Lok Sabha Question No. 1358 (UNSTARRED), answered on 2018-07-25
Subject: MoU of RFI
Ministry: DEFENCE
Asked by: KRISHNAN NARAYANASAMY RAMACHANDRAN, R.K. BHARATHI MOHAN, PR. SENTHILNATHAN

## GOVERNMENT OF INDIA MINISTRY OF DEFENCE

## DEPARTMENT OF DEFENCE PRODUCTION

## LOK  SABHA UNSTARRED QUESTION NO.1358

TO BE ANSWERED ON THE 25 TH  JULY, 2018

## MoU  of  RFI

1358.  SHRI  K.N. RAMACHANDRAN: SHRI BHARATHI MOHAN R.K.: SHRI PR. SENTHIL NATHAN:

Will the Minister of DEFENCE be pleased to state:

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- (a) whether  the  Government  has  received  any  request  from  MPs  to  probe  into  the issue of approval of MoU of RFI with a Technological Partner as decided by the Board Meeting of Ordnance Factory Board (OFB) held on 28 February 2017;
- (b) if so, the details thereof and the current status of vacancy position;
- (c) whether  the  OFB  has  written  any  specific  reply  on  24  October  2017  to  the Department of Defence Production with regard to this issue; and
- (d) if so, the details thereof?

## A    N    S    W    E    R

MINISTER OF STATE IN THE MINISTRY OF DEFENCE

र  ा रा य मं ी

(a) to (d): A Statement is attached.

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(DR. SUBHASH BHAMRE)

(डा. सुभाष भामरे)

## STATEMENT  REFERRED  TO  IN  REPLY  TO  PARTS  (a)  TO  (d)  OF  LOK SABHA UNSTARRED QUESTION NO. 1358 FOR ANSWER ON 25.7.2018

(a) to (d): A  letter  was  received  from  Hon'ble  MP  (LS)  in  October  2017 with  a  request  to  expedite  the  proposal  under  'Make  in  India'  program, Public-Private  Partnership  program  [DCD  Grand  Power  &  Grand  PowerOFB] for co-production of latest technology small arms. Another  letter  was  received  in  March  2018  from  the  same  Hon'ble M.P.  stating  that  even  after  the  due  process,  the  Department  of  Defence Production (DDP) had sent back the proposal to Ordnance Factory Board (OFB)  citing  incorrect  procedure  followed  and  also  lack  of  Standard Operating Procedure (SOP) with OFB.  The reply, clarifying the status of the case,  was  sent  to  the  Hon'ble  M.P.  in  May  2018,  based  on  the  grounds enumerated below. The proposal for signing of MoU was forwarded by OFB to the DDP in March 2017.  The MoU was returned to OFB in July 2017 as it was found deficient in terms of procedure followed.  Earlier in September 2016, OFB had  been  asked  to  formulate  a  SOP  for  selection  of  the  technology partners.    In  October  2017,  OFB  stated  that  the  criterion  adopted  for  the selection of a prospective partner has been  clearly defined in the Expression of Interest (EoI) issued by them.  Pending approval of the SOP for  the  selection  of  technological  partner,  the  proposal  for  MoU  between M/s Grand Power and OFB was returned to OFB in January 2018 intimating that  the  same  would  be  progressed  based  on  the  approved  SoP  for  the selection  of  technological  partner.    The  revised  SOP  for  the  selection  of technological  partner,  incorporating  the  suggestions  of  the  Ministry,  was submitted  by  the  OFB  in  February  2018  which  after  examination  was approved by the Ministry in March 2018.  Copy of the approved SOP by the Ministry is enclosed as Annexure-I.

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## ANNEXURE-I REFERRED IN THE REPLY GIVEN IN THE STATEMENT IN PARTS (a) TO (d) OF LOK SABHA UNSTARRED QUESTION NO.1358 FOR ANSWER ON 25.07.2018.

## Guidelines for Selection of Technology Partner

(As approved by DDP vide MoD ID No. 2(4)/2016/Empowering OFB/DP (Plg-III) dated 12/03/2018)

1. OFB is engaged in production of items for Indian Defence Forces and Security Forces.  To  keep  pace  with  technological  developments  and  enter  into  new business  areas  to  align  with  core  strength,  OFB  needs  to  acquire  new  and advanced technologies through Transfer of Technology (ToT), co-production or collaboration agreements with suitable technology partners.
2. Selection  of  technology  partner  may  be  necessitated  by  the  need  for  the following:
- a)  Joint Research & Development activity
- b)  Manufacturing ToT
- c)  Co-production activity
- d)  Maintenance ToT
- e)  Short-term partnerships for specific projects/tenders
- f) Separate Joint Venture company to be set-up jointly
- g)  To become Indian Offset Partner of foreign OEMs for areas relating to OFB
- h)  Up-gradation of existing products
3. Selection  of  technology  partner  has  to  be  done  after  careful  analysis  and consideration  of  several  factors.  Therefore,  there  is  a  need  to  formalise  the process  for  selection  of  technology  partners.  The  procedure,  as  outlined  in succeeding paras, shall be followed for selection of technology partner.
12. 3.1 The need for technology partner, in terms of technological requirement, can be divided in 2 categories:
- Where defence equipment is required against an available PSQR/GSQR of Indian Armed Forces : In such cases, it is essential that the technical/operational requirement of the equipment as mentioned in the QRs is  fully  met.  If  a  respondent  is  not  able  to  offer  the  equipment  as  per  the stated QR, it becomes ineligible to be a technology partner.
- Where OFB is looking for a technology partner for a particular product segment or technology pro-actively, which could have the potential to be supplied to Indian Armed Forces, non-defence market and export : In such cases,  the  requirement  of  performance  parameters  of  the  product  or technology can be divided into 2 parts -one part which would be essentially required for the respondent to be eligible to be a probable technology partner and the other part may become part of evaluation criteria.

..…2/-

4. The  selection  of  technology  partner  will  be  through  Global  Expression  of Interest (EoI).
2. 4.1 Member of the concerned division of OFB will decide to issue Global EoI on case to case basis in consultation with Member/Finance.

## 5. Issue of EoI

- 5.1 EoI will be issued by OFBHQ.
- 5.2 Member of the concerned division of OFB will constitute an EoI Committee for preparation of EoI document to be issued for selection of technology partner. The  Committee  will  have  a  member  from  Finance.  Further,  if  considered necessary,  an  officer  from  concerned  lab  of  DRDO  may  be  co-opted  as  a member of the EoI  committee.  In  case  representative  from  concerned  lab  of DRDO in the EoI committee is not considered necessary, the reasons of the same may be recorded while constituting the Committee.
- 5.3 The  EoI  Committee  will  specify  all  the  essential  technical  and  financial parameters in the EoI document. These parameters will determine the eligibility of the respondents. Only those respondents, who satisfy these parameters, will be considered for further evaluation for ranking amongst themselves as stated in the succeeding paras.
- 5.4 Besides  the  essential  parameters/criteria,  the  EoI  document  will  invariably specify  the  criteria  for  comparative  evaluation  of  the  eligible  responses. Comparative evaluation of eligible responses will be done only in those cases where  more  than  one  response  is  found  eligible  based  on  the  essential parameters/criteria. If there is only one eligible response, comparative evaluation will not be required.
- 5.5 The criteria  for comparative  evaluation  of  eligible  responses  may  include  the following parameters:
- a. Range  and  depth  of  technology  being  offered: To  evaluate  range  of technology being offered, the respondents will be asked to provide a list of all the  assemblies  and  their  value  in  terms  of  percentage  of  the  total  system. Against each system, the respondents will have to indicate whether technology for the assemblies would be provided or not. This will also include details of propriety content.  In order to assess the depth of technology, all the assemblies/sub-assemblies  for  which  technology  is  being  offered,  will  be divided into following categories:
- Category A : Complete technology is provided i.e. product documents/specifications  as  well  as  production  process  documents. For such assemblies, full weightage for the value of the assembly in percentage terms will be given.

- Category B : Only product document is provided and no production/process documents are provided.  Only 50% weightage for such assemblies/sub-assemblies will be given.

The respondents will have to provide information in Table at Annexure-'A'. There could be certain assemblies/sub-assemblies which may fall in the area of core-competency of OFB, and for which OFB may have greater preference for ToT as compared to other assemblies/sub-assemblies. Such assemblies/sub-assemblies should be specified in the EoI document. Further, the  EoI  Committee  may  assign  higher  weightage  for  such  assemblies/subassemblies  over  and  above  the  weightage  specified  for  Categories  'A'  &'B' above.

- b. Proposed  Indigenisation  Content: In  some  cases,  it  is  possible  that  the respondent, which may be foreign OEM, may already have tie-up with some Indian  company  for  supply  of  a  particular  sub-assembly  and  would  like  to continue supplying that sub-assembly through their Indian partner. Considering 'Make in India' policy of Government of India, weightage may be given to this parameter.
- c. Status of the respondent: The respondents against the EoI issued by OFB may have the status of being  either  OEMs or their  authorized  licensees  or Design  Agency  or  Government  sponsored  Export  Agencies.    However, considering the relative ease and advantage of partnership depending upon the status of the respondent, as mentioned above, suitable weightage may be given for this parameter.
- d. Status  of  System  offered: Suitable  weightage  may  be  given  against  this parameter  considering whether the system  offered by  the respondent  is  inservice or proven or under evaluation.  In case the EoI Committee decides that the system has to be in-service/proven, this parameter may be removed from here and included in the eligibility criteria suitably.
- e. Technologies  and  performance  parameters  offered: As  brought  out  at para  3.1  above,  suitable  weightage  may  be  given  for  various  technologies sought and performance parameters desired from the product.
- f. Exclusivity of collaboration/ToT in India: The respondents who would enter into an exclusive collaboration/ToT arrangement with OFB need to be given preference  over  others  who  intend  to  have  collaboration/ToT  arrangement with other companies in India also. This is to ensure that the respondent has full  commitment towards OFB, which is essentially required to safeguard the interest of OFB.

- g. Possibility of addressing exports from India: The companies which do not put any restrictive clause in the collaboration agreement for export of defence equipment  developed  in  collaboration  to  foreign  countries  will  be  given preference over others,  who put conditions such that the equipment developed can be supplied to Indian Armed Forces only.
- h. The provision for support on upgrades: Suitable weightage may be given to  this  parameter  considering  that  upgrades  are  a  very  important  aspect  of any defence industry.
- i. Addressing  of  obsolescence: Generally,  defence  equipment  have  a  life cycle varying from 25-40 years and therefore addressing of obsolescence of spares/sub-assemblies of the defence equipment is a very important activity for sustaining the weapon for its full life.
- j. The  provision  of  product  support: Sometimes  OFB  may  need  product support  to  complement  the  capability  and  capacity  at  Ordnance  Factories. Therefore, if necessary, suitable weightage may be assigned to this aspect.
- k. Delivery  period  required  for  proprietary  items: Timely  availability of proprietary  items  will  have  a  bearing  on  production  and  supply  of  defence equipment by OFB. Higher weightage may be given for faster delivery.
- l. Financial Parameters: The EoI Committee may lay down suitable financial parameters  to  assess  the  financial health  of  the  respondent.  The  EoI Committee  may  also  like  to  refer  to  DPP  or  relevant  guidelines/policies  of Govt. of India for defining these parameters.
7. 5.6 The above parameters are broad guidelines. The EoI Committee may choose to include any or all of the above parameters based on the specific requirement of EoI. Further, the EoI Committee may include additional technical parameters that may be considered necessary for the EoI.
8. 5.7 The  EoI  Committee  will  assign  weightages  to  the  parameters  chosen  for evaluation,  as  well  as  specify  the  method/principle  for  assigning  unweighted score  against  each  parameter.  The  weightages  and  the  method/principle  for assigning unweighted scores should be mentioned in the EoI document. Table at Annexure-'B' indicates the procedure to be followed for calculation of points for evaluation.
9. 5.8     The  EoI  committee  may  also  consider  holding  Pre-Bid  meeting  for  any clarification required by the vendors.
6. Evaluation of EoI
11. 6.1 An  evaluation  committee  will  be  constituted  by  Member  of  the  concerned division of OFB for evaluation of EoI. The committee will have a member from Finance.  Further,  if  considered  necessary,  an  officer  from  concerned  lab  of DRDO may be co-opted as a member of the evaluation committee. In case

representative from concerned lab of DRDO in the evaluation committee is not considered  necessary,  the  reasons  of  the  same  may  be  recorded  while constituting the Committee. The EoI committee and Evaluation committee can have common members.

- 6.1.1 The  Evaluation  Committee  will  prepare  a  matrix  of  various  parameters  as mentioned at para 5.5 above. The matrix will be prepared in the format given at Annexure-'B'.    Based  on  the  matrix,  the  committee  will  rank  the  eligible technology holders as Rank I, Rank II, etc.
- 6.2 The Evaluation  Committee shall  recommend  suitable  technology partner  with highest ranking for Memorandum  of  Understanding  (MoU) / Collaboration Agreement.
- 6.3 The evaluation report will be examined by the concerned division and approved by the concerned Member/OFB.
7. After  the  approval  as  above,  a  Board  Paper  will  be  processed  for  signing  of MoU with the selected technology partner.

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ANNEXURE-'A' REFERRED IN THE REPLY GIVEN IN THE STATEMENT IN PARTS (a) TO (d) OF LOK SABHA UNSTARRED QUESTION NO.1358 FOR ANSWER ON 25.07.2018.

## Technology Transfer

| Name of the Sub- Assembly   | Value of Sub- Assembly as a percentage of total system   | ToT offer (Yes/No)       | Category (A/B)           | Weightage (1/0.5)        | Final percentage after considering weightage   |
|-----------------------------|----------------------------------------------------------|--------------------------|--------------------------|--------------------------|------------------------------------------------|
| (A)                         | (B)                                                      | (C)                      | (D)                      | (E)                      | (BxE)                                          |
| Sub-Assy. (I)               |                                                          |                          |                          |                          |                                                |
| Sub-Assy. (II)              |                                                          |                          |                          |                          |                                                |
| Sub-Assy. (III)             |                                                          |                          |                          |                          |                                                |
| Sub-Assy. (IV)              |                                                          |                          |                          |                          |                                                |
| Total Technology offered    | Total Technology offered                                 | Total Technology offered | Total Technology offered | Total Technology offered | ∑ (BxE)                                        |

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ANNEXURE-'B' REFERRED IN THE REPLY GIVEN IN THE STATEMENT IN PARTS (a) TO (d) OF LOK SABHA UNSTARRED QUESTION NO.1358 FOR ANSWER ON 25.07.2018.

Evaluation Matrix

| Performance Parameter                 | Weightage                             | Score        | Score        | Score        |
|---------------------------------------|---------------------------------------|--------------|--------------|--------------|
| Performance Parameter                 | Weightage                             | Respondent A | Respondent B | Respondent C |
| P1                                    | W1                                    | A1           | B1           | C1           |
| P2                                    | W2                                    | A2           | B2           | C2           |
| P3                                    | W3                                    | A3           | B3           | C3           |
| …                                     | …                                     | …            | …            | …            |
| Pn                                    | Wn                                    | An           | Bn           | Cn           |
| Total Points earned by the respondent | Total Points earned by the respondent | ∑ (Wi X Ai)  | ∑ (Wi X Bi)  | ∑ (Wi X Ci)  |

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