Other Capital Procurement Procedure: A Chip off the Old Block

A new chapter titled “Other Capital Procurement Procedure (OCPP)” has been included in the Defence Acquisition Procedure 2020 (DAP-2020) 1, released by the Ministry of Defence (MoD) on September 30, 2020, which replaces the Defence Procurement Procedure 2016. This procedure is meant for incurring expenditure of capital nature that enhances the utility of the existing assets, such as overhauls, major refits, and upgrades, as also on replacement, of the existing platforms/equipment and not on acquisition of new capital assets.  

The list of items procurable through the OCPP will be drawn up by the Headquarter Integrated Defence Staff (HQ IDS) and the respective Service Headquarters (SHQ) from time to time and promulgated by the Director General (Acquisition) in consultation with the MoD (Finance). No such list is presently included in the DAP-2020. It will be desirable to notify the new list, as and when drawn up, as a supplement to the chapter on the OCPP. Making it public will help in disseminating information to the suppliers about prospective procurements.

Roots of OCPP

This chapter mainstreams the temporary measure taken in 2007 at the behest of the Ministry of Finance (MoF) to ensure that expenditure of capital nature, which was till then being wrongly incurred from the revenue budget, is compiled to the relevant capital budget heads. To prevent any confusion, four lists of items, one each pertaining to the three services and HQ IDS, were drawn up and appended to the government letter.2

A year after the system—later labelled as the Capital Budget Revenue Procedure (CBRP)—was introduced, the lists were reviewed in 2008, and subsequently in 2009 and 2011.3 Meanwhile, a list of items pertaining to the Indian Coast Guard (ICG) were separately notified in 2010.4 Though it is not specifically mentioned in the chapter all these lists get superseded, except perhaps where the Request for Proposal (RfP) has already been issued in respect of any item covered by them.

The introduction of the CBRP created a third stream of capital procurements, besides procurements by the vice-chiefs, etc., under the financial powers delegated to them for buying capital items and by the MoD’s Capital Acquisition Wing  (MoD [Acquisition]). Separate category codes were allotted in 20085 for compilation of expenditure so that its progress could be monitored under these streams.

There were four main features of the CBRP which helped in better utilisation of the capital budget that used to generally remain underutilised at that point of time, besides reducing pressure on the increasingly scarce revenue budget:

1. Expenditure on a listed item was to be booked to the capital budget only if its unit cost was Rs 10 lakh and its useful life seven years. This revised “cost-life” criterion was adopted by the MoD  in 2003, before which the unit cost in the “cost-life” criterion used to be Rs 2 lakh.
2. The revenue procurement procedure laid down in the Defence Procurement Manual (DPM) 2006 (revised in 2009) was to be followed for CBRP. 
3. The Competent Financial Authorities (CFAs) for sanctioning expenditure under the CBRP were to be determined with reference to the scheme of delegation of financial powers for revenue procurement.
4. The offset policy was not to be applicable to CBRP procurements.

Changes in CBRP

The OCPP has done away with the cost-life criterion, prescribes a customised procedure and specific delegation of financial powers for procurement, and seems silent on the issue of offsets. It will be desirable to put to rest any possible doubt about applicability of offsets while notifying the new list of items procurable through the OCPP.

For ease of processing the procurement proposals, a new scheme of delegation of financial powers down to the command level has been laid down as given in Table 1 below.

The way these financial powers are defined gives the impression that the Vice Chief of Army Staff (VCOAS), the Deputy Chief of Army Staff (DCOAS) and their equivalents could exercise the powers of their lower CFAs also. This seems unintended, in which case the mistake should be corrected, apart from instituting some mechanism to ensure that there are no parallel procurements of the same item(s) at the MoD/SHQ and the Command levels.

Procedure

The OCPP envisages aggregation of the long-term “repetitive” requirement (say for five years) of one or more of the listed items by the SHQs with an “inherent 25% flexibility in numbers or cost to cater for unforeseen circumstances” and while the proposals do not have to be a part of the Annual Acquisition Plan (AAP), these will have to be within “the overall financial limits linked to the allotted budget for AAP”. This phraseology is unintelligible and can cause confusion at the implementation stage.

The normal capital acquisition process starts with the Request for Information (RfI) and formulation of the Services Qualitative Requirements (SQR). In OCPP, however, since the scope, cost, SQR and vendor base would already be known, these steps “may not be applicable”, but the SHQ could use their discretion to go through these processes.

The procurement proposals will not have to be routed through the Services Procurement Board, Defence Procurement Board, or the Defence Acquisition Council. Instead, these will be moved on file to MoD (Acquisition) through MoD (Finance) in non-delegated power cases and through the Principal Integrated Financial Advisor in cases under the delegated powers for approval by the AoN (Acceptance of Necessity) according authority. The AoNs will be valid for a period of one year.

There is a cursory reference to the CFAs also being the AoN according authorities. This can be problematic where the proposal entails expenditure exceeding Rs 2,000 crore as for all such expenditure the CFAs are the finance minister (between Rs 2,000 crore and Rs 3,000 crore) and the Cabinet Committee on Security (above Rs 3,000 crore).

All post-AoN activities will be conducted by the Procurement-cum-Negotiation Committees (PNC) in delegated power cases in accordance with the procedure envisaged in the DPM, and by the Contract Negotiation Committee (CNC) in non-delegated power cases exceeding Rs 300 crore as per the DAP-2020 procedure.

It implies that the RfP will be issued under the aegis of the PNC/CNC by the SHQ/MoD (Acquisition) in delegated power and non-delegated power cases respectively “as per the format in DPM suitably modified to be aligned with OCPP”. On receipt of the response, Technical Evaluation will be carried out as per the provisions of the DPM, but no Field Evaluation Trial be carried out.

The Standard Contract Document indicating the general conditions of contract “will be aligned with DPM format suitably modified” and the contracts signed only after obtaining the CFA’s approval. To ensure expeditious completion of the process, “the timelines for OCPP procurements will be as per the guidelines laid down in the DPM”.

Summing up

To sum up, the OCPP is a curious mix of revenue and capital procurement procedures, with heavy dependence on the DPM which is presently under revision. Customising the DPM provisions for procurement under the OCPP could be cumbersome and result in multiple practices being adopted, especially across various command headquarters. It would have been more appropriate to lay down a self-contained procedure in DAP-2020.

Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.

• 1. See Defence Acquisition Procedure 2020, Chapter X.
• 2. Government of India (GoI), MoD, Finance Division, Letter No PC-11(1)/Bud.I/2007 dated 25 September 2007.
• 3. Go I, MoD, Finance Division, Letters No PC-11(1)/Bud.I/2007 dated 21 October 2008 and 23 November 2009, and Letter No 2(2)/B.I/2008 dated 13 January 2011.
• 4. GoI, MoD, Letter No FM/1215/1365/D(CG-R)/10 dated 24 June 2010.
• 5. GoI, MoD, Office of the Controller General of Defence Accounts (Accounts b& Budget Division) Circular No A/B/I/13626/CHB-Prefix-II dated 17 December 2008, recirculated by the GoI, MoD, Finance Division, Letter No PC-11(1)/Bud.I/2007 dated 8 September 2009.
• 6. As per Chapter II, DAP 2020, the CFAs are: Defence Secretary (above Rs 300 crore but up to Rs 500 crore); Defence Minister (above Rs 500 crore and up to Rs 2,000 crore); Finance Minister (above Rs 2,000 crore and up to Rs 3,000 crore); and, the Cabinet Committee on Security (above Rs 3,000 crore)