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Posted at: Feb 14, 2019, 6:54 AM; last updated: Feb 14, 2019, 6:54 AM (IST)

…Calls process of arriving at benchmark price wrong

Tribune News Service

New Delhi, February 13

The Comptroller and Auditor General (CAG) in its report today questioned the way the benchmarking of price of military equipment is arrived at and even commented that parity of calculation was not maintained when the Rafale and its rival Eurofighter’s bids were being evaluated (in 2011-2012).

“Audit noted that parity was not maintained in evaluation of Dassault and EADS bids on the element of direct cost of acquisition,” the CAG says. Dassault makes Rafale and the EADS makes the Eurofighter.

The CAG says committee calculated the total direct acquisition cost for Rafale and Eurofighter on different parameters. A sub-committee converted the price of different component of kits and material quoted by Eurofighter into Indian rupees and reconverted them back to Euros. “This was unwarranted as both the vendors (Dassault and EADS) had given the price of ‘kits and material’ in Euros. Thus, the price of EADS got overstated,” the CAG says. This question if Rafale was actually the lowest bidder in the first place.

On the latest bid of the Rafale, the Indian negotiating team (INT) estimated the benchmark price on a ‘firm and fixed’ cost basis keeping in view the expected discounts, market study, Rafale sale price from annual reports of Dassault aviation.

In the case of 2007 bid for the 126 jets and latest bid for 36 jets, the benchmark prices estimated by the benchmarking committees were unrealistically low. The CAG says: “Audit noted that as INT was already aware of both the previous unrealistic benchmark pricing as well the commercial offer, they could have estimated the benchmark price more realistically.”

The CAG in a way justifies the raising of the benchmark price. In the report, it says before opening of the price bid, the cost negotiating committee (CNC) is required to estimate the benchmark price.

The CNC revised the benchmark prices upward, so as to bring it nearer to the price bids. “Such adjustment of the benchmark price may seem aimed at justifying the award of contract to the lowest bidder. Revising the benchmark after opening of the price bid defeated the very purpose of benchmarking, which was to verify the reasonability of the prices,” the CAG says.

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