Insights into Editorial: Blacklisting Policy on the Anvil
The Defence ministry has approved a new ‘blacklisting’ policy for suppliers to tackle cases of corruption in defence deals without adversely affecting the procurement process.
- The new policy was approved by the Defence Acquisition Council (DAC) under the chairmanship of Defence Minister Manohar Parrikar recently.
- Since the details are yet to be released by the Ministry of Defence (MoD) there is some suspense about what the policy will look like.
What was the need for this policy?
The defence forces were hit hard by existing blacklisting norms under which the previous government had blacklisted many critical firms under a blanket policy.
- From ammunition to guns, there is a long list of items that could not be procured in time, or at all, from the best available sources because of allegations of transgression against the manufacturer or the group of companies to which the manufacturer belonged.
- The new government had also voiced concerns over indiscriminate blacklisting of companies supplying defence products over “small issues”.
Highlights of the policy:
- Some media reports suggest that a company could be blacklisted for 1 to 10 years. Others suggest that it could be blacklisted for a year at a time – if criminality is established against it or there is evidence of kickbacks. The punishment will, however, be less harsh if the criminality is not established.
- Reports also suggest that those found guilty of procedural lapses, oversight or omission will be allowed to carry on business with MoD on payment of hefty fines. In other words, there will be a system of graded punishment and fines commensurate with the gravity of transgression.
- Some reports indicate that the new policy envisages fast-track investigations and that the duration of investigation will be taken into account while prescribing a ban on the offending companies.
- Under the new policy, the decision to blacklist a company will not be an executive one. It will be done in a collegiate manner by a committee, which will also include the vice-chiefs of the Army, Navy and IAF.
- Under the new nuanced blacklisting norms, procurement of spares for platforms and equipment already purchased from a company under the scanner will be allowed. Moreover, companies already blacklisted will now also be able to appeal to the government for a review, based on merits of a case.
What’s good about this policy?
- It strikes a balance between the need to effectively punish corruption but also ensure military modernisation does not get adversely impacted.
- It will also not halt procurements as the policy will require action to be taken only against the offending entity and not the entire group of companies to which such entity belongs.
- The focus of the new policy will be on graded blacklisting and fines. This means that if a defence supplier is found guilty of wrongdoing in procurement of a particular military platform, it will be banned for a specific number of years from dealing in that particular segment. This will ensure that while defaulting companies are dealt with harshly, the modernisation is not affected.
What is to be ensured?
- The new policy must be comprehensive enough to ensure that no loose ends are left to be tied at time of implementation. For instance, it is almost certain that only the offending company, and not the entire group of companies to which it belongs, will face the consequences of transgression under the new policy. It will need to be made clear whether such offence should relate directly to its dealings with the Indian MoD, or whether involvement in corruption anywhere in the world would be sufficient to attract penal action.
- In this regard, the policy should also strive to strike a balance between the need to punish/penalize the offending companies and ensuring that the process of modernization does not suffer in the process.
- The new policy is also not clear about the basis for deciding the duration of blacklisting and the deciding authority. The policy must answer all such questions and lay down the procedure for its implementation.
- It would be equally important to specify the procedure for investigation of complaints, the authority competent to decide what action is to be taken based on the investigation report, the agency which will be responsible for taking follow-up action, and the procedure for appealing against the decision of the competent authority.
- Another important question that needs to be answered in the interest of fair play is as follows: whether the company facing investigation will be required to hold in abeyance its commercial offer if the investigation starts after submission of response to the Request for Proposal (RFP) during the entire period of investigation or be allowed to revise its quote if it is subsequently exonerated.
Being a sensitive issue, the effectiveness of the policy will depend to a large extent on its acceptability across the political spectrum. Therefore, proactively building a political consensus around it would go a long way in establishing the credibility of the policy.