Decoding The Procurement Process

Clarity about the intricacies of the offset guidelines could benefit both buyers and sellers.

- Lt Gen V.K. Saxena (Retd)

AN OFFSET BY DEFINITION IS A PROVISION in an import agreement (say, a defence procurement deal) between the seller (an original equipment manufacturer/OEM) and the buyer, wherein the former agrees to undertake activities that satisfy the “second objective” of the buyer.

While the primary objective of the buyer is to procure the goods and services pertaining to the ‘core transaction’, the second objective is seen as an “additional benefit” which the buyer ‘extracts’ from the seller for awarding him the ‘core transaction contract’. In other words, the buyer agrees to service the second objective for winning the main contract.

In typical defence procurement deals, offsets may take different forms. Some of these may include supply of additional goods and services in addition to the main equipment at no extra cost, supply of simulators, training equipment, packages for technical and on-the-job training, transfer of certain technology, setting up infrastructure for overhaul and refurbishment, provision of additional spare packages/ life-time guarantee of spares, buy-back clause/or offer for export to seller’s clients for the output produced by the buyer (where co-development and co-production is involved), etc.

Revised Guidelines

In 2012, the Ministry of Defence (MoD) constituted a study group under Director General Acquisition (DGA) for carrying out a comprehensive revision of the offset guidelines. The report, duly approved by the MoD, found a place in DPP 2013. (The author has had the honour of being a Service representative on the said study group.)