New Blacklisting Policy - Some Thoughts
Lt Gen (Dr) V K Saxena (Retd), PVSM, AVSM, VSM

While the new blacklisting policy issued by the Ministry of Defence (MoD) on 21 Nov 16 under the caption "Guidelines of the MoD for Penalties in Business Dealings with Entities" is indeed a forward looking document that moves miles ahead of state of things that existed heretofore, there are a few more refinements that could be looked at. This article puts the said policy in the perspective and suggests some additional measures. The author, having pursued many a procurement cases from the decision making position has experienced first-hand, many a shades of blacklisting and have seen the cascading and disproportionally unfavourable effects of the same on such cases.

There used to be a time when the blacklisting of foreign Original Equipment Manufacturers (OEMs) was done mainly on suspicion, without concrete proof and (or) conviction. There have been instances, when the curse of blacklisting fell upon the procurement cases at a time when the end-game was in sight after years of effort in the painfully slow procurement chain, simply because there was a complaint from a 'rival' which had not even been conclusively proved.

In a bid to seek a morally condescending and an utopian position, such blacklisting across board actually amounted to scoring self-goals, since it was invariably the user (and the nation) who always stood to lose. Manifestation of this loss has had many shades. To name a few: Stalling of modernisation plans; armed forces denied a weapon system that was operationally expedient, available and offered by the manufacturer; OEMs getting eliminated due to blanket blacklisting thus creating a single vendor situation, which in any case was ‘NO GO’ then; escalation of time and costs of ongoing projects which depended on the technology possessed by the 'blacklisted OEMs', and more. It is interesting to note that that the apex document for GOI financial transactions, namely the ‘General Financial Rules, 2005’ has no provision for blacklisting.

Without going into specific cases, it is known that over the years, blacklisting of OEMs like Singapore Technologies Kinetics (STK), Israeli Military Industries (IMI), Rheinmettal Air Defence (RAD), Corps Defence Russia (CDR), Denel, Finmeccanica and several others, has had multiplicative adverse effects upon the defence forces in addressing their operational voids through procurement cases which were progressed for years. The list of resultant voids is long: 125 mm Fin Stabilised Armour Piercing Discarding Sabot (FSAPDS) ammunition, Bi-modular charge system for 155 mm Guns, anti tank missiles, 30 mm ammunition for SU-30 aircraft, 23 mm APIT ammunition, futuristic air defence gun, et al. Procurements in all these cases, and more, suffered (actually came to a grinding halt) due blanket blacklisting. In short, instead of punishing the guilty, it actually ended up in derailing national interests.

Much of the above ills are likely to be addressed in the new policy guidelines which, instead of blanket blacklisting, provide three clear options, namely, imposition of financial penalties, suspension, and banning of business dealings. These guidelines are anchored on the moral aspects like the need to maintain highest standards of probity, transparency and proprietary in compliance to the Defence Procurement Policy (DPP), and the need for conformity to fairness, impartiality, rigour and correctness in dealing with the ‘entities' which include companies, trusts, societies and even individuals.

Here is a snapshot on the various strengths of the new guidelines:-

  • At the onset, the guidelines list out six specific ‘NO-GO’ areas which may trigger actions under various shades of blacklisting. These include:-
    • Violation of the terms set out in the Pre Contract Integrity Pact (PCIP), where entered into.
    • Resort to corrupt practices, unfair means or indulging in illegal activities at any stage of the procurement process.
    • Violation of standard clause in the contract related to agents/agency commissions.
    • If national security considerations so warrant.
    • Non-performance or under performance of the terms of contract.
    • For any other reason in public interest.
  • In a welcome departure from the past, specific activity/stage of culpability has been defined that may trigger action of suspension /banning. It is no more on hearsay/suspicion, as was the case heretofore. For instance, suspension is only attracted in case complaint about an entity has been referred to the Central Bureau of Investigation (CBI) or any other investigation agency, or on initiation of a criminal investigation. Similarly, the action to ban becomes live only when the allegations (about an entity) stands established in a competent court, tribunal or authority. It is expected that such clarity will cut out much of the ills of blanket banning on suspicion or unproven charges.
  • Another strong point of the guidelines is the fact that the provision of suspension or banning of a particular company of an OEM by the MoD will not extend to the other affiliates and holding companies of the same OEM. For instance, even when the VIP chopper scam is being investigated against one of the subsidiary of M/s Finmeccanica, i.e Augusta Westland, the ongoing procurement cases with other subsidiaries of Finmeccanica, such as Selex Electronics, Oto Malera, Alena Aeromachi and more, can still go on.
  • Another enabling point of the guidelines is the provision that suspension/banning of an entity by the MoD will not automatically extend to other Ministries which can carry on with their ongoing procurements.
  • There used to be a time when blanket banning of an entity deprived the users of the critical technology/spare support for which they were dependent on that entity. Such banning used to leave the users in a sudden void. New guidelines address this lacuna. It lays down that if there is a Transfer of Technology (ToT) or a Licensed Production (LP) arrangement existing with an entity that now faces suspension/ban, it can, with the approval of the competent authority may still take part in future bids related to components/notables/additional items in the area where ToT/LP was taken.
  • The new guidelines also address the ‘No Go’ situation where the items required are proprietary and there is no alternative source of supply available. In such cases, an entity under suspension/ban which holds the proprietary of the items so required, can with the approval of the competent authority, take part in future RFPs for spares, upgrades and maintenance etc. This provision, though it will be rarely applied, is important because it will ensure that suspension/ban does not render a weapon system unsustainable just because the only source for its spares/upgrades/maintenance is under suspension/ban.
  • Another strong point of the guidelines is its zero-tolerance stance when it comes to the 'agents'. Going by the dictum that there are only two shades of 'integrity'- 0 or 100% - the guidelines state, rightly so, that if an agent has been found engaging in the acts of impropriety and he/she is 'banned for life', the ban stays irrespective of the entity under the suspension/ban being absolved at a point in time. This firm and no-nonsense provision will help a great deal in cleansing the system.
  • Some experts have noted that the competent authority has been vested on a single individual, namely, the Raksha Mantri (RM), and that it should have been vested on a body. Having had the opportunity to see the entire system of procurement first hand, and having worked through it, it is the sense of the author that vesting of the final authority in the RM is a right decision. It will bring clarity, accountability and transparency in ownership of the 'harsh decision' taken. Where is the doubt that the RM will be guided and advised not only by the facts of the case but also by the considered interpretation of the case by his team.
  • Some experts have argued that there could have been a provision for 'Deferred Prosecution Arrangement' or DPA for short. Very briefly, DPA will refer to a grant of amnesty in exchange for the OEM agreeing to fulfil certain requirements. This could mean fines, or putting in place corporate reforms, or to co-operate with the investigation. The author is of the view that with these three options and all other enabling provisions, the guidelines are adequate and well drafted. Inclusion of DPA, which actually means letting the erring OEMs 'buy their way out of corruption' is not really required.
  • While there are a lot of 'goods' which the guidelines promise in comparison to the erstwhile practice of blanket blacklisting, there are a few things which could be looked at:-

  • It would have brought in more clarity if each of the authorities empowered to impose a ban, namely, competent court/tribunal/authority, had been clearly specified. The vagueness as to which 'court' is considered competent, who is the 'authority' etc, needed to be clearly stated.
  • While the guidelines mention financial penalties as one of the three options in the blacklisting continuum, the same is not contained or explained in the body of the guidelines. Besides, there are two shades of opinion on financial penalties. While the first holds it as a viable option of punishment, the other sees it as a option to 'buy one's way out of wrongdoings' as stated earlier. In any case, if financial penalties was envisaged as an option, it should have been provisioned in the text and explained therein.
  • In any regime of doling out punishment for a wrongdoing, there has to be a two way process, wherein, before the axe comes down, the affected party gets a chance to explain or contest. To that end, there is no appeal mechanism built in the guidelines. It must be noted that the 'appeal mechanism' though suggested, also has its flip side, in that, anybody who gets into the suspension/banning possibility, will invariably cry hoarse and appeal against it, making it a long litigation loop that will hang heavy on the forward movement of the procurement case. Keeping that in mind, while there may not be a direct route to appeal, there could be a few other shades of punishment. For instance, where a particular departure from the laid down quality /procedure /process has come to light, there could have been a provision of putting a 'compliance monitor' for a period of time.
  • It is a point for consideration whether 'self-disclosure' could be offered incentive/reward under the guidelines. In that, an OEM, having come to know of a wrong in its system, could have the option of disclosing it up front and explaining, what action has been taken to address the same. Based upon such a self-disclosure, there could be some sort of provision for an incentive, on a case-to-case basis.
  • Most of the past scams have had 'breaking-news' links with the foreign investigation agencies. Swedish radio in 1987 exploded Bofors, Italian investigations in 2013 came out with Augusta Westland while the US investigations uncovered he Embrayer scam. In this context, there could be a provision in the guidelines that makes some room for the investigations done or revelations made by foreign investigation agencies. The above statement is made with the full realisation of the fact that taking foreign investigation agencies on board may open a Pandora's Box against inter-Government agreements or the lack of these, extradition treaties, acceptability of evidence in own courts, arrangement for link up with various investigation agencies, and more, all of which have to be considered.

The above points are made to draw attention to something that is missing and needs to be included in the guidelines in a manner that it does not shackle our procedures. Like any other policy/guideline, there may be arguments for and against, but in the overall sense, the guidelines have been a very positive effort, making a clear departure from the era of blanket blacklisting and scoring self-goals. The mantra is, “We must punish the guilty but not the system”.

Post new comment

The content of this field is kept private and will not be shown publicly.
1 + 0 =
Solve this simple math problem and enter the result. E.g. for 1+3, enter 4.
Contact Us