlay, marks a doctrinal change from ‘Made in India’ to ‘Owned by India,’ with a focus on fostering the startup ecosystem with assured orders and protection from expensive trials that had to be conducted on a ‘no cost, no commitment’ undertaking in the past.

As per the draft rules--the government has invited comments before they can be notified by the end of March--capital acquisitions will prioritise Indian companies retaining source codes and critical design data as well as having complete freedom for upgrades and modifications. The L1 formula--in which the lowest, technically compliant bidder would automatically be declared the winner--has been tweaked to add technical parameters as well as indigenous design.

Enhanced Parameters

These had to be conducted on a ‘no cost, no commitment’ undertaking in the past.

As per draft rules, capital acquisitions will prioritise Indian companies retaining source codes and critical design data, as well as having complete freedom for upgrades and modifications.

The L1 formula — in which the lowest, technically compliant bidder would automatically be declared the winner — has been tweaked to add technical parameters as well as indigenous design.

The government has invited comments on the draft rules before they can be notified by the end of March. Companies that can meet enhanced performance parameters (EEP), which exceed the basic technical requirements, will be given extra credits when it comes to calculating the winner. Similarly, up to 10% credit will be given to companies that meet indigenous design parameters, which will include IPRs and detailed designs.

The DAP leaves routes open for acquisition of foreign platforms but requires specific, high-level clearances for each such purchase. “Cutting edge of national defence will be maintained by procuring the critical equipment through foreign routes as well as commencing parallel development of domestic alternatives,” says the preamble to the new rules.

Faster & Efficient

The other major change is trimming of procurement timelines, which has tended to drag on for years in the past. As per the draft rules, procurements will be carried out 30-50% faster, with changes in approval timelines, trimming deadlines for technical approvals and cost negotiations.