CAG finds several instances of deviation in VVIP chopper deal

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New Delhi, 13 Aug (PTI): The CAG today slammed the Defence Ministry and Air Force for “several instances” of deviation from rules in the procurement of VVIP choppers in the Rs 3,727 crore AgustaWestland deal.

In its report tabled in Parliament, the Comptroller and Auditor General also questioned the decision of the then IAF chief to hold the trials of the two contenders for the deal abroad.

The CAG also noted that the benchmark cost of Rs 4,871.5 crore for the 12 VVIP choppers was “unreasonably high” as compared to the Rs 3,966 crore quoted by AgustaWestland.

“Several instances have been observed where the Defence Ministry deviated from the 2006 Defence Procurement Procedure and the tender for the deal issued in Sept. 2006,” the report stated.

As per the DPP, a reasonable price is benchmarked by the Contract Negotiation Committee (CNC) while proceeding with a deal.

But the benchmark price of Rs 4,871 crore arrived at by CNC was “unreasonably high as it had provided no realistic basis for comparison with the offered cost of Rs 3,966 crore (by AgustaWestland) for price negotiations,” the report said.

The report added that while an approval for deviation was required to be pursued with “extreme caution and in exceptional circumstances”, the frequent deviations made in this case are counter to the clauses of the DPP 2006.

The CAG also criticised the procurement of four additional choppers in the deal at a cost of Rs 1,240 crore as “avoidable” and said that the assessed requirement was not commensurate with the low utilisation levels of existing helicopters providing transportation to VVIPs.

On the evaluation of the choppers, the CAG said that trials for the AgustaWestland model were conducted on representative Merlin helicopters and not on the actual craft whereas the other contender, Sikorsky, had offered its S-92 for try-outs.

“Even at the stage of trials, the AgustaWestland chopper was in a developmental phase. Evaluation of helicopter following different methodologies could not give desired assurance that equal opportunity was provided to both shortlisted vendors.

“Thus, the recommendation and assurance given by the Chief of Air Staff in October 2007 to conduct trials abroad lacked justification,” the report said.

The CAG also questioned the offsets obligations carried out by AgustaWestland, saying there was “ambiguity in the contract regarding the type of services and export orders to be executed by IDS Infotech (its Indian offsets partner)”.

“AgustaWestland gave a year-wise break up of work from 2011 to 2014 to be executed by IDS Infotech under this offset programme even though the work had been completed well before the conclusion of the contract in 2010,” the report said.

The Anglo-Italian firm had projected seven programmes to be completed as part of the offsets contract but “these allowed offsets were not compliant with the DPP.

“Besides many Indian offsets partners selected for discharge of offsets obligations were not eligible,” the CAG added.

The CAG further blamed the Defence Ministry and the Air Force for causing an inordinate delay in the acquisition process through their “failure” to devise realistic qualitative requirements for the procurement of the choppers.

The qualitative requirements for the VVIP helicopters were revised by the ministry and IAF, leading to restricted competition in the tender process and resulting ultimately in a single-vendor situation, the CAG observed.

According to the report, IAF had told the ministry in 2004 that a service ceiling of 6,000m was an “inescapable operational necessity as many areas in north and northeastern regions of the country would be accessible only with a service ceiling of 6,000 m”.

“It (IAF) had also opined that making the cabin height of 1.8 m a mandatory requirement would lead to a single vendor situation as in that case only the (AgustaWestland) AW 101 would comply with the (criterion),” the report said.

But the CAG noted that in a meeting convened in May 2005 by the Defence Secretary and attended by the Deputy Chief of Air Staff, “it was decided inter alia to lower the altitude requirement to 4,500 m (from 6,000 m) and make the cabin height of at least 1.8 m (from 1.45 m) a mandatory requirement.”

The CAG pointed out that the Defence Ministry, in a April 2013 reply, had stated that the service ceiling was set at 4,500 m with the approval of the Chief of Air Staff in March 2005 to bring it in conformity with the service ceiling of Mi-8 choppers.

“The ministry’s reply is not consistent with the assertion by IAF in their brief to the Defence Secretary in Jan. 2004 that the requirement of 6,000 m was an ‘inescapable operational necessity’,” it said.

The CAG also observed that the ministry’s reply about the Mi-8’s service ceiling being 4,500m was not consistent as the IAF had stated it was unable to operate at elevations above 2,000 m.

The auditor also rejected the ministry’s assertion that all six vendors who were issued tenders in 2006 were capable of providing helicopters with a cabin height of 1.8m.

“The ministry’s reply is not acceptable as at least one European competitor, EADS, to whom a Request for Proposal was issued did not have any helicopters with the required cabin height of 1.8m,” it said.

The CAG said the “fact remains that by making the cabin height of 1.8m a mandatory requirement, the competition was restricted, resulting in a single vendor situation”.

“The purpose of re-framing qualitative requirements to avoid a single vendor situation could not be met because even after the revision, the acquisition process led to a single vendor situation and the (AgustaWestland) AW-101 was selected,” the CAG said.

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