Mi-8 helicopters of the Communication Squadron of the Indian Air Force have been meeting heli-lift requirements of VVIPs since 1988. A need was felt to replace the complete fleet with modern helicopters possessing better capability in terms of avionics, high altitude operations and passenger comfort.

Media is agog with reports of gross misdemeanours in India’s deal to purchase AgustaWestland helicopters. Unfortunately, what has been reported in the media is merely the tip of the iceberg. In fact, the whole deal is mired in gross irregularities and infirmities. At every step, provisions of the Defence Procurement Procedure (DPP) were violated with audacious abandonment.

After evolving parameters in consultation with the Prime Minister’s Office (PMO), tender documents were issued to 11 manufacturers in March 2002. It was mandated that the helicopters should be able to operate at an altitude of 6,000 meters. After field trials, Eurocopter EC- 225 emerged as the sole fully compliant helicopter.

Because of the single vendor situation, PMO directed the Air Headquarters (Air HQ) to reformulate parameters – jointly with the Home Ministry and the Special Protection Group (SPG) – to generate competition. Consequently, in a meeting convened by PMO in November 2003, it was decided to issue fresh tenders after reducing ceiling requirement to 4,500 meters, thereby inventively facilitating the entry of AgustaWestland as EH-101 (AW-101) could fly only up to 4,572 meters.

Thereafter, the whole procurement exercise was reduced to a sham. At every stage, devious steps were taken to swing the deal in favour of AgustaWestland by tweaking the procedure. The unbridled audacity displayed by the decision makers is simply unbelievable. Some major transgressions are recounted here to demonstrate enormity of the rot that afflicted the deal.

Restricting Competition to Help AgustaWestland

Two smart moves were made to help AgustaWestland clinch the deal. One, tenders were issued to only six vendors as against eleven earlier, thereby reducing competition. Two, a new parameter of minimum cabin height was cunningly made mandatory. Whereas the Air HQ considered cabin height of 1.45 meters to be acceptable, PMO/SPG insisted that it should be 1.8 meters. It was a master stroke, as except AgustaWestland, no other helicopter in the world met such a requirement. It made the entire exercise of generating competition a big farce. Expectedly, the process led to the emergence of AW-101 as the sole compliant helicopter.

Sham of User Trials

Field trials are by far the most critical aspect of the entire procedure as it validates performance claims of the vendors. DPP mandates that the trials be carried out on the actual equipment on offer and in Indian conditions. Both the provisions were blatantly violated.

The Air HQ coerced MoD to allow it to conduct trials abroad at the vendors’ premises. More shockingly, as the helicopter offered by AgustaWestland was under development, trials were carried out on two representative helicopters and a mock-up of the passenger cabin. In a first of its kind, equipment was declared fully SQR-compliant when still under development.

It needs to be recalled here that during the same period, trials in the case of multi-role combat aircraft were being carried out at Leh (high altitude), Jaisalmer (hot weather) and Bangalore (plains).

Equally interestingly, field trials were started in January and the report submitted in April. It must be an all-time record of exceptional efficiency. Detailed evaluation of high-tech helicopters including validation of the support system and maintainability aspects was carried out in mere two months; that too for machines on which safety and security of nation’s VVIP depended. Compare it with 2-3 years taken in the trial evaluation of multi-role combat aircraft.

Inflating Requirement of Helicopters

One of the most intriguing aspects of the deal is an increase in the requirement of helicopters from 8 to 12. As reported by Comptroller and Auditor General of India (CAG), the Air Force had been meeting the transportation requirement of the VVIPs with a fleet of six Mi-8 helicopters, that too with a low utilisation level of mere 29 per cent. Therefore, quite justifiably, the first proposal initiated in 1999 sought only eight helicopters (five in VIP configuration and three in non-VIP configuration).

However, in October 2005, SPG insisted that the requirement be increased to 12 (eight in VIP configuration and four in non-VIP configuration). MoD accorded sanction for the increased number in January 2006. CAG has found the procurement of additional helicopter to be totally unjustified. It resulted in an avoidable excess expenditure of Rs 1240 crore.

Two interesting points emerge. One, whereas it should be for the Air HQ to determine the requirement as it is its responsibility to make adequate helicopters available for the transportation of VVIPs, NSG was allowed to usurp this right. Two, PMO/NSG had been co-opted with the proposal since 1999. They never projected additional requirement till October 2005. It appears that the requirement was increased only after it was reasonably ensured that the order would go to AgustaWestland through the tailor-making of parameters. Reason: higher the contract value, higher the cut.

Grant of Undue Deviations

According to the CAG report, AgustaWestland was recommended for procurement despite the fact that it did not satisfy all parameters. Contrary to all orders, it was granted waver for non-compliance of two key parameters. In all, eight major deviations were approved.

Most surprisingly, fresh commercial bids were sought. As AgustaWestland was reasonably assured of emerging as the sole technically acceptable vendor by then, revised bids provided an unwarranted opportunity to it to its bid upwards. Delivery period was extended from 36 to 39 months. Validity period of the option clause was reduced from 5 to 3 years, thereby giving undue benefit to the vendors.

As per tender documents, vendors were required to provide warranty for 3 years or 900 hours ‘whichever is later’. On the request of the vendors, the clause was unethically changed to ‘whichever is earlier’, thereby diluting the warranty clause to India’s disadvantage. In fact, every deviation granted was beneficial to the vendors and detrimental to the interests of India.

Inclusion of Additional Equipment

While contract negotiations were in progress with AgustaWestland, Air HQ recommended inclusion of Traffic Collision Avoidance System (TCAS-II) and Enhanced Ground Proximity Warning System (EGPWS) for all 12 helicopters. SPG concurred. In addition, SPG recommended inclusion of Medical Evacuation System (Medevac) for 8 helicopters.

It was a patently wrong and gratuitous step. It provided a windfall opportunity to AgustaWestland to quote any price that it wanted to for the add-on systems. To guard against such a contingency, DPP forbids any change in the configuration of equipment after the issuance of tenders.P>It is not understood as to why the requirement of TCAS-II, EGPWS and Medevac could not be foreseen before the issuance of tender in September 2006. What new developments had taken place in the intervening period of two years that necessitated these add-on systems?

Determination of Fair and Reasonable Price

Every procurement proposal contains estimated cost of the whole project. In single vendor cases, Contract Negotiation Committee (CNC) is required to establish a benchmark of reasonableness of price prior to the opening of the commercial offer. If the quoted price falls within the benchmark, price negotiations are dispensed with.

Estimated cost in the proposal submitted by the Air HQ was Rs 793 crore which was duly approved by the Ministry in January 2006. In September 2008 (in less than three years), CNC benchmarked the reasonable cost at Rs 4,877.5 crore – more than six times the estimated cost. Cost quoted by the vendor AgustaWestland turned out to be Rs 3,966 crore. Thus, the benchmarked cost was higher by a whopping 22.80 per cent. The contract was signed for a negotiated price of Rs 3,726.96 crore. Criticality of fixing a realistic benchmarked price can be gauged from the fact that an absurdly high value can provide windfall gains to a vendor. This is exactly what happened in the ibid case.

Finally: Murkier than Bofors

As has been seen above, every act of omission or commission was carried out to tweak the process:-

Service ceiling was reduced to 4,500 meters as AW-101 could fly only up to 4,572 meters.

Cabin height was fixed at 1.8 meters. It effectively made it a single vendor case as no other helicopter possessed that facility. Moreover, fewer vendors were invited to limit competition.

Major deviations were granted to favour the vendor – all to the disadvantage of India.

Trials were held abroad on substitutes and mock-ups as the helicopter on offer was still under development. Thus AW-101 was declared acceptable without testing it. There cannot be a greater mockery of trials.

Whereas the Air HQ had projected the likely cost to be Rs 793 crore in January 2006, CNC benchmarked it at Rs 4,877.5 crore in September 2008. Something is terribly amiss.

The contract was signed on 08 February 2010. India got the first whiff of unethical practices from Italy in February 2012. Reports started appearing in the foreign press alleging that bribes and commissions had been paid by the company to bag the contract. India did not take the issue seriously. Instead of putting the contract on hold till the allegations got verified, India continued to release advance payments to AgustaWestland. Resultantly, by February 2013, India had paid about 45 per cent of the total cost of the deal to the vendor and received three helicopters.

However, arrest of Mr Giuseppe Orsi, CEO, Finmeccanica (AgustaWestland is a division of Finmeccania) on 12 February 2013 by Italian investigative agencies forced India to act. It could not dither any more. The case was handed over to the Central Bureau of Investigation for enquiry and all further payments were put on hold. Recent judgment of the Italian Appellate Court in Milan has unravelled the sordid deeds of the Indian leadership to a great extent. From all indications, it is emerging to be a far murkier affair than the much maligned Bofors.

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