CAG punches holes in UPA's $2.1 bn Boeing anti-submarine aircraft deal

The Comptroller and Auditor General of India (CAG) has raised questions over a $2.1-billion Indian Navy contract awarded to Boeing during the previous UPA regime, suggesting the American defence major was favoured over rival bidder EADS CASA of Spain for procuring a fleet of P-8I maritime reconnaissance aircraft.

The CAG report tabled in Parliament blames the UPA government’s defence ministry for “incorrectly” passing on P-8I as the L-1 (lowest bidder) over the A-319 aircraft fielded by the European Aeronautic Defence and Space (EADS) company CASA of Spain.
The CAG said the defence ministry under A K Antony enhanced the financial bid of the Spanish aerospace firm to provide for a 20-year "product support" cost assuming that Boeing's offer had a similar provision.
“While evaluating the bids for conclusion of contract, the MoD enhanced the financial bid of EADS to cater for 20 years of product support (by extrapolating its figures), while ignoring this element in respect of Boeing,” it said.
The maintenance support contract for Boeing was later negotiated as a separate contract, CAG pointed out, adding that terming the American company was the lowest bidder (L1) was an incorrect conclusion.
On the other hand, by enhancing the financial bid of the Spanish company by including its product support cost resulted in pushing it to L-2 status (second lowest bidder).
The MoD concluded the $2.1 billion (about Rs14,500 crore at the current exchange rate) contract with Boeing in January 2009.
"At a later date, Boeing, USA, offered the product support under a separate negotiable contract and consequently the deduced ranking of Boeing, USA as L-1 turned out to be incorrect," it said.
The US aircraft was also not "fully meeting" the needs of the Indian Navy, mainly due to limitations of radars installed onboard the aircraft, the CAG observed.
Also, the CAG said the defence ministry had set the offset obligation by Boeing at $641 million (Rs3,127.43 crore), to be met by August 2016, which the US company is yet to fulfil.
In fact, CAG pointed out, "Boeing, USA had claimed offset credits on mere placement of purchase orders defeating the very purpose of offset obligations."
Under the offset policy, foreign defence entities are mandated to spend at least 30 per cent of the total contract value in India through procurement of components or setting up of research and development facilities.
However, all the eight P-8I (Poseidon Eight India) aircraft contracted under the 2009 deal have been delivered beginning with the first aircraft delivered in May 2013. All the eight aircraft have also been fully integrated into Indian Navy's operations.
The P-8I aircraft is a variant of the P-8A Poseidon aircraft that Boeing developed as a replacement for the US Navy's ageing P-3 fleet.
Indian Navy became the first international customer for the aircraft which is equipped for long range anti-submarine warfare, anti-surface warfare and surveillance. The CAG also criticised delays in procuring bombs as part of the weapons for the aircraft.