Defence Acquisitions: The Question of Systemic Inefficienices and Effectiveness

Defence acquisitions in the international context carry enormous political and financial ramifications. The following data reveal the enormity of the ‘acquisition’ problem and hence the need to frame durable and highly tolerant procurement procedures, processes and mechanisms. With an annual budgetary allocation of US $660 billion, which is equivalent of the next 45 highest spending nations in the world, the United States leads in military expenditure, followed by China at $145 billion and Russia spending $85 billion for its defence needs.1 The United Kingdom is placed fourth with an estimated expenditure of $66 billion. More significantly and in terms of defence expenditure as a share of GDP, the United States spent 4.6 per cent, China 3.9 per cent, Russia 5.4 per cent, France 2.4 per cent, Australia 1.5 per cent, Japan 1.0 per cent, Germany 1.3 per cent, Canada 1.1 per cent and United Kingdom 2.3 per cent on acquisitions cum operating costs in 2007. To highlight the percentage share of acquisitions vis-à-vis operating costs (O&M), capital expenditure stood at 26 per cent in case of the United States, 23 per cent for United Kingdom, 21 per cent for France, 17 per cent for Japan, 15 per cent for Germany, 15 per cent for Canada and 18 per cent for Australia for the same period. In terms of number of acquisition proposals in 2007, the United States handled some 95 projects, United Kingdom 39 projects and Australia 16 projects, taking into account only those costing 200 million pounds and above.2 The average cost of acquisitions ranged from 9.5, 1.0 and 0.5 billion dollars respectively for each of these countries for the same period.3 In terms of time and cost overruns, the data is even more revealing. The cost overshoots stood at 8 per cent in case of United Kingdom as compared to 25 per cent for United States. But then United States delivered the planned projects with an average delay of 25 per cent as compared to 32 per cent in case of United Kingdom.

The foregoing raises some important issues. First is the issue of systemic inefficiencies of the acquisition process in terms of time and cost overruns. And two, how these time and cost overshoots affect the operational readiness of the armed forces. The inadequacies highlighted above surely demand serious introspection. Perhaps a similar concern was reflected in recent remarks of the Indian Vice Chief of the Air Staff, which in all its virtuousness questioned the efficacy of the existing acquisition framework, and in turn, the preparedness of the air force. To draw a simple analogy from what the Air Marshal said, the timely construction of infrastructure for Commonwealth Games 2010 at whatever the cost is essential for successful conduct of the event. Not that the proposed infrastructure shall have no use after the event, but its importance clearly lies in timely fructification. Similarly, the fielding of desired military capabilities cannot be made hostage to time overruns and apprehensions about high cost.

A recent seminar on Defence Acquisitions at the Institute for Defence Studies and Analyses, New Delhi, raised several such questions. The seminar focused on complexities of QR formulation and capability definition, impediments to unbiased technical and commercial evaluation, unnecessary publicity surrounding contractual negotiations and inadequacies in project monitoring and implementation. As it often happens, the debate veered onto two divergent and convoluted paths. While the military component comprising the three services, and rightfully so, continued to lament upon huge acquisition delays and equipment deficiencies, the acquisition bureaucracies missed no opportunity in reiterating the impact of `procedure-isation` of procurement processes and several attempts made at `price discoveries` in recent years. There thus seemed to be a clear lack of convergence in arguments put forth by the various stakeholders. The ensuing debate however missed the big picture i.e., the effectiveness of the existing procurement framework and its negative impact on preparedness of the Indian armed forces.

In our continued fixation with first generation reforms (i.e., procedure-isation), the question of ‘effectiveness’ seldom comes up for serious discussion. Can the current acquisition framework deliver desired military capabilities is a question that needs to be asked? To be more precise, the effectiveness of procurement framework needs to be judged from the viewpoint of ‘operational’ and ‘structural’ readiness of the armed forces. Richard K. Betts, the much acclaimed guru on military readiness, emphasizes the importance of an effective and deliverable framework for maintaining battle worthiness of the military force. As Senator Solomon Ortiz, the chairman of the United States House Armed Services Committee’s (HASC) Readiness Subcommittee said, “for militaries to fight effectively – today and in the future – you need to have right people in the right roles with the right equipment and the right training. And how ready we were yesterday determines how well we fight today? And how ready are we today determines how well we fight tomorrow?” The deduction here is plain and simple – an ineffectual procurement mechanism surely impinges upon the operational effectiveness of the armed forces.

But then the interesting part is that India is not the only country caught up in this debate. There are many other modern militaries battling with the complexities of defence procurement. A debate rages in the United States as well. Earlier this year, the House Armed Services Committee responsible for congressional oversight on military matters constituted a panel for review of the defence acquisition processes in the United States.4 The HASC panel is tasked to examine the ‘effectiveness’ of the current acquisition framework in the United States. And the line of inquiry is quite simple and straightforward – How can the existing acquisition framework be reformed to satisfy the twin objectives of providing “best military wherewithal” and “when it is most needed” to the United States Armed Forces while ensuring “best value” for each dollar spent from taxpayers’ money? The operative words here being ‘timeliness of procurement’ and ‘best value for money spent’ and not ‘procedure-isation’ or ‘price discoveries’ as is the case in the Indian context. The recently released Bernard Gray report on defence acquisition reforms in the United Kingdom also focuses on the effectiveness of the existing procurement framework. The report is indeed an exemplar on acquisition related reform. There could be several lessons from the American and British experience in the Indian context.

The HASC panel review is focused on the following key questions:

• Is there a proven methodology available to measure the effectiveness of the defence acquisition system? If not, how could one be created or modelled?
• Is the current system effective enough in meeting the twin objectives of ‘timeliness’ of procurement and ‘good value’ for the money spent? What could be the root causes for systemic inefficiencies? The causatives could be found at these levels:
  • How much do the important processes of qualitative requirement (QR) formulation, project validation and budgetary support affect acquisition outcomes? And which one or more of these acts as an impediment to sound decision making?
  • Are there enough trained civilian and military managers to process procurement related decisions? Do they have sufficient knowledge, expertise and authority to take procurement decisions? If not, then what could be the other options to process sound procurement decisions?
  • Does the defence acquisition system generate sufficient domain knowledge, data and analytics to enable good decision making? Are procurement related decisions ever hampered by lack of technical information, empirical data or well documented procurement precedence/s etc? If so, then what options exist to build requisite domain knowledge?
  • Does the defence acquisition system schedule major decision points in a collegiate fashion and bring up issues duly prioritized for review at right times? Is adequate information available to enable informed decision making? If not, then what correctives are required?
  • How responsive is the framework in responding to urgency of the military’s needs? Can the system be tailored to match the duration of ‘capability development’ with ‘threat cycle/s’? And are the current procurement processes responsive enough to cope with sharp changes in technology? If not, then what measures need to be taken?
• What are the social and cultural biases that often creep into the acquisition system? How could these lead to bad acquisition outcomes? And how could these then be corrected?
• What measures are being taken worldwide to reform acquisition procedures, processes and mechanisms? How efficient are the acquisition processes in the United Kingdom, France and Australia? What lessons do we need to learn from them?
• What structural changes would be necessary to ensure that the defence acquisition system satisfies the twin objectives of timely acquisitions and good value for taxpayers’ money?

The foregoing framework could be relevant in the Indian context as well. With as many as a few dozen proposals in the pipeline and no major procurements in the offing, the procurement diagnostics clearly needs to shift from ‘procedure-isation’ to ‘effectiveness’. Firstly, there is the important aspect of realistic definition of required military capabilities. And then is the issue of achievable and affordable qualitative requirements; a ‘knowledge cum experience’ driven expertise is difficult to come by in defence bureaucracies. We need to build expertise to enable framing of realistic qualitative requirements, and till such time these proficiencies are actually built technical consultancies could be hired. Institutional advice from accredited trade bodies such as the CII, FICCI, ASSOCHAM and others is yet another avenue. The bottom line here being that identification of cutting edge military technologies, concepts and capability formulation and benchmarking of qualitative requirements becomes an extensive, cross pollinated and inter-disciplinary action in the long term. Another related aspect is that the current procurement procedures and processes are too sequential and therefore highly time consuming. There is a need to break from ‘serial’ and ‘iterative’ procurement processes towards concurrent, smart and timely acquisition actions. The Bernard Gray report offers several suggestions on this score.

Now how does one break out from this ineffective frame? The answer clearly lies in generating new ‘procurement logic and structures’ rather than continuing to reinforce or recalibrate existing procedures, processes and mechanisms. That being a large frame of examination, the emphasis here is only on two issues. One is the question of how do military managers connect with the commercial world to scout and seek out new military technologies and trends. And two, the negative impact of ‘procedure-isation’ of procurement processes on the readiness of the armed forces.

The Indian armed forces today need an institutionalized window to scout and seek military technologies and trends besides enhancing its bureaucratic capacities for defence acquisition. This can perhaps be achieved by constitution of an Armed Forces Strategic Partnership Board. The board, with appropriate representation from the business world, can contextualize the nature of interaction between the customer i.e., the armed forces and countrywide providers of military technology and support services. The key argument here is that the current acquisition system being procedure-oriented does not enable holistic follow up of military technologies and trends on a consistent and professional basis. The research and development establishments have consistently failed to provide need to yield ‘interactive’ space to the armed forces in meeting their legitimate technological needs.

The foregoing suggestion by no means attempts to dilute the relevance of the existing framework for research, development, production and procurement. In fact, the proposed partnership could contribute to the existing framework through ‘value addition’ and offering ‘alternative views’ from the military users. All that is being said here is that ‘window shopping’ as a process has to be different from the process of actual ‘shopping’ for military capabilities. The former could be undertaken by the partnership board, while the latter continues to rest with the acquisition council. To begin with, HQ IDS, with appropriate and due representation from the three services, could be designated as the ‘window shopper’ to follow up technology trends of common interest worldwide.

The partnership board could also become the gateway for scouting and identifying military technologies, feasibilities for development and production, soliciting business advice and technical consultancies and a host of other acquisition related functions. The board in due course could also become the repository of domain information on all acquisition related matters. This mechanism could eventually open up avenues for outsourcing military services for a wide range of non-core and core activities.

There is another major cause of concern i.e., the procedure-isation of the procurement process. If the ‘procedure-isation’ drive is contributing to timely fielding of capabilities then it is fine. But if not, and the process is only aimed at litigation- and hassle-free military acquisitions, then all is not well. Since litigations are often the cause for time and cost overruns, it is time that bureaucracies learnt how to circumvent them. The concerned bureaucracies need to specialize and set aside their ‘generalist’ approach to effecting procurement decisions. Lack of technical expertise coupled with fuzzy understanding of the operational environment complicates procurement related decision making at the apex level. One sure way of correcting the problem is to extensively ‘cross-pollinate’ the departments concerned. This could enable collegiate working and resolve some aspects of the decision making process. The present system may be collegiate in some sense but not truly cross-pollinated. But then to create such an environment there is a need for more than a normal correction in existing civil-military relations.

There is a need to appreciate that an effective acquisition mechanism can only result from a balanced ‘customer-enabler-supplier’ relationship. Amongst other initiatives, it surely calls for changing tack at two levels. One, is the need to create an institutional framework in the form of the Armed Forces Strategic Partnership Board to window-shop futuristic technologies and trends. And two, enable a shift from ‘procedure-isation’ to a more deliverable and effective framework. Herein, the procurement procedures, processes and mechanisms may not be wholly government-owned. Few may have to be ‘out-shored’ or ‘outsourced’ to meet the twin objectives of ‘timely’ delivery of military wherewithal and ensuring ‘value’ for the money spent. Most importantly, the effectiveness of procurement processes need to be viewed in context of the ‘operational’ and ‘structural’ readiness of the armed forces. If the existing acquisition framework proves to be a weak wicket that is unable to deliver required levels of military preparedness, the pitch may have to be re-laid for its ‘effectiveness’ and ‘deliverability’.

• 1. The data quoted in this paragraph are from the Bernard Gray report on the review of the defence acquisition process undertaken in October 2009. The figures are for the year 2007. http://www.mod.uk/DefenceInternet/AboutDefence/CorporatePublications/Pol…
• 2. Only projects costing over 200 million pounds have been taken into account. The number of ongoing projects is however much larger.
• 3. Only for projects for which data is publicly available: United States 96 projects, Australia 30 projects and Japan 37 projects.
• 4. The House Armed Services Committee (HASC) oversight plan is filed pursuant to Clause 2 (d) of Rule X of the Rules of the United States House of Representatives which requires that, not later than February 15 of the first session of a Congress, each standing committee of the House shall adopt its oversight plan. http://armedservices.house.gov/pdfs/DARP031809/OrganizationalPlan031809.pdf.