Defence Procurement Procedure, 2016

The Ministry of Defence, GoI (‘MOD’), has with effect from April 1, 2016 notified the new Defence Procurement Procedure, 2016 (‘DPP 2016’) for capital acquisitions in the Indian defence sector, to, inter alia, evolve a policy framework to facilitate the ‘Make in India’ initiative in defence manufacturing. Key changes to the defence procurement procedure include replacement of ‘Buy (Indian)’ category with the newly introduced ‘Buy (Indian – IDDM)’ category as the most preferred category for capital acquisitions, which places highest importance on indigenous design, development and manufacture. ‘Make’ category programs have been classified into sub-categories of ‘Make-I (Government funded)’, where 90% of the project is funded by the MOD and ‘Make-II (Industry funded)’ where the entire project is funded by the vendor.

DPP 2016 defines ‘Indian Vendor’. Further, the threshold of cost of procurement proposals for applicability of offset obligations has been raised. The request for proposal (‘RFP’), may, on case to case basis, now allow foreign vendors to engage agents in India for marketing of equipment manufactured by the vendor, subject to disclosures and conditions prescribed in the DPP 2016. Depending on the procurement requirement, the RFP may provide for meeting certain enhanced performance parameters as prescribed in the DPP 2016. As per the draft RFP, vendors may be required to provide confirmation at the time of submitting the proposal, that, inter alia, there would be no review, revocation or suppression of the relevant export license. Execution of integrity pact has been made mandatory for all procurement schemes exceeding Rs 200 million (approximately US$ 2.98 million).