September 19, 2014
The Standard Contract Document (SCD) contained in chapter V of the Defence procurement Procedure (DPP) 2013 contains ‘general conditions of contract that would be the guideline for all acquisitions’.1 All draft contracts are required to be drawn up as per this guideline with one exception.
In single-vendor procurement cases, if the government of India has a standing agreement with the vendor or the country from which the equipment is being sourced, the terms and conditions of such an agreement supersede the corresponding standard clauses of the DPP.
Quite clearly, SCD is a template meant for guidance of the contracting parties. It is not cast in stone; every contract does not have to be its exact replica. That simply cannot be. But it is not uncommon for the contracting officials of the Ministry of Defence (MoD) and the vendors to get embroiled in protracted discussion on the wording of some of the clauses.
One possible reason for this is that any departure from the standard text is viewed as a ‘deviation’. As per paragraph 75 of DPP all deviations from the prescribed procedure require to be placed before the Defence Acquisition Council (DAC) through the Defence Procurement Board (DPB) for approval.
That would put the officials seeking approval for a deviation immediately on the back foot. To adopt this time-consuming route would inevitably entail giving detailed justification for seeking the approval and, given the atmosphere, running the risk of the entire move being seen with a tinge of suspicion. But this is not the only reason.
To a large extent, reluctance on the part of the officials to agree to any suggestion that requires tweaking of the clauses of the standard document is on account of the uncertainty about the consequences of agreeing to the suggested changes. Insistence on the part of the vendor to tweak the clauses - often without explaining the rationale - does not help. It is equally true that giving the rationale is also of little help in persuading the officials to agree to any change in the text of the standard clauses.
This must change but for that to happen DPP must clearly define what is meant by the ‘prescribed procedure’.
The ‘procedure’ comprises the following ‘functions’ enumerated in paragraph 12 of DPP:
Services Qualitative Requirements (SQRs)
Acceptance of Necessity (AoN)
Solicitation of offers
Evaluation of technical offers by the Technical Evaluation Committee (TEC)
Field Evaluation
Staff Evaluation
Oversight by Technical Oversight Committee (TOC) for acquisitions above ₹ 300 crore
Commercial negotiations by the Contract Negotiation Committee (CNC)
Approval of the Competent Financial Authority (CFA)
Award of contract/supply order
Contract administration and post-contract management
These are essentially various stages in the acquisition cycle. Bypassing any of these stages would obviously constitute a deviation from the prescribed procedure. There are processes linked with each of these stages, though these are not clearly laid down or not laid down in as much detail as desirable. Be that as it may, any deviation from the process required to be followed at each stage, either in conformity with the prescribed guidelines or established convention, would also clearly constitute a deviation from the prescribed procedure.
It is only after crossing the first nine stages that an acquisition programme reaches the stage of drafting of the contract. Those drafting a contract are not required to first examine whether there has been any deviation in the sense of one or more stages being bypassed or the process linked with each stage not being adhered to, before they proceed to prepare the draft. Therefore, at the stage of drafting of the contract, the term ‘deviation from the prescribed procedure’ has to be seen entirely from the point of the procedure associated with the drafting of the contract.
What is the procedure prescribed for drafting of the contract? This is where is the problem is. There is no prescribed procedure and, consequently, no clarity on what constitutes ‘deviation’ from the procedure prescribed for drafting of the contract. This problem could be tackled by laying down a few simple guidelines to be followed by the contracting officials.
First, it must be stated in the DPP more emphatically that SCD is only a template and that the text of the clauses may be modified according to the requirement specific to an acquisition programme, except for the text of the clauses, to be specified in the DPP, which, MoD does not want to be tweaked under any circumstances – at least not without prior approval of the prescribed authority. This category could possibly include the clauses related to Law, Arbitration, Agents and Agency Commission, etc.
Two principles could be followed in identifying such clauses: clauses which reflect the policy of the government and clauses which have legal ramifications.
Second, DPP must clearly state that the portions of the SCD that are not applicable should be struck out. For example, provision in the Preamble to SCD that ‘the SELLER assures the BUYER that the BUYER has the full and unfettered right to have the supplies manufactured in India trough a nominated agency and supply it to the BUYER’ has little relevance in procurements under the ‘Buy’ category.
Surely, the clause is not intended to facilitate reverse engineering by the buyer. It is, therefore, difficult to see what purpose it would serve in contracts related to ‘Buy and Make’ category of cases. If, however, there is some reason why it should figure in ‘Buy’ contracts also, DPP should state it.
Third, a contract must necessarily conform to the terms and conditions set out in the request for proposal (RFP) to ensure that the vendors who might have lost out in the competition do not later find themselves in a disadvantageous position because of some accommodation shown to the successful vendor at the stage of contract signing. They could well claim that had they known that MoD would be inclined to show such accommodation they would have quoted a different price.
There could be two exceptions to this. One, this principle would obviously not apply where some deviation from the RFP is approved by the competent authority. Two, it may not be necessary to follow this principle in ab-initio single vendor cases, as there would be no chance of any competitor’s interest being adversely affected because of any accommodation at the contracting stage.
Fourth, the most important guideline to be followed by the contracting officials has to be guard against the vendor deriving any unintended benefit, especially in regard to the negotiated price, on account of any change made in the text. The change should not serve as a subterfuge for the vendor to lower his costs after the price has been frozen. As it may not be possible to foresee the implication of all changes suggested in the draft contract, the negotiating officers must be empowered to turn down a request on the grounds of uncertain consequences of the suggested change.
It is possible to add a few more guidelines to these four but what is important to recognize is the need for creating conditions in which the contracting officers would not hesitate in agreeing to a suggestion like the packing case in which the packing list is placed while shipping the consignment being painted in blue rather than the yellow colour as mandated by article 9.5 of the SCD!
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India
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