NEW DELHI: While the government waived off certain standard contractual safeguards like sovereign and bank guarantees, payments through escrow accounts and an integrity pact in the Rafale deal , defence ministry officials said defence procurement procedure provides such leeway as in other inter-governmental agreements.

The response of the ministry officials came after a report in The Hindu said the omissions were an unprecedented concession. The contract and reports that it was weakened, have become a major bone of contention in the ongoing political dogfight between the Congress and the BJP over the Rs 59,000 crore deal.

Defence ministry officials on Monday said DPP provides the leeway to not follow standard procurement procedures when an inter-governmental agreement (IGA) is inked with a friendly foreign government for "geo-strategic advantages" as well as "to cut time to meet a critical operational necessity" for the armed forces.

The officials also took pains to stress that IGAs "do not usually" have integrity pacts. The DPP envisages the signing of the integrity pact with a company or bidder to ensure they do not hire agents or middlemen to influence the proposed deal, any violation of which can lead to contract termination and imposition of penal damages.

In its submission to Supreme Court, the government said defence acquisition is not a"standard open market commercial form of procurement" due to features like supplier constraints, technological complexity, foreign exchange implications and geo-political implications.

"The IGAs with the US or Russia do not have integrity pacts. Russia, in fact, opted out of the competition for the infamous VVIP chopper deal (which was eventually inked with AgustaWestland but later scrapped due to corruption charges) because it required an integrity pact," said an official.

But India did agree to accept a "letter of comfort" from the French government after the latter refused to provide sovereign/bank guarantee for execution of the Rs 59,000 crore deal. The sovereign guarantee provided by a country is legally on a much stronger footing, as also enforceable, than a comfort letter if it comes to a future breach in contract and arbitration.

"But the assessment was that there were enough safeguards in the IGA, backed by the letter of comfort from the French PM, to protect our interests. Moreover, we also saved some money in the deal since bank guarantees come at an additional cost," said the official. The absence of a sovereign/bank guarantee, in turn, had led the then financial adviser to recommend the use of an escrow account in the deal, which would ensure payments were released to aircraft-manufacturer Dassault Aviation and weapons supplier MBDA only after joint concurrence by the French and Indian governments.

This recommendation, too, was overruled. "It was decided through the collegiate process to route payments to Dassault and MBDA through a French government account for the requisite oversight, which was backed by the comfort letter," said the official.

