VK Aatre panel proposes audit wing for strategic partners for defence manufacturing

NEW DELHI: A key government appointed panel has suggested an independent regulator, a special auditing wing and a new ministerial department to deal with private sector players that would be chosen as strategic partners for major defence manufacturing projects.

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The VK Aatre led task force on selection of strategic partners has also suggested that for complex weapon development projects that involve a foreign player, a special purpose vehicle (SPV) may be formed and has stressed that any private company wishing to be a strategic partner will have to open up all its records for scrutiny by a specialized audit body.



The report – which has suggested several financial and technical criteria for selection that were detailed in an ET story on January 11 — is being studied by the defence ministry. The committee has recommended that the first strategic partner for prioritised segments should be selected within nine months.

Independent regulator
The committee report accessed by ET says, "for proper regulation and development of the strategic partnership model, an independent regulatory body will be required." The purpose of the committee would be to, "suggest modifications to procurement contracts" and would have "mediation and conciliation capability" to avoid "time consuming disputes."

The report has suggested the independent regulator should be, "independent and outside the MoD."

Specialised wing in MoD
The task force has also suggested that a new specialised department be set up in the defence ministry to exclusively deal with private sector companies selected for strategic partnership projects. The new wing would be a single point contact in the MoD for the partners and would conduct assessments and analysis of projects, besides monitoring developmental programmes.

New audit wing
A new audit wing in the ministry has been suggested that would monitor the cost plus structure that is being formulated for strategic partners. The audit rights suggested include access to all company books for selection and regular progress reports on any contracts placed by the ministry.

SPV model and IPR
In projects that require a foreign collaborator, the task force has suggested that a SPV be set up that would be scrutinised by the defence ministry. "SPV shall be wholly owned by the strategic partners and the shareholding of such a strategic partner should be locked in for the term of the partnership," the report says.

On IPR, Aatre task force has said the strategic partner needs to ensure that these can be used for 20 years.

Industry concerned
The industry has had a lukewarm response to the report. A major concern being that any particular company and its subsidiaries will be eligible to apply for only one for the main categories - aircraft, helicopters, aero engines, submarines, warships, guns, armoured fighting vehicles – for selection as a strategic partner.