Causes of Non Performance leading to penalties

• When non performance leading to a penalty situation was attributable to OEMs, the main reasons were:
  • Lack of understanding of regulations
  • Ambitious offset programs without adequate planning
• In other cases, the analysts were of the opinion that the common areas of dispute in penalisation cases pertained to the following:
  • When external factors play a role in offset discharge eg foreign governments, services, Buyer Nominated Equipment, Covid etc
  • Non performance attributable to delay/lack of flexibility /ambiguity in policies resulting in differing perceptions
• A study of processes followed over the last decade gave an impression that the parties do not consider each other as partners and allies, negotiations are on the basis of a “win-lose” mandate, and no trust based, long-term relationships benefiting both parties was observed.
• Long-winded procedures and inordinate focus on paperwork have stifled verification of claims/rephasing proposals/change of IOP proposals/banking proposals and the resultant delayed decision, though not quantifiable, has contributed to a reduced time period available for offset discharge and imposition of penalty. Besides a perception that each incoming offset obligation has a 1:1 dollar value, thus somehow causing a loss to the exchequer, needs to be removed, in order to pave the way to a solution.
• It was felt that there is a need to document negotiations at all times by both the parties. The discussion and interpretation of the negotiations is extremely important for the purpose of resolving a dispute arising during the performance of the contract.
• It was recommended that MoD could establish a threshold for value addition.
• The analysts recommended that on submission of a rephasing/change of IOP approval, in case no approval is received from DOMW within 3 months, then the additional time taken must be added to their time available to the vendor for offset discharge.