CBI files FIR in AI software procurement 'scam' of Rs 225 Cr

CBI has registered a case against unknown officials of Air India, German firm SAP AG and global computer major IBM in connection with alleged irregularities in procurement of software worth Rs 225 crore by the national carrier in 2011.
The agency has registered the case on the recommendation of the Central Vigilance Commission which found prima facie procedural irregularities in the procurement of the software, CBI sources said.
After considering the reports of Chief Vigilance Officer of Air India, the Commission in a communication to CBI said it was of the view that there were "serious procedural and other irregularities" in the procurement as well as amount paid and extent of services rendered.

The CVC had asked the CBI to probe the "irregularities in the tendering process and award of contract and undue benefit caused to the SAP/IBM".
It had also asked the agency to investigate whether any of the persons who dealt with the issue at IBM and in the government got any financial or other benefits, besides irregularities relating to the registration by the Directorate General of Supplies and Disposal.
The Commission in its note to CBI said that initial probe

by Air India CVO shows that the national carrier had selected the Enterprise Resource Planning (ERP) software system from SAP AG without following proper tendering procedure.

It is also alleged that there was no approval from the Ministry of Civil Aviation even though Air India had claimed that it had made a presentation before the Group of Secretaries on July 9, 2009, and before the Group of Ministers in 2010.
It said Air India had selected the software from the largest ERP provider of the world without justifying the need for the same since already a similar system of Oracle was in operation.
It was stated that the Oracle system had some problems but no efforts were apparently made to either set them right or upgrade the existing system. Also, open tender system was not adopted for procurement of new ERP software, it said.

"Instead the contract was awarded to SAP and IBM on nomination basis," it said.
It is alleged that Air India acted on the proposal submitted by SAP without making any cost estimate and analysing technical specifications.
"Also, the manner in which purchase was made smacks of malafides looking at the quantum of amount and extent of services provided," it said.
It is alleged that SAP's proposal was approved by the Air India Board the day it was submitted.
It also came to light that other private airlines had purchased the same software at a lower price, the note now part of the FIR, alleged.

The name of IBM for supplying the hardware was suggested by SAP AG since it was supplying it to many firms where the said software was running, the note said.
"Before finalisation of the contract, DGS and D suspended its contract with SAP on November 29, 2010. However, Air India went ahead and finalised the above agreement after obtaining indemnity certificate from SAP against any future reduction of rates and SAP agreed to provide indemnity upto December, 2011 and accordingly the contract was finalised on January 6, 2011," the CVC alleged.
The Central Vigilance Commission in its note to CBI said it has come to conclusion that Air India has not followed the proper procedure in this case due to which they have paid "highly excessive" cost in comparison to other private airlines.

"Commission, have (sic), considered the extent of loss to the company, probable benefit to the private parties and concluded that misconduct of officials involved in finalising the contract are glaring and malafide is apparent," the note alleged.
Email sent to SAP and IBM seeking their reaction remained unanswered.