Summary of CAG findings in the #AgustaWestland acquisition

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]O[/dropcap]ur posts on the #AgustaWestland acquisition and the findings of the Italian Appellate Court have struck a chord amongst the reading public. This post details the summary of the findings of the Office of the Comptroller and Auditor General (CAG) on this. An excellent summary is available at PRSIndia site. We reproduce some of the salient findings followed by the complete CAG report (which is well-written and a good read – 40 pages).

Background

The Indian Air Force keeps a fleet of helicopters and aircraft for supplying air transportation. In 1999, it suggested replacing its choppers with more sophisticated variations, given their operational limits. The audit analyzes conformity of the special procurement with the Defence Procurement Process (DPP).

The Comptroller and Auditor General (CAG) submitted a report on the acquisition of choppers for Very Very Important Persons (VVIPs) on August 13, 2013. The audit sought to analyze the procedure for acquisition of VVIP choppers and its conformity with the DPP, the official process for procurement in the defence services.

Key findings and recommendations

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]A[/dropcap]s you read the line items below, you can see how some of the specifications were changed/ tweaked to support the case of one vendor over the other. For your information, VVIPs in the United States use the Sikorsky helicopters.

• The initial Request for Proposal (RFP) issued by the Ministry of Defence in 2002 mandated an altitude requirement of 6000 metres. Only one helicopter, the EC 225 of Eurocopter met this requirement. The EH-101 helicopter (later renamed AW-101) of AgustaWestland did not meet this requirement.

• However, the first RFP was cancelled due to the emergence of a single vendor situation. In the revised RFP in 2006, the altitude requirement was reduced to 4500 metres, and a cabin height requirement of 1.8 metres was introduced, making the AW-101 eligible, and the EC 225 ineligible.

• The CAG report points out that the lowering of the altitude requirement was against the operational requirement of the procured helicopters, especially in many areas of the north and north east of India. In addition, the single vendor situation remained even after lowering the altitude requirement, because of which the AW-101 of AgustaWestland was selected.

• The revised Service Qualitative Requirements (SQRs) in 2006 made competition more restrictive instead of making the procurement procedures more broad-based to increase competition. The fresh RFP with revised SQRs was issued to only 6 vendors as opposed to 11 in 2002.

• The Field Evaluation Trial (FET) of the AW-101 was conducted on representative helicopters and not the actual helicopter. The AW-101 was still at the development stage at the time of the FET.

• Although the 2006 RFP had laid down the necessity of carrying out the field evaluations in India, they were conducted abroad.

• Given the low utilisation levels of the existing fleet of helicopters, the Ministry was not justified in procuring four additional helicopters for VVIPs.

• The IAF continued to face operational difficulties with existing helicopters as the acquisition of the new helicopters took more than 10 years.

• The cost benchmarked by the Contract Negotiation Committee was much higher than the offered price, allowing no room for negotiation.

• The DPP, 2006 makes an offset clause mandatory in all contracts above Rs 300 crore(The offset clause mandates that 30% of the estimated costs must be invested in indigenous defence industries in acquisitions of over ₹300 crores ($45 million) in certain categories). Certain offsets were allowed which were not compliant with the provisions of the DPP.

The CAG report concludes that the process of acquisition from framing of quality requirements to the conclusion of the contract differed from established procurement procedures.

Note:
1. The conversion rate used in this article is 1 USD = 66.53 Rupees.
2. Text in Blue points to additional data on the topic.

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