Relief for defence companies for R&D delays, 5-year order assured

New Delhi: Companies facing delays during the development phase of prototypes for the armed forces have got a big relief, with the government abolishing fines and reducing liquidated damages (LD) by half for delays after the development phase as well.

Relaxation in the research stage and assured orders for companies for at least five years are among the major changes in the revenue procurement rules cleared by defence minister Rajnath Singh. The first major overhaul of the rules since 2009 has been carried out as part of the ministry's year of reforms initiative. A separate process to overhaul the defence acquisition procedure for capital purchases is also underway, with the final report of an expert panel expected by December.

The rules deal with revenue procurements worth close to ₹1 lakh per year and a new procurement manual has been approved to streamline and simplify procedures. Revenue procurements include ammunition and stores for the forces, which form a major chunk of the annual defence spending.


"There has been a pressing need for this manual to be aligned with latest developments in the field of public procurement," officials said.

The private sector in particular will get relief from penalties levied by the ministry in case of delays in prototype development and delivery of new-age weapon systems. Given supply chain issues and the challenges of developing modern equipment to the specifications of the armed forces, several companies faced levies and fines if initially defined timelines were not met.

"Provision has been introduced not to levy liquidated damages during the development phase. Minimal LD at 0.1% will be levied post development of the prototype. Maximum LD to be levied has been lowered to 5%, and in case of inordinate delays only, maximum LD will be 10%," officials said.

The rules will provide assured guarantee of orders in terms of quantity for up to five years. In special circumstances, the industry can also be guaranteed orders for the next 10 years.