Defence offset Purchase Policy India Defence offset Policy India Corporate Governance & Compliance India Law Firms India

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=> Kaviraj Singh speaks at conference jointly organized by Belgian Luxembourg Business Association and –Indo French Chamber of Commerce & Industry on trade credit in International trade on June 24, 2010 at India Habitat Centre, New Delhi.

=> Kaviraj Singh organised the second all India Conference of New York State Bar Association titled as building bridge between USA and India

=> Trustman & Co declared to be a future law firm of India by leading legal news portal of India - Bar & Bench

=> Kaviraj Singh chaired the panel "Investing in Asia" at New State Bar Association conference at Singapore

=> Press release for NYSBA conference at Mumbai in March, 2010.

=> Kaviraj Singh is presented with the certificate of appreciation for his contribution for doing business 2009 by World Bank

=> Kaviraj Singh with Gary Rippentrop, CEO of ACA International, USA and Kornel Tinguely, President of Federation of European Collection Association

=>Kaviraj Singh elected first Chair New Delhi, India Chapter, International Law and Practice Section of New York State Bar Association

=> Kaviraj Singh, guest speaker at Fourth World Congress at Nice, France of Federation of European Collection Association (FENCA) to be held on 25th to 28th September, 2008

=> Kaviraj Singh delivered speech at 4th National Conference held at New Delhi, India by National Real Estate Council of India in the month of April, 2008
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Indian Defence Offset Policy

Indian Defense Offset policy provisions will apply to all Capital Acquisitions categorized as ‘Buy(Global)’, i.e., Outright Purchase from foreign/Indian vendor, or ‘Buy and Make with Transfer of Technology’, i.e., Purchase from foreign vendor followed by Licensed Production, where the indicative cost in the Request For Proposal (RFP) is Rs 300 crore (USD 75 million) or more.

Initially, a uniform offset of 30% of the indicative cost of the acquisition in ‘Buy(Global)’ category acquisitions and 30% of the foreign exchange component in ‘Buy and Make’ category acquisitions will be the minimum required value of the offset. Based on a review of the experience of implementing these provisions, the minimum offset percentage for the following two years will be prescribed with the approval of the Defence Acquisition Council.

The DAC may, after due deliberation, also prescribe varying offset percentages above 30% for different classes of cases or for individual cases depending upon the factors involved such as strategic importance of the acquisition or technology, enhanced ability of Indian defence industry to absorb the offset, export potential generated, etc.

These provisions will also apply with appropriate modifications to ‘Buy’ and ‘Buy and Make with TOT’ components for warship construction where the value of individual contracts is Rs 300 crore or more. In such cases, references to the acquisition wing will mean the DDP or shipyard which is building the ship and procuring the system or sub-systems.

Defence Offset Obligations

For the purpose of defence purchases made under the DPP 2006, offset obligations shall be discharged directly by any combination of the following methods:

Direct purchase of, or executing export orders for, defence products and components manufactured by, or services provided by, Indian defence industries, i.e., Defence Public Sector Undertakings, the Ordnance Factory Board, and any private defence industry manufacturing these products or components under an industrial licence granted for such manufacture. For the purpose of defence offset, “services” will mean maintenance, overhaul, upgradation, life extension, engineering, design, testing, defence related software or quality assurance services.

Direct foreign investment in Indian defence industries for industrial infrastructure for services, co-development, joint ventures and co-production of defence products.

Direct foreign investment in Indian organisations engaged in research in defence R & D as certified by Defence Offset Facilitation Agency (DOFA).

The Indian defence industries or organisations concerned are here after referred to as the Indian offset partner.

The offset obligations are to be fulfilled coterminous within the period of the main contract.

All offset offers which satisfy the minimum eligibility conditions will be placed on par and no preference will be given for any extra amount offered.

The advisability of giving additional weights to offers having multiplier effects in terms of exports generated or building indigenous capability in strategic technology products, or other issues may be considered after reviewing the experience of implementing the above policy.

Defence Offset Facilitation Agency

The Ministry of Defence will establish a ‘Defence Offset Facilitation Agency’ (DOFA) under the DDP as a single window agency to:

Facilitate implementation of the offsets policy.
Assist in vetting offset proposals technically.
Assist in monitoring the offset provisions.
Suggest improvements in the policy and procedures.
Interact with Headquarters Integrated Defence staff and Service Headquarters.
Advise, in consultation with the Headquarters Integrated Defence staff, Services and Defence Research and Development Organisation, areas in which offsets will be preferred.
Promote exports of defence products and services.
Provide advisory clarifications on the policy and procedures (in consultation with the Acquisition wing wherever necessary).

The DOFA will assist potential vendors in interfacing with the Indian defence industry for identifying potential offset products/ projects as well as provide requisite data and information for this purpose. The agency will function under the supervision of a designated Joint Secretary of the Dept of Defence Production, and have representatives from the Service HQrs, HQ IDS, DRDO, DPSUs and OFB as well as from CII, FICCI and ASSOCHAM and other agencies as deemed necessary. DOFA may set up committees and sub groups as considered necessary or based on the inputs received from DRDO.

DOFA may also engage, following a fair, rational and transparent process, reputed independent professional expert bodies, as suggested by DRDO, to assist in its functions and commission studies by such bodies on offset policies, their implementation, utility and impact.

Acceptance of Necessity Stage

While being considered by the Services Capital Acquisition Plan Categorization Higher Committee (SCAPCHC), Capital Acquisition Projects of the ‘Buy’ or ‘Buy and Make with TOT’ categories whose indicative cost is Rs 300 crore or more, will be recommended for application of the standard 30% offset clause. However, based on detailed examination of the capability of the defence industry to absorb the offset value available and its strategic importance, the SCAPCHC may recommend increased offset percentages in selected cases. The DOFA may also advise on areas where offsets will be preferred. The DAC will consider the recommendations and take the final decision. This offset condition will form a part of the RFP and, subsequently, of the contract.

Solicitation of Offers

Para 26 read with Schedule I of DPP 2006 prescribes the standardised RFP document. Para 6 of the RFP format will apply wherever offsets are attracted. In order that the secrecy of the commercial bid is maintained, the vendor is only required to give a written undertaking to the effect that it will meet the offset obligation laid down in the RFP. This undertaking in the format at Appendix A to these guidelines will be included in the envelope containing the vendor’s technical offer. It will be binding on the vendor and will clearly state that failure at any stage, on the part of the vendor to meet the offset obligation specified in the RFP at any stage will disqualify the vendor from any further participation in the contract and render its offer as null and void.

The technical and commercial offset offers would have to be submitted by the vendors by a date to be specified in the RFP, which would be not earlier than three months from the date of submission of the initial technical and commercial offers. These offset offers would have to be submitted together in two separate sealed covers to the Technical Managers.

Technical Evaluation of Offset Offers

The technical offset offer would contain details of the products, services and investment proposals indicating relative percentages, proposed Indian partners for offset investment and other relevant information in the format given at Appendix B. The commercial values of the offset proposals are not to be indicated in this technical offset offer.

The technical offset offers would be scrutinised by a Committee to be constituted by the concerned Technical Manager of the Acquisition Wing, with the prior approval of Director General (Acquisition). The Committee may include representatives of the Services, Defence Finance and DRDO. DOFA will assist the Committee in the scrutiny by providing information as to the technical feasibility of the offset offer, in terms of capability of the Indian Offset Partner for supplying the products or services required within the stipulated time frame. The Committee may also incorporate experts as identified by the DRDO for scrutinising the technical offset offers. This Committee will examine the technical offset offers and shortlist the vendors meeting the offset obligations. The Technical Mangers will process the report of this Committee for approval by the Director General (Acquisition).

The vendor will be free to select the Indian offset partner for implementing the offset requirement.

Only contracts for export of defence products or services or investment made after the signing of the main contract will be reckoned for discharging offset obligations. For products which contain imported components, only the value addition in India will count towards offset obligations.

For `Buy (Global)’ category procurements, where offset is applicable if an Indian firm is bidding for the proposal and is offering an indigenously developed product, then for such a case offset would not be applicable. However, to ensure that the offset obligation is not circumvented by Joint Ventures (of Indian and foreign firms) where Indian firm is bidding, the foreign firm concerned will have to discharge offset obligation as per the RFP requirement.

Commercial Offset Offers

The Commercial Offset Offer, format in Appendix C, will contain the detailed offer specifying the absolute amount of the offset with a break up of the details, phasing, Indian partner etc.

The model formats at Appendix B and Appendix C may be amended by the vendor without however deviating from the mandatory offset requirements prescribed.

Examination of Offset Offers

The offset offer will be examined in two stages by the Acquisition Wing. In the first stage, the first part of the offset offer (refer Para 6.1 and 6.2 above) will be examined to ensure that the offset offer fulfils the mandatory requirements and thereby qualifies the vendor for opening of its commercial offset bid.

These commercial offset offers would be opened along with the main commercial offer. The Contract Negotiating Committee (CNC) would verify that the Commercial Offset Offers meet the stipulated offset obligations. The CNC will be advised by an official representative of DOFA(government/DPSU/OFB or as deemed necessary) on offset matters, whenever required.

The Commercial Offset Offer Would have no bearing on the determination of the L1 vendor. After the CNC is satisfied that the offset offer is in accordance with the prescribed norms, the L1 vendor will be invited to sign the main contract and the offset contract.

The offset contract is to be signed simultaneously with the main contract. The vendor will not under any circumstances delay the execution of the main contract on the plea of failure of Indian defence industry to execute various offset contracts.

The vendor will submit quarterly reports in the format in Appendix E on implementing the offset contract to the Acquisition Manager concerned. The DOFA will assist the Acquisition Manager concerned in the Acquisition Wing in monitoring the implementation of the offset contract. Where necessary, an audit by a nominated official or agency may be conducted to confirm the actual status of implementation.

A vendor may, giving reasons, request re-phasing of the offset obligations within the period of the main contract. Director General may allow the request if the reasons are considered justified.

Any request on exceptional grounds for extension of the period of the offset contract beyond the period of the main contract will be examined by the Acquisition Wing and placed before the Defence Procurement Board for decision. Requests for any further extensions will be decided by the Defence Acquisition Council.

If a vendor fails to fulfil the offset obligation in a particular year, a penalty equivalent to the unperformed offset obligation will be levied. 5% of the value of the unfulfilled portion of the annual offset obligation will be paid as penalty or recovered from the bank guarantee of the main contract, subject to replenishment, or deducted from the amount payable under the main contract, and the unfulfilled offset value will be carried forward to the subsequent year.

Any vendor failing to implement the full offset obligations during the period of the main contract, or during the period duly extended, will be liable to be disqualified for participation in future defence contracts. The disqualification will be decided by the Acquisition Wing after giving an opportunity to the vendor to explain the reasons.

Any differences or disputes will be settled through discussions. The decision of the Acquisition Wing will be final. The provisions in the main contract regarding arbitration will apply to the offset contract also.

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