INDIA Trends and Developments Contributed by: Uday S. Ahlawat, Gaurav Bhalla and Shramona Sarkar, Ahlawat & Associates
This is particularly relevant for foreign OEMs partner - ing with Indian entities. Technology transfer, imported components, licensing arrangements and subcon - tracting structures can affect the calculation of IC. The commitment made by the bidder at the bidding stage is a contractual obligation and may be subject to verification by the governmental authorities. Vendors should therefore ensure that their technical, manufac - turing and contractual arrangements are capable of supporting the IC percentage represented in the bid. Strategic Partnership Model The Strategic Partnership Model (the “SP Model”) under the DAP 2020 is intended to establish long- term relationships between selected Indian strategic partners and foreign OEMs for identified strategic seg - ments. The SP Model currently covers fighter aircraft, helicopters, submarines and armoured fighting vehi - cles/main battle tanks. Unlike a conventional vendor arrangement, the SP Model is intended to create an Indian manufacturing capability with substantial participation from the for - eign OEM. The foreign OEM is expected to provide the relevant technology and technical assistance, while the Indian strategic partner develops the manufactur - ing and life cycle support capability in India. The SP Model, therefore, could raise issues beyond the immediate procurement of the products. The arrangements between the Indian strategic partner and the foreign OEM typically need to address tech - nology transfer, IP ownership and licensing, produc - tion know-how, localisation, supply chain obligations, quality assurance, maintenance and upgrades, pric - ing, and long-term support. The parties should also assess the interaction between the strategic partner - ship arrangement, FDI restrictions, industrial licensing, and the IC requirements applicable to the underlying procurement. Emergency and fast - track procurement Defence procurement rules provide mechanisms for meeting urgent operational requirements without fol - lowing the full ordinary procurement cycle. These mechanisms have become particularly important where the armed forces require rapid acquisition of equipment or replenishment of critical supplies.
For vendors, the principal considerations are speed of contracting, technical eligibility, delivery commit - ments, pricing, warranty and support obligations, and the ability to demonstrate existing capability. Emer - gency procurement should not, however, be treated as eliminating the need for applicable statutory approvals or contractual compliance. Defence contracts Defence contracts generally contain detailed pro - visions concerning specifications, inspection and acceptance, delivery schedules, warranties, liquidated damages, termination, confidentiality, security, IP, and dispute resolution. Foreign vendors and private Indian companies should pay particular attention to provisions that allocate risks differently from ordinary commercial contracts. Government approval requirements, audit rights, restrictions on assignment or subcontracting, and obligations relating to classified or sensitive informa - tion can materially affect transaction structure and project economics. Offsets Scope and applicability of the offset policy A defence offset is a contractual obligation imposed on an eligible foreign defence vendor to undertake specified economic activity in India in connection with a qualifying defence procurement. The underly - ing policy objective behind offsets is to use significant defence acquisitions to build domestic manufacturing and technology capabilities, encourage investment in the Indian defence sector, and support the develop - ment of an indigenous defence industrial base. Under the DAP 2020, offset obligations do not apply to every defence procurement involving a foreign ven - dor. They arise only where the procurement falls within the categories and thresholds specified in the appli - cable offset provisions. The tender and the request for proposal (RFP) therefore need to be examined at the outset to determine whether an offset obligation is prescribed and, if so, the value and duration of the obligation. Where applicable, the offset obligation is separate from the vendor’s primary obligation to supply the
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