CAG questions accuracy of benchmark pricing in air defence acquisitions

Says methodology leads to delay, awarding lowest bidder unsuitable for hi-tech assets

The Comptroller and Auditor General of India (CAG), in its report presented in Parliament on Wednesday, questioned the accuracy of benchmark pricing for acquiring air defence systems by the Indian Air Force (IAF). The CAG also said the practice of awarding procurement to the lowest bidder might not be suitable for highly technical defence assets. 

"For procuring highly technical products, use of the 'Best Value' method or a 'Quality-cum-Cost' assessment may yield better value for money," the report said.

Picking holes in the methodologies of IAF acquisitions, the CAG said these have been delayed since 2012-13. The acquisition backlist includes Chinook, Apache, and Rafale. The report said the same radar had been acquired by the Indian Meteorological Department in nine months, whereas the Air Force took eight years.

"Four cases took more than three years and seven cases took more than five years to just sign the contract. The external lead time — the time taken to complete the delivery after the signing of the contract — was another three to five years," the report said.

The CAG assessed 11 deals, including the one on Rafale, in Volume 1 of its report. The second volume dealt specifically with the Rafale deal.

In four cases, the benchmark price was much higher than the bid price, while in as many other cases, it was much lower, said the report. Only in two cases were the two prices somewhat near. The CAG said it was difficult to establish if the prices were reasonable with such a large gap, and in many cases, there were dissents and disagreements between members of the Contract Negotiations Committee (CNC). 

The CAG, however, did not provide the pricing of Rafale — over which the government and the Opposition have locked horns — following a request from the defence ministry.

For the Rafale deal, the benchmark prices fixed by both the previous United Progressive Alliance government and the current National Democratic Alliance regime were unrealistically low.

The CAG said repeated incidents of the benchmark price being significantly different from the real one revealed lack of costing experience. The CNC usually relied on the last purchase price — but these were usually very old and for non-identical assets.

The authority also said much of the costing, price estimation, and price comparison was done by the Air Headquarters. At times, they were assisted by advisors from the Ministry of Defence.

However, the onus of all financial decisions and costing was with the finance manager of the acquisition wing or the CNC.