faq on offset contract
 
 

FAQs PERTAINING TO OFFSET CONTRACT

 

 

Q.1      What are the supporting documents which need to be submitted along with the offset claims of the vendor?

A.1.     The claims need to be submitted (along with supporting documents) by the vendor to claim offset discharge. An illustrative list of supporting documents may be:-

(a)       For Direct Purchase.

* Copy of agreement/signed contract with IOP.
* Bill of Lading/Airway Bill by IOP.
* Commercial Invoice by IOP.
* Certificate of Origin duly stamped by IOP’s Chamber of Commerce.
* Certificate of manufacturing and value addition in India duly signed by OEM and IOP.
* Proof  of  payment  (including  receipt)  with  supporting documents/bank transaction details.
* Insurance and freight documents.
* Landing certificate issued by port authority (in case of CIF).

 

(b)    For Direct Foreign Investment.

* MoU for investment.
* Article of Association in case of JV.
* Certificate of Incorporation of JV.
* Share holding pattern - pre & post investment.
* Govt / RBI clearance/approval.
* Proof of DFI and its transfer details to Indian Industry.

 

Note: Case specific additional documents (if any) shall be separately intimated.

Q.2.     What is the duration of the period of discharge of offset obligations?

A.2.     Refer clause 5.2 of offset guidelines. It is clarified that the period of performance includes the period of warranty of the equipment procured (excluding AMC, partial warranty).

Q.3.     Can the period of performance under the offset contract be extended?

A.3.     Yes However, extension is not automatic and vendor needs to apply for extension 6 months prior to expiry of offset contract. Clause 5.3 to be adhered to.

Q.4.     Can Sister/parent/subsidiaries/group Companies of the main vendor carry
out offset discharge on its behalf?

A.4.     Refer clause 5.1 of offset guidelines. Discharge of offset obligations by group companies or its divisions is not admissible as per guidelines.


Q.5.     Is industrial license mandatory for qualifying as an IOP?_

A.5.     Industrial license is not a prerequisite to become an IOP as per revised offset guidelines. However, it is contingent upon the IOP to comply with clause 4 of the guidelines.

Q.6.     How much offset obligation can be discharged by Tier-1 vendor?

A.6.     As specified at clause 5.1 of offset guidelines, Tier-1 sub vendors may be allowed to discharge offset obligations to the extent of their individual work share (by value).

Q.7.     Will offset credits be granted automatically post submission of claims to_DQMW?

A,7.     All claims of the vendor submitted under an offset contract will undergo annual audit. Based on the audit report & post approval of Competent Authority, offset credits will be granted.

Q.8.     What will happen to excess offset obligations carried out by the vendor
under a particular offset contract?

A,8.     If a vendor carries out excess offset obligation in a particular year during the period of offset obligation, the same would be carried forward to the subsequent year, if the offset obligation are surplus than required to be fulfilled under an offset contract, the same may be banked by the vendor at the end of offset contract.

Q.9.     Can an Indian Enterprise involved in providing services qualify as an IQP?_

A.9.     Yes, subject to compliance to Defence Offset guidelines.

Q.10.   Please clarify on the applicability of the Amendment to OPP -2013 notified_vide MOO ID No. 1(6)/D(Acq)/13- Vol.ii dated 05th Aug 2015.

A,10.  

The amendment of DPP 2013 notified vide the MoD IO No. 1(6)/D(Acq)/13- Vol,ii dated 05th Aug 2015 affects two clauses of the Defence Offset Guidelines namely Clause 8.2 (conduct of TOEC) and clause 8.11( specifying the competent authorities for effecting changes in contract). These clauses define separate set of activities performed at different points of time. The applicability of the amendment thence has to be in accordance with the stages at which the said activities are performed.

*  Amendment to Para 8.2 of Appendix D shall be applicable to all On-going
procurement cases where the TOEC is in process irrespective of the governing DPP. This is obvious from the clause that has been amended. Since the amended clause is for activites during the evaluation of technical proposal by TOEC the amendment shall be applicable wherever TOEC’s are under process. This therefore is not applicable in cases where TOEC has been concluded or cases under CNC or where Offset contracts have already been signed.

*     Amendment to Para 8.11 of Appendix D, is essentially for delegation of
authority for change of IOP & Offset component to Secretary DP. Accordingly,
this clause will fall under contract amendment cases of DPP 2013.


Q.11.  Please clarify as to how can an OEM/Vendor exercise one of the option in case the TOEC is under progress, as per Para 8.2 of Appendix D to Chapter 1 in the Amendment to DPP - 2013 vide MoD ID No. 1(6)/D(Acq)/13- Vol.ii dated   05 Aug 2015.

A.11

  • ·The vendor is required to exercise the suitable option and state the same with an undertaking unambiguously and provide details thereof. It is important to note that combination of the options in formulating the Technical offset offer is not permissible.

  • ·The option once exercised will not be changed subsequently. And all previous Technical Offset proposals (if any submitted) stand cancelled consequent to the date of exercising any one of the option.

 

 

Q.12.   Please clarify the format for submission of the Technical offset offer to be_given by the OEM in case of exercising option either to submit the documents_at the time of seeking offset creditor to submit the required documents one year prior to discharge of offset obligations/ as per Para 8.2 of Appendix D to Chapter 1 in the Amendment to DPP -2013 vide MoD ID No. 1(6)/D(Acg)/13-Vol.ii dated 05 Aug 2015 .

A.12

* 1. In case the vendor chooses to exercise either of the above mentioned options, then a Technical offset offer as per Annexure-ii to Appendix D to DPP (Refer to Para 7.2 of Appendix-D) may be submitted with the details of relevant columns as given below:-

 (a) Avenue for discharge (quote sub Para of 3.1)

 (b) Percentage of Total Offsets

 (c) Time Frame for discharge of Offsets

 (d) Remarks { Mentioning the option exercised}

* The relevant points vide the foot note to the annexures as applicable are also to be complied with.


Q.13.  Please clarify the process with illustrative examples in case the proposal
submitted one year prior to discharge after exercising the option in Amendment to DPP -2013 vide MoD ID No. 1(6)/D(Acq)/13- Vol.ii dated         05 Aug 2015 is found ineligible leading to re-phasing with consequent enhancement of 5% in obligations.

 

 

A.13

· DOMW will assess the proposal on submission by the vendor , when it is complete in all respects and shall respond to the same within three months of receipt about the admissibility/ inadmissibility of the proposed along with observations. The vendor is expected to resubmit the proposal with necessary corrections in order to make the proposal compliant to the extant offset guidelines.

 

*          In regards to the risk of re-phasing due to ineligibility of the offset proposal, the value of the portion of annual commitments being re-phased shall be enhanced by 5% . As an example, a Technical offset offer of a vendor is depicted below to draw a hypothetical situation to clarify the issues further:-

  1. A vendor has an annual offset obligations of Rs 100 in the first assessment year to be discharged from 01 Jan 2016 upto 31 Dec 2016. The Offset proposal was submitted by vendor with supporting documents on 01 Jan 2015.

  2. Instance 1:- The proposal was found ineligible and vendor has failed to resolve the observations raised by DOMW before 31 Dec 2015 forcing the total annual commitment of first assessment year to change. In this case, the offset obligations of Rs 100 of first year will be re-phased as Rs 105(due to 5% enhancement in the obligations).

  3. Instance 2:- A portion (say Rs 80) of the proposal was found eligible and vendor has failed to resolve the observations raised by DOMW for the ineligible portion (Rs 20) before 31 Dec 2015, forcing a portion (Rs 20) of the annual commitment of first assessment year to change. In this case, the Offset Obligations of Rs 80 of first year will be discharged by the vendor between 01 Jan 2016 to 31 Dec 2016. In this case, the remaining offset obligations of Rs 20 of first year will be re-phased as Rs 21 (due to 5% enhancement in the obligations).

Q.14.   Please clarify the list of supporting documents required to be produced while claiming discharge against offset obligations undertaken by avenues in 3.1(c), 3.1(d) and 3.1(f)?

A.14

Supporting Documents required to be submitted in case of 3.1 (c),(d) & (f) 3.1(c) :- Investment in ‘kind’ in terms of transfer of technology (TOT) to Indian enterprises for the manufacture and/or maintenance of eligible products and provision of eligible services. This could be through joint ventures or through the non-equity route for co-production, co-development and production or licensed production of eligible products and eligible services. The investment in kind in terms of TOT must cover all documentation, training and consultancy required for full TOT (civil infrastructure and equipment is excluded). The TOT should be provided without license fee and there should be no restriction on domestic production, sale or export.

 

 

  1. Certificate for Completion of Transaction.

  2. Certificate for receipt of ToT by IOP. {Recipient in case of 3.1(e)}

  3. Evidence of “BUY BACK” (i.e All documents pertaining to direct purchase)
    along with certificate of value addition.

  4.  Certificate with signatures of OEM and IOP for the effect that:-
(a) Certified that the ToT has been received in full and absorbed suitably.
(b) ToT covers all documentation, training and consultancy.
(c) Excludes Civil infrastructure and equipment.
(d) No license fee is charged.
(e) No restrictions have been levied on domestic production, sale or export of the products.
(f)  The ToT has resulted into generation of Intended Commercial
outputs.

*           Any other relevant documents/ certificates may be asked as required in Audit/verification.

 

 

3.1(d)   :- Investment in ‘Kind’ in Indian enterprises in terms of provision of equipment through the non-equity route for the manufacture and/ or maintenance of eligible products and provision of eligible services (excluding TOT, civil infrastructure and second hand equipment.

 

 

1.         Certificate of receipt of equipment by IOP. {Recipient in case of 3.1(e)}

 

 

2.         Documentary support for BUY BACK (i.e All documents pertaining to direct purchase) demonstrating minimum 40% within the performance period.

 

 

3.         Certificate with signatures of OEM and IOP for the effect that:-

(a)       Certified that the equipment provided is a first-hand and has been
successfully installed and commissioned.

(b)       Covers all documentation and training.

 (c)       Excludes Civil infrastructure and technology transfers.

 (d)      No licence fee requirement.

 (e)       No restrictions have been levied on domestic production, sale or export of the products.

 (f)        Commenced production.

4. Any other relevant documents/ certificates may be asked as required in Audit \ verification.


3.1 (f)  :- Technology Acquisition by the DRDO in areas of high technology listed in Annexure-VIII to Appendix –D.

 

            1.         The supporting documentary enclosures to be prescribed specifically by DRDO during evaluation.

 

            2.         Assignment of Offset credits by DOMW on submission of duly certified letter from DRDO.