The Performance Audit Report of the Comptroller and Auditor General (CAG) of India on eleven acquisition cases of the Indian Air Force (IAF) was tabled in Parliament exactly one month back.

A large chunk of this report focused on the history behind the order for 36 Rafale fighter aircraft by the IAF.

Unfortunately, the report has only received fleeting, flash-in-the-pan attention given that it contains some startling revelations, as well as, the authoritative history of the MMRCA tender and subsequent order for the 36 aircraft narrated by the CAG.

Volume II of the report, which narrates this history, might as well be watermarked Corruption Report for the damning evidence it has tabulated.

What follows in this three-part analysis is a contextualized and accessible retelling of the report on the Rafale order, explaining how an acquisition process was manipulated at every stage and the system played to the advantage of a single company from the year 2000.

Anything, as long as it’s French

Very briefly, the IAF first tried to get a French fighter — the Mirage 2000, without a contest. Three times.

But they were forced to hold a contest according to the rules. This time, there was a new French fighter in the contest, the Rafale, the successor to the Mirage 2000.

The new French fighter was kicked out three times, according to the rules. Each time, the French fighter was brought back into the contest.

Four of the six competing aircraft could have easily beaten the Rafale on price. These four aircraft were thrown out of the contest for nebulous and unconvincing technical reasons.

Only two aircraft now remained in the contest. The Rafale and the Eurofighter. The only way the Rafale could win would be to beat the Eurofighter bid on cost comparison.

The interpretation of the cost was fixed to make the Eurofighter, appear more expensive and the French fighter was announced the cheaper ‘L1’ bid.

But it didn’t end there.

A deal was simply impossible because it became clear that the French fighter was simply not L1, or the cheaper aircraft. Nor did the French have any intention of allowing the aircraft to be built in India.

The defence ministry finally, officially admitted this conclusion. But only two weeks after this, a request was announced for 36 Rafale fighters. Two months later, the MMRCA tender was cancelled.

Why Rafale, again? Because Rafale was ‘L1’ said the government. Even though it actually, really wasn’t.

Here’s what happened.

Chasing a Mirage

In August 2000, the Indian Air Force (IAF) moved a proposal to acquire 126 Mirage 2000-5 Mk2 fighter aircraft saying it required aircraft ‘with the same basic performance as that of the Mirage 2000, which was currently in service’. The proposal envisaged two squadrons to be purchased off-the-shelf and the remainder to be produced under licence by Hindustan Aeronautics Limited (HAL).

But the defence ministry under the first NDA government’s George Fernandes noted that the Defence Procurement Procedure (DPP) of 1992 simply did not allow single source procurement and directed a competitive tendering process.

The IAF tried again in March 2001, ‘justifying it on the basis of a cost benefit analysis of the available options. It argued that while other available options such as Rafale, Eurofighter, F-35, etc., were technologically superior to Mirage 2000, the excess combat capability of these aircraft would remain underutilized as Air Force requirement was a comparatively modest aircraft for shorter range missions. Given the higher cost of procurement of the above aircraft, it was argued that Mirage 2000 II was more cost effective.’

The defence ministry, again, ordered competitive tendering to be followed in June 2001.

The IAF tried a third time in December 2001, this time saying that ‘instead of treating it as a single vendor procurement, it should be treated as repeat purchase of the previously purchased Mirage 2000 aircraft (more of the same basis).’

“At the insistence of IAF, technical discussions were held from April to September 2002, between M/s Dassault Aviation of France, HAL, DRDO and Ministry (Finance) to study the operational capability of the aircraft, maintenance aspects and licensed manufacture of the aircraft at HAL,” says the CAG report.

After the discussions, the IAF made three arguments for the acquisition.

“In March 2003, IAF argued before the Defence Procurement Board (DPB) that Mirage 2000 MK II was the best option as in terms of capability and performance it was similar to its contemporaries like Rafale of M/s DA, France, Eurofighter of M/s EADS and Gripen of M/s SAAB, Sweden, but less expensive then these aircraft,” notes the CAG.

Secondly, the ‘IAF also argued that though F-16/F-18 of M/s Lockheed Martin/Boeing USA were in similar class as the Mirage 2000 MK II, it could face difficulties in case sanctions were imposed by USA’.

And third, ‘Rafale and Eurofighter were technologically superior to the Mirage 2000, but Mirage 2000 MK II could also have the state of art avionics, sensors and weapons suite, developed for the Rafale aircraft,” said the IAF, according to the CAG.

The defence ministry wasn’t buying this. “DPB deliberated the issue for almost a year, till January 2004 and finally discarded the proposal and directed IAF to start competitive tendering process in accordance with DPP-2002,” says the report.

But even until December 2004, the manufacturer of the Mirage 2000, Dassault, ‘insisted on supplying Mirage 2000 MK II on single source bases through IGA route’.

Draw me like one of your French girls

Once it became clear there would have to be a competition, the Mirage 2000-5 Mk2 was no longer the pitch. The RFI was issued in January 2004 and the RFP was issued in August 2007. The French were now offering the successor to the Mirage 2000, the Rafale. And the Rafale seemed to have a charmed life.

The first stage in the RFP was the technical evaluation. This is an evaluation of the technical specifications offered for each bid on paper, as to whether they meet the Air Staff Qualitative Requirements (ASQRs) or parameters.

The Rafale was rejected three times and thrown out of the contest by the Technical Evaluation Committee (TEC). At the time, a Dassault official angrily predicted to your correspondent, “In an earlier helicopter contract claims were made on paper, but at the time of physical verification and trials, the tender process was cancelled. And this is exactly what will happen again with this contract.”

But curiously, each time the bid was brought back in for consideration by the Technical Manager (Air), Air Vice Marshal J.S. Panesar, a Mirage 2000 pilot and former Air-Officer-Commanding at IAF Gwalior.

First Rejection (May 2008): ‘Rafale aircraft could not meet 9 ASQR parameters prescribed in the RFP. Further, it did not submit the data for Manufacturers List of Spares and Engineering Support Package,’ according to the CAG.

“Due to this noncompliance, the TEC rejected Rafale,” says the report.

Second Rejection (March 2009): “The Technical Manager Air [TM(Air)], Ministry while examining the TEC report raised certain queries regarding non-compliance of ASQRs of various aircraft and directed the TEC to review its evaluation accordingly. After obtaining clarification from the vendors, the TEC in March 2009 upheld its technical evaluation report which again rejected Rafale aircraft,” says the CAG.

Third Rejection (March 2009): “TM (Air) again sought clarification (12 March 2009) on the warranty and option clause of the Bids submitted by vendors. After obtaining these clarifications from vendors, TEC again reviewed its report and upheld its decision to reject the bid of M/s DA for Rafale aircraft (25 March 2009),” says the CAG report.

Why did the Rafale bid keep getting rejected?

The CAG report explains that ‘On subsequent clarifications obtained from the vendors, out of the 9 ASQR parameters on which Rafale was rejected, M/s DA offered to modify six of the parameters to meet the ASQR requirements’.

“The firm offered to give additional commercial proposal for making these changes. It stated that the aircraft made to NATO specifications required customisation to meet the needs of IAF. But still it could not meet three of the ASQR parameters. The vendor agreed to supply Engineering Support Package (ESP) and Manufacturer Recommended List of Spares (MRLS) data,” says the CAG.

“However, it still did not comply to the warranty and option clauses specified in the RFP. In view of the above, in March 2009, it was decided by Ministry to reject the technical bid of M/s DA and get waiver of RM on some non-compliance to the ASQRs in the bids of four vendors (EADS, Lockheed Martin, Boeing and Gripen),” explains the CAG.

So how did the French get back in the game?

Dassault told the defence ministry they would make all the required changes to their bid. For a price. As we will see later, this did not work out well and was part of the reason why the acquisition process was doomed.

The CAG says, “Ministry received (April 2009) a suo moto representation from M/s Dassault for reconsideration of its proposal, stating that it was willing to modify the aircraft to meet all the ASQR parameters and was willing to comply all RFP requirements.”

More problems came up with the French bid, however.

“During discussions with the Vendor, deficiencies in additional ASQR parameters were realised by the MoD making the total deficiencies in 14 parameters,” says the report, adding, “Ministry forwarded the representation to IAF for examination by TEC.”

But something had changed since March 25, 2009.

“In the additional TEC report received by Ministry on 13 May 2009, TEC recommended that technical proposal of M/s DA met the requirements of RFP. It further stated that the feasibility and modalities of implementing the modification proposed by the vendor may be verified during field evaluation trials and additional commercial proposal from the vendor may be accepted after due process. Subsequently, waiver on deviations from ASQR and RFP conditions in respect of five vendors and the proposal to accept the additional commercial offer of M/s, DA was approved by RM on 28 May 2009,” says the CAG.

Rules Broken

The rules under the Defence Procurement Procedure of 2006 allow a waiver to be granted only in certain cases. But, as the CAG points out, waivers were granted to the Rafale when the defence ministry had no authority to do so, according to the rules.

Dassault was allowed to change their technical offer, change their commercial quote to include the new technical offer, after the time for submission was long past.

Firstly, a technical offer cannot be changed ‘materially’. Only minor variations’ are allowed, as long as they don’t affect the basic character or profile of the offer. “Audit noted that, Para 35 of DPP-2006, states that the technical offer once submitted should not be materially changed subsequently; however, minor variations which do not affect the basic character/profile of the offer may be accepted,” says the CAG.

Secondly, ‘It further stipulates that no extra time should be given to any vendor to upgrade his products to make it compliant with QRs and the original commercial quote submitted earlier must also remain firm and fixed.’

The ministry here not only allowed Dassault to upgrade their technical offer after the submission, they also agreed to accept the submission of a revised commercial offer for the upgraded technical offer. As we will see later, this caused debilitating problems for the acquisition.

“Audit noted that the opportunity provided to M/s Dassault Aviation to significantly modify its technical and price bid was in violation of DPP,” says the CAG.

The defence ministry tried to defend this decision by saying it was approved by the Defence Acquisition Council (DAC), the ‘highest decision making body’.

But the CAG points out, even the ‘highest decision making body’ is only allowed to act according to the existing rules and had no authority to issue waivers for transgressions that were not allowed by the DPP of 2006.

“Para 35 of the DPP allows for only minor deviations which do not affect the basis character or materially change the bid. But M/s DA was allowed to bring about enhancements of 14 parameters which, ultimately was to cost over ‘XX’ million €. Hence M/s DA was treated preferentially,” concludes the CAG.

“The firm attributed these modifications to the unique requirements of the IAF and called them Indian Specific Enhancements (ISEs),” reported the CAG.

So the defence ministry and the IAF broke their own rules to accommodate Dassault, by allowing it to change the technical specifications of their Rafale offer and increase the price of their bid, after the time allowed for ‘Indian Specific Enhancements’.

These enhancements must have been considered very special.

But the CAG points out, ‘Audit noted that the Indian requirements, while they might not have been available in Rafale, were not unique because most of these features were available in the other 5 aircraft that were evaluated. For instance, Helmet Mounted Display was available in all modern fighter aircraft including Eurofighter’.

So why was it so important for the Rafale to be allowed back in the contest, even if it brought nothing special to the table, increased its cost and compromised the integrity of the process?

These are questions that would probably best be answered by the Technical Manager (Air) and the head of future acquisitions for the IAF at the time, the Deputy Chief of Air Staff, Air Marshal N.A.K. Browne, who later became Chief of Air Staff.

Removing the Clutter

It was not enough for the Rafale to back in the contest. The only way it could win would be, if all the aircraft that could beat the French fighter on cost were removed from the competition.

As it turned out, this is exactly what happened on April 27, 2011.

The CAG says, “Four aircraft viz., “Z1”, “Z2”, “Z3” and “Z4” were rejected in field trials as they could not meet the ASQR parameters of “Growth Potential” and “Design Maturity”.”

The CAG ‘Audit noted that there was no objective, verifiable or measurable criteria prescribed for evaluation of these parameters’.

The defence ministry defended its decision, saying ‘Growth Potential had verifiable measures like- “Residual Capacity should be greater than 25 per cent” and “spare electrical power” should be greater than 25 per cent”’. Further, that ‘the Field evaluation was done accordingly’.

But the CAG pointed out that ‘if the parameter ‘Growth Potential’ did have the verifiable measures as stated above, then it should have been clearly stated in the ASQR and included in the RFP. The trial evaluation Report should also have indicated the actual findings against these parameters. However, none of these steps were taken’.

The defence ministry had nothing to say at all on the ‘evaluation of Design Maturity’.

The effect was of this was, quite simply, any aircraft that might have come up as a better and obviously cheaper option in comparison to the Rafale was removed from the contest.

The only thing that remained for the French bid was beating the Eurofighter. As outlined in the next part of this analysis, this was not easy and required the benevolence and accomodation of the Contract Negotiation Committee (CNC).

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