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IDSA COMMENT

“No-Cost, No-Commitment (NCNC)” Trials in Capital Procurements: Time for a Review

September 18, 2012

In case of capital procurements by the Ministry of Defence, Government of India, the trial evaluation of the products is carried out by the buyer on a no-cost, no-commitment (NCNC) basis, which means that the government neither bears the cost of the trials nor is it committed to buy the products after the trials.

The trials are often highly expensive and discourage small and medium enterprises from joining the bidding process. At the same time, big, established and quality producers do not join the process, because they apprehend that even though their products would outsmart those of their contenders qualitatively, being quite expensive, they may not pass the lowest bidder test, and hence there is no use spending heavily on showcasing their products in a trial show. Thus, even if the NCNC principle has lowered the cost of the procurement process, it has, over a period, inhibited quality participation in the bidding process. The issues involved in the process of trial evaluation are briefly explained below.

Trial Evaluation and Its Significance

One of the important steps in Capital Procurements in the Armed Forces in India is trial evaluation of the samples of the product, supplied by vendors whose technical bids have been found acceptable by the Technical Evaluation Committee (TEC).

The trial evaluation of equipment comprises of the following.

  • Verification of user specific physical and operational parameters carried out by a trial unit. This is carried out by physically operating the equipment in various terrains and operating conditions where it is intended to be deployed.
  • Ascertaining the maintainability of the equipment by the maintaining organization, i.e., the Directorate General of Electronics and Mechanical Engineering (DGEME) at designated Maintainability Advisory Groups (MAGs) working under Headquarters Technical Group (HQTG).
  • Technical and Environmental evaluation by Directorate General of Quality Assurance (DGQA) at various laboratories and in the field.
  • Checking the Electromagnetic Interference/Electromagnetic compatibility (EMI/EMC) of the equipment by Army Centre of Electromagnetics (ACE), Mhow.

The basic aim of trial evaluation of any equipment is to ascertain its suitability for military usage; and that the offered product satisfies the Qualitative Requirements (QRs) specified in the Request for Proposal (RFP). In none of the four trials listed above, is any parameter(s) not listed in the RFP checked. All the four agencies forward their trial reports separately to the Weapons and Equipment (WE) Directorate at Integrated Headquarters of the Ministry of Defence (MoD) to enable an unbiased General Staff (GS) evaluation of the equipment, prior to opening the commercial bids by Cost Negotiation Committee (CNC).

The Exorbitant Cost of Trial

The total cost of the trials is exorbitant and necessarily includes the following.

  • Cost of transporting the equipment to various locations for testing which, in case of field trials, are the field trial sites located invariably in remote and distant places. In almost all the cases, field trials are conducted in plains (Desert/Semi-desert terrain) and high altitude terrain. For evaluation of maintainability of the offered product, the equipment is required to be transported to the designated MAG. For technical and environmental evaluation, the equipment is required to be transported to various laboratories of DGQA as also to certain civil laboratories for those tests, facilities for which do not exist with DGQA. For checking EMI/EMC compliance the product needs to be transported to ACE, Mhow.
  • Cost of in-situ repairs and minor modification, if required, during the course of the trials.
  • Cost of placing trained and skilled personnel at trial sites to offer clarification on various characteristics of the equipment, and carry out minor repairs and modifications.
  • Cost of some consumables (e.g., oils and lubricants) if they are not of service grade.
  • Cost of various tests which are conducted in laboratories other than those of the DGQA.
  • Last, but not least, the cost of wear and tear of the equipment offered for trials. Though the sample is returned to the vendors post trial, it is so badly worn out by then that it requires a complete overhaul. Also, the trials continue for months (years, in some cases), so the time frame also needs to be factored into the cost. In many cases where there is a requirement of hastening up the trials, more than one sample is sought from the vendors to permit concurrent trials by the user, DGEME and DGQA.

NCNC may inhibit quality participation

As per the existing practice, the complete cost of trial evaluation has to be borne by the vendors offering their equipment. In a nutshell, it means that each participating vendor has to customize and demonstrate his product to the buyer at his own expense, and even after doing so; there is no guarantee that he would get the contract. This is because the equipment of a number of vendors may pass the trials, but the contract is offered to the lowest bidder.

There is no provision of compensating the other participating vendors for the cost they incur on trials. Many vendors do not respond to RFP since their system is superior and the technology is costlier than other competitors. They may be apprehensive about investing in the procurement process as there are no points given for technologically superior products due to rigidness of the Qualitative Requirements (QRs). Since they cannot compete in cost with other vendors who just meet the QRs and offer their products at relatively lesser price, they prefer to stay away from the bidding process.

In case of small orders, the huge cost of trials discourages the vendors—especially the small and medium enterprises—from offering their product, as they may not be bold enough to take the risk of losing the contract at the Commercial Evaluation stage after incurring a heavy expenditure on trials.

The big, established players in the industry normally refrain from participating in the procurement process due to these complications, and also because they already have a captive clientele outside the defence industry. For these reasons, many procurement cases come down to single vendor situation at the TEC stage itself.

With regard to foreign vendors, in most of the cases, the equipment is required to be brought to India for trial evaluation. This puts additional financial burden on the vendor. In any case, all the vendors participating in the procurement process generally factor in the cost of trials in their commercial quotes.

Recommendations

In order to ensure maximum participation in the bidding process and that the best quality product is procured, notwithstanding the QRs, there is a need for two immediate measures.

Firstly, a compensation policy for trials needs to be prepared and incorporated in the Defence Procurement process (DPP). It is recommended that vendors whose products qualify the trials and are finally accepted in the GS evaluation should be compensated fully for the trials, irrespective of the fact whether they are L11 or not. Those vendors whose products do not meet the QRs may only be partially compensated.

Secondly, there should be a system in place to objectively evaluate the offered equipment by giving adequate weightage to technological superiority and better design. The modalities for this can be worked out and suitably incorporated in the RFP for granting any cost compensation at the CNC stage.

If implemented, these measures will go a long way in attracting high quality bids and offer better alternatives.

  • 1. L1 vendor is the vendor offering the lowest commercial quote