January 20, 2014

Navy's Guns Sink with Tender

The Navy’s plans to procure weapons for future warships are at risk of running aground. The force urgently needs 127mm guns, but its tender for 13 guns estimated at  Rs 1,500 crore finds itself in rough waters. To start with, there were only two vendors for the guns globally. Now, while one has walked out of the tender, the other is facing uncertainty due to its parent company’s woes.
Sources said this could delay two key shipbuilding projects—the seven follow-on Shivalik-class frigates and six Delhi-class destroyers—that are in various stages of construction in domestic shipyards.
While the UK’s BAE Systems has refused to bid, Italian Oto Melara, whose parent company Finmeccanica is facing corruption probes back home, is keen on participating in the tender.
Finmeccanica is also the parent firm of helicopter manufacturer AgustaWestland, which is facing an Indian probe over allegations of bribes in a Rs 3,727-crore deal for supplying AW-101 VVIP transport choppers to the Indian Air Force.
This has presented the Navy with a fait accompli. Its tender is now on deathbed.
The BAE’s nonparticipation leaves only one vendor in the fray and that is a strict no-no under the present Defence Procurement Procedure (DPP). The DPP stipulates that there has to be a competition (at least two competing firms) before the contract is awarded to the lowest bidder.
The Navy is facing this situation also because the Defence Research and Development Organisation (DRDO) has not been able to design and develop a 127mm/5-inch gun indigenously.
“It is a pitiable state of affairs. We have not been able to develop an indigenous gun. Now, the search for a foreign gun too is virtually dead. In a single vendor situation, the tender is a nonstarter,” a Naval officer said.
While a representative of Oto Melara in India confirmed their participation in the tender, a BAE representative too confirmed their decision not to participate.
The Defence Ministry had issued the tender (Request for Proposals or RFP in defence parlance) to the two firms on November 12, 2013, and the companies were given time till March 2014 to respond.
Under the programme, India would buy two guns directly from the winner of the tender, while 11 more guns would be manufactured by Bharat Heavy Electricals Limited (BHEL) through transfer of technology from the global Original Equipment Manufacturer (OEM) that wins the contract.
But within a fortnight, BAE Systems wrote back saying the company does not intend submitting a proposal. “After conducting a detailed assessment of the RFP, the company has concluded that key aspects present the bidder with a disproportionate level of risk,” BAE Systems said in a response.
By “disproportionate risk” BAE Systems meant that the Defence Ministry was placing the onus of performance of BHEL in executing the contract with quality guns and timely deliveries on the foreign OEM, which would have no control over the functioning of the PSU. Non-performance by the PSU would entail penalties being imposed on the OEM.
“This risk would involve costs and we are sure the Indian government understands this,” a BAE Systems representative said. BAE Systems noted that it has vast experience in producing the Mk45 127mm/5-inch 62-calibre Mod4 gun and in establishing in-country manufacturing programmes. It claimed the gun matched the Indian Navy’s needs. The gun, it said, is in service with the naval fleets of Australia, Denmark, Greece, Japan, Republic of Korea, New Zealand, Spain, Republic of China (Taiwan), Thailand and Turkey.
The Oto Melara representative, in response to queries, said the company would reply to the Defence Ministry’s RFP by March 2014.

The Sunday standard

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