Defence Agents Out of Shadows But have to Walk with Riders

New rules allow defence ministry to access company books, annual reports on payments made to agents

Foreign entities have been allowed to engage agents for defence deals under a strict set of conditions, which includes giving defence ministry access to company accounts.

This is part of the new defence procurement policy, which also bars the practice of paying commissions depending on the success or failure of the effort. The policy, which has been under deliberations for more than a year, was finally put in place on June 8. A key chapter on `strategic partners' is still not ready and will be added later, said officials.

The policy outlines seven specific conditions for employing agents. This includes a clause that they would not be engaged to manipulate contracts or indulge in unethical practices. Besides access to financial documents, no fees linked to the progress of the contract would be allowed. Also an annual report on payments made and full disclosure of past payments will have to be submitted to the defence ministry.

Violation of the conditions would invite penal action but the policy does not state the exact nature of punishment. This, officials said, would be elaborated in a new blacklisting policy that is still in the works.

Interestingly, the provisions also empower the defence ministry to reject any agent hired by the foreign company. This has been put in place to keep out undesirable contact persons out of the procurement loop based on past dealings or controversy. “MoD reserves the right to inform the vendor at any stage that the Agent so engaged is not acceptable whereupon it would be incumbent on the vendor either to interact with MoD directly or engage another Agent. The decision of MoD on rejection of the Agent shall be final and be effective immediately,” the DPP section on agents reads.

The new policy also addresses the issue of payment of commission to agents that is linked to the value of a particular contract. In the ¤556 million AgustaWestland VVIP chopper scam for instance, it was accused that 10% commission was paid.

“The contract with the Agent will not be a conditional contract wherein payment made or penalty levied is based, directly or indirectly, on success or failure of the award of the contract,“ the new policy states. Industry experts have welcomed the MoD move of bringing clarity to the issues.

“The role of `defence agents' has always been under a shroud and this at times has led to delays and even contract cancellations that adversely affect force preparedness. With the norms of appointing and utilising defence agents by foreign vendors being clarified, their role becomes a part of the system and lends overall transparency,” said Ankur Gupta, vice-president A&D, EY India. While technically, agents were allowed in the past, they were never openly appointed by defence companies as their role could be questioned by the ministry. Several contracts, including a recent one for counter mine vessels have been cancelled due to a lack of clarity on the role or mandate of an agent.

Source: The Economic Times (Delhi)