Friday, December 31, 2010

India pays dearly for poorly negotiated arms deals

It has recently been reported in the Israeli press that India paid more than double the amount for the purchase of three AWACS aircraft from Israel in March 2004. These aircraft were earlier being sold to China for US $358 million but the deal had to be aborted under US pressure. Subsequently, India agreed to buy them for US $1.1 billion–a whopping US $742 million more than the price agreed to by the Chinese. There are numerous such instances where India has paid exorbitant amounts for the defence equipment contracted. Coffin deal has already attracted considerable attention for the same reason. Inability to negotiate contracts astutely has been the biggest weakness of the entire defence procurement regime.

Recently, Russia demanded enhanced inflation index for the Sukhoi deal. It also demanded that the rouble be compared with the euro and not with the dollar as agreed to in the original contract. In the case of Gorshkov aircraft carrier, Russia has sought massive upward price revision. Apparently, India had failed to negotiate fool-proof agreements with clearly defined provisions. How else can such lacunae be explained? In almost all contracts, imprecise and flawed provisions lead to multiple interpretations during the implementation stage. Invariably it is India that suffers as vendors exploit ambiguities in the contract language, especially with respect to delivery schedules, warranties, after sales support and penalties for default.

Procurement of new equipment is carried out as per the defence procurement procedure. Once technical appraisal has identified successful vendors, the case enters commercial evaluation phase. A Commercial Negotiation Committee (CNC) is constituted under the Ministry of Defence (MOD) for the purpose. Its members are drawn from the Acquisition Wing, concerned Service headquarters, users, quality assurance directorate and R&D organisation (see box for standard composition of CNC).
India pays dearly for poorly negotiated arms deals
By Maj Gen Mrinal Suman
Issue: Vol 23.3 Jul-Sep 2008 | Date: 27 December, 2010
How India's Cold Start is Turning the Heat on Pakistan: click here to read more

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