By Group Captain Anupam Banerjee (r)
Across the globe, the objective of acquisition planners and life cycle managers is to balance the total cost of ownership with the utility and efficiency of the product. Improper life cycle cost planning leads to a diminished whole life value and a severe mismatch in the higher cost of ownership and lower utility of the product.
In India, the Defence Acquisition Procedure (DAP) 2020 lays out conceptual, structural, and procedural reforms to ensure that contemporary equipment is made available to the services to expedite the modernisation of the Armed Forces. The DAP has substantial features for provisioning comprehensive life cycle support and considers life cycle costs.
DAP elucidates that equipment support requirements must be available for three-five years beyond warranty and outlines several types of life cycle support contracts. These are Engineering Support Package, wherein the buyer is equipped with own skills/facilities and only purchases the spares based on the Manufacturer’s Recommended List of Spares, Annual Maintenance Contract, Comprehensive Maintenance Contract, Life Cycle Support Contract and Performance-Based Logistics, wherein the total ownership rests on the seller.
Various contract negotiation committees are also mandated by DAP to negotiate an assured supply of information on product and technological improvement, modifications, and upgrades while factoring in obsolescence management and lifetime purchases. Life Cycle Support Contracts are supposed to be signed along with the main contract and are to clearly stipulate the vendor’s obligations towards provisioning life cycle support for the equipment along with an illustrated spares price catalogue with base price and pricing mechanism for the long term.
India is already factoring Performance-Based Logistics (PBL) in defence acquisition. The PBL is a Supply Chain concept for optimising the availability of spares and services support to meet the predetermined level of operational availability. The criteria for the PBL supply chain is based on approved performance metrics which are measurable performance indicators. This is necessary to manage performance and consequent remuneration, which can be an incentive in case of better performance and penalty if there is a shortfall in the desired outcome.
The experience of the Indian Air Force with multiple PBL contracts like C-17, C-130J, Rafale, C-295, etc., has helped evolve and improve the process. By estimating and addressing the cost upfront, the contracts have allowed IAF to significantly reduce efforts on supply chain management of spares and effectively use available resources and time for achieving operational efficiency.
Through a new provision, the DAP has also given the user unrestricted right to re-engineer the core product if the seller is no longer able to provide services. The services are free to explore other global sources and design and manufacturing ecosystems prevailing in India, to optimise the life cycle costs and improve the performance of the platform or equipment/system being provisioned.
DAP also requires life-cycle cost estimates from manufacturers to allow for long-term planning. Operational hours/year, mean time between failure, the requirement of maintenance spares and mandatory replacements during preventive maintenance schedules must be considered for arriving at a life cycle cost. Willingness to offer life-cycle support, PBL and Transfer of Technology are key considerations influencing the acquisition process.
While through-life support is ingrained at many places in the DAP, it is curiously not mandated in L1 determination barring a couple of exceptions. Hence, the current approach for issuing L1 RFPs needs serious reconsideration.
The defence procurements have a long gestation period, and once inducted, platforms and systems stay on for an extended period. These factors present significant challenges for the ministry and its financial advisors to get the perfect fit in terms of supply chain management and life cycle cost models during acquisition. While the need for this is well recognised, as is evident from DAP provisions, a change of overall mindset and approach is a must to internalise the concept and get the correct value for taxpayers’ money. Also, while the buyer is going to be the ultimate gainer, the end-to-end supply chain of OEMs also need to accept and work closely with the buyer, to recognise and address its needs and accept the revised position in the new structure and be willing to be part of a long-term investment in intellectual property, time and energy.
