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Indian MoD eases guarantee requirements on contractors

The Indian Ministry of Defence (MoD) has eased performance-security requirements on foreign and local companies bidding for defence contracts.

The MoD said in a recent notice that it has reduced performance-security obligations – payments to guarantee against contractual non-compliance - from the existing 5-10% of the value of the contract to 3%. The move is effective from the end of January.

The MoD said that the reduced level of payment is applicable in all military capital acquisition projects. Under such projects performance-security payments are made as ‘performance-cum-warranty bank guarantees’ (PWBGs).

The notice stated, “All issuing authorities of RFPs [requests for proposals] and post-contract management authorities will ensure that all vendors with respect to capital acquisition cases are informed [of the rule change]”.

It added, “Wherever there is a compelling circumstance to [request a] PWBG in excess of 3% the same should be done only with the approval of next higher authority… or the secretary of the department whichever is lower. Specific reasons justifying the exception shall be recorded.”

The move to reduce performance-security payments in defence contracts comes a few months after the MoD similarly eased requirements on local firms bidding to win contracts to develop defence systems in collaboration with the state-run Defence Research and Development Organisation (DRDO).

This decision, announced in September, applies to all RFPs issued in support of development contracts with the DRDO and its Advanced Technology Vessel Programme (ATVP), which supports the development of submarines and related technologies.

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