Highlights of the Defence Procurement Procedure (DPP) 2016

On March 28, 2016, Indian Defence Minister unveiled a new Defence Procurement Procedure (DPP 2016) during the Defence Expo 2016. The significant features of
DPP 2016 are as follows:

New Category for Defence Acquisition: A category "Buy IDDM (Indigenously Designed, Developed and Manufactured)" is likely to be introduced in the DPP. The
introduction of such a category would mean that Indian companies who have the capability of designing and developing products indigenously will be preferred in
most purchases by the Indian Armed Forces. This will have two sub-categories -one, it will be mandatory to have 40 % local content in case the design is also
indigenous. Two, in case the design is not Indian, 60 % local content will be mandatory.

Expansion Of "Make" Procedure:

The "Make" procedure will be expanded into three types.

 Make -I (Government funded) - Government funding to the Indian private entities for R&D in order to encourage more local development. The Government
will fund up to 90 percent of the R&D, of which 20 percent will be given in advance and in 24 months the entity will be given tender. In case the company
develops a prototype and he is not given order within 24 months, his remaining 10 per cent of the development cost would be reimbursed.
 Make- II (Industry Funded) – This category will involve industry funding, rather than government funding, for prototype development. If a tender is not issued
within two years of the successful prototype development, the Defence Ministry would refund the entire development cost to the duly selected vendor.
 Make - III (MSME Funded) – While procedurally similar to Make – II (Industry –Funded), this is reserved for projects with a development cost of less than Rs.
3 crore, which will be exclusively reserved for MSMEs.

Offset: The Offset policy which currently applies to contracts worth ≥Rs. 300 crores is proposed to apply to contracts worth ≥ Rs. 2,000 crore only. The threshold limit
is being raised to Rs 2,000 crore, as not many Indian companies are available to absorb so much of technology infusion.
Shorter AONs (Acceptance of Necessity) Period: In order to reduce delays in procurement process, AON of a particular platform will be valid only for only six
months as against the current 12 months deadline. Moreover, AON would not be notified until accompanied by a finalized RFP.

'Indian Company' defined: A company controlled and operated by Indian nationals would be considered as an Indian Company and would be eligible to participate
in the categories Buy Indian, Buy & Make Indian and Make cases.

Opportunity for 'Medium and Small Scale Industries': For encouraging R&D in the private sector, the department of defence production will bear 90% of the
design and development cost of major systems. Small and medium scale industries will be given from Rs. 3 crore to 10 crore in funding for design and development
and contract within 24 months and If contract is not awarded then the entire cost shall be refunded.

Effective Date of DPP 2016: DPP 2016 would be in supersession of Defence Procurement Procedure - 2013, and will come into effect from 1st April, 2016. In cases
where RFPs have already been issued under earlier versions of DPP would continue to be processed under such earlier versions.

Strategic Partners & Partnership: The chapter on Strategic Partners and Partnership will be notified separately.

Standard Contract Document: The chapter on Standard Contract Document will be notified separately.

Blacklisting Policy & Role of Agents :The MoD has not yet notified the new provision for blacklisting of companies and the role of agents. It is expected to be
notified shortly.

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