Saab threatens defence ministry with legal action over Russia contract

Representative image
Mirroring frustration amongst international arms firms at the unpredictability and opacity of India’s weapons procurement, Swedish company Saab says it could take the Ministry of Defence (MoD) to court over the November 19 award of a $1.5-billion contract for Igla-S air defence missiles to Russian entity, Rosoboronexport.

Last Saturday, missile contract embroiled in vendor protests’) that Saab had shot off four protest letters to the MoD alleging grave irregularities in user trials of the ‘very short range air defence system’ (VSHORADS). Rosoboronexport, Saab, and French firm MBDA competed in that tender.

On Thursday, Saab’s Asia-Pacific head Dean Rosenfield told the media in Bangkok: “We are evaluating the situation in the VSHORADS programme and considering all the options, including a legal challenge.”

Sources close to Saab say the firm has not yet made a final decision to go to court. The company must consider the possible repercussions on Saab’s prospects in other tenders in India, including the Indian Air Force’s (IAF’s) ongoing, multi-billion dollar procurement of 114 fighter aircraft.

Global defence original equipment manufacturers (OEMs) have been increasingly critical of the MoD’s procurement management. However, given their stakes in India – the world’s biggest arms customer – frustrations are mostly voiced off the record.

The heaviest criticism is reserved for the MoD’s insistence on evaluating weaponry on a ‘no-cost, no-commitment’ (NCNC) basis. This stipulation, which is laid down in the defence procurement procedure (DPP), means that OEMs must pick up the bill for all costs they incur – transporting their products to India, fielding it in trials that are widely regarded as the most prolonged and intensive in the world, and the cost of maintaining equipment, crew and executive offices in India for the duration of the evaluation, very often over a decade.

“My company, like the others, spent over $50 million on the medium multi-role combat aircraft contest. And at the end of it, what do we have? A handful of Rafale fighters bought and a fresh process initiated, on which will have to spend millions more,” says a senior executive in an aerospace OEM.

Since the turn of the century, the MoD initiated repeated contracts for 155 millimetre artillery guns. After repeated rounds of NCNC trials, involving several vendors, the procurement was finally shelved. 

Similarly, the IAF carried out extensive trials for light utility helicopters. Eventually, Russian helicopters, whose Kamov 226T had not participated in those trials, walked away with the contract.

Last year, the MoD abruptly cancelled the procurement of the short-range surface-to-air missile – a tender in which Saab and Israeli firm, Rafael Advanced Defense Systems, were competing. The MoD also cancelled the procurement of anti-tank guided missiles after Rafael’s Spike was chosen in extensive trials.

“So far, we have always returned to India, given the attractiveness of the market. But, at some stage, we would not be able to justify the expenditure to our boards. That will mean India will gradually have fewer options to choose from,” says a senior aerospace OEM executive.

The MoD has not responded to an email seeking comment.

It is not clear whether going to court would benefit Saab, since the government could cite national security to cloak the decision making that led to Rosoboronexport’s victory. In 2009, Italian electronics giant, Selex, petitioned the Delhi High Court against the award of a Rs 10.94 billion contract to Tata Power (Strategic Engineering Division) for modernising 30 IAF airfields. That went up to the Supreme Court, which rejected Selex’s plea in May 2010.

Saab’s letters to the MoD contain multiple allegations that Rosoboronexport’s Igla-S missile, which won the VSHORADS contract, shot down only two out of the six targets it engaged, before the MoD diluted the requirements to the Igla’s benefit. 

Saab has also complained the Igla-S failed to turn up for summer trials on July 28, 2014 – for which the DPP mandates automatic and immediate disqualification.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel