Disentangling the Vendor Development Processes of RDSO, Part-I

Editorial Comment: #Vendor Approval policies of Indian Railways have been in state of confusion since 2010-11 when then Minister for Railways, Ms #MamtaBanerjee said on the floor of the house: “I am not happy with the functioning of RDSO”. Her lament led to major reshuffle of #policies and #personnel. This was followed by an angry #PiyushGoyal and then #AshwiniVaishnaw who perhaps were more driven by their experience as #vendors in their past corporate avatar.

Over the course of 15 years, there were numerous changes such as the reassignment of items between agencies and modifications to vendor categories. Nonetheless, a standardized structure for vendors across the country was not established. Although feasible, it faced resistance due to entrenched #departmental interests and geographically specific vendors in their preferred #ProductionUnits. These circumstances contributed to delays in the retirement of #ICF coach production.

Instead of addressing core issues, #RDSO was perceived primarily as a vendor management agency. This perception negatively affected the service engineering role of RDSO. After 2014, Production Units were assigned record orders as well as the responsibility for vendor development and management. Due to rapidly changing vendor handling policies, the #quality of output from Production Units began to decline, which is evident from the increasing asset failure rates across #IndianRailways, particularly in rolling stock.

We invited comments of an eminent retired officer who is known for keen insights into the process of vendor development and management. Readers should forgive that the article would read more like an official note in the 4 parts, but our #editorial-advisors advised us to preserve the structure given importance of the subject.

Systemic Deviations by the RDSO from Established Policy Framework and their Consequential Ramifications- Suggestions for improvements

Ref – (I) Railway Board’s letter NO 2021/RS(G)/779/7 dated 18.01.2022.
Ref – (II) Railway Board’s letter NO 2021/RS(G)/779/7 dated 06.09.24.

Having perused the major #Policy directives issued in the matter under reference (i) above, it appears that the concerned authorities, both at the #RailwayBoard and #RDSO, remain significantly distanced from the operational ground realities. Before delineating the critical fault lines in the implementation of policy, it is imperative to first address certain marked deviations introduced by RDSO, which are in direct contravention of extant Railway Board instructions. These deviations were ostensibly framed to “streamline” and expedite the vendor approval process but, in substance, appear to have been driven by considerations extraneous to administrative propriety.

1. Arbitrary Removal of Service Performance Evaluation Criteria

The most egregious departure relates to the arbitrary and unilateral removal of the long-standing criterion of Service Performance Evaluation for considering the up-gradation of developmental vendors to “Approved” status. This cardinal requirement had been in place for decades as a safeguard to ensure #product reliability and #public-safety. Its abrupt elimination resulted in the indiscriminate up-gradation of over 170 vendors to “Approved” status—without even a single unit of their product having undergone real-world application or validation. This led to a large-scale and unvetted proliferation of critical safety items into the supply chain. Allegations of #Corruption surrounding this policy distortion gained momentum in official circles and, after significant institutional embarrassment, the said deviation was rolled back—but only after over two years, by which time irreversible damage had already been inflicted on the system’s integrity.

2. The Farcical Creation of a Third, Extra-Legal Category – “Conditional Development” Sources – and the Chaos Thereafter

2.1. Let us begin with a question so elementary that even a cursory reading of the vendor approval process would prompt it: Where exactly does the official procedure mention any “third” category called ‘Conditional Developmental’ sources? The unambiguous answer is—nowhere. And yet, with the kind of innovation that defies not only policy but common sense, RDSO, in 2022, conjured up this novel category—without any authority, mandate, or approval from the Railway Board. It would almost be amusing, if it weren’t so damaging.

2.2. Predictably, the Railway Board, having realized the absurdity of this self-invented classification, was compelled to issue a circular dated 06.09.2024 cited under reference (ii) abolishing what should never have existed in the first place. But by then, the damage was already well embedded in the system. Regrettably, and most importantly, despite Board’s order to contrary, large number of vendors are still enlisted as ‘conditional developmental’ vendors and thereby disrupting the entire procurement ecosystem.

2.3. Here’s how the comedy of errors played out: RDSO took it upon itself to declare firms as “conditionally developmental” right after a Capacity-cum-Capability Assessment (#CCA)—no prototype manufactured, no inspection conducted, no sample evaluated—nothing. Simply put, these firms were granted a quasi-approval status without producing a single bolt or bearing. One might ask whether we are approving suppliers or awarding honorary titles. Here is its fall out-

2.4. The Ground-Level Fallout – Predictable and Perverse

(i) First, the unilateral and unauthorized introduction of a third vendor category—namely, “Conditional Developmental”—by RDSO created a policy vacuum with far-reaching consequences. Since the Railway Board never officially recognized this classification, #ZonalRailways and #ProductionUnits were left with no choice but to treat these shadow entities on par with duly recognized developmental vendors. With no directive differentiating the two, tendering authorities were compelled to consider even those firms that had neither manufactured a prototype nor cleared any inspection—essentially, entities that existed only on paper.

(ii) Second, this procedural aberration led to an absurd and damaging outcome. When developmental quantities (typically 20%) were distributed post-tender, these “conditional” vendors—untested and unproven—either walked away with entire orders or triggered manipulative counter-offers. The pattern was predictable: they would quote absurdly low prices knowing full well they lacked the capacity to deliver. Those rates were then gleefully counter offered to pressure bona fide developmental vendors into accepting commercially untenable terms, or risk losing the order. Many of these conditional firms were nothing more than fronts floated by entrenched approved vendors whose clear intent was to choke off #competition and #sabotage new entrants from progressing toward “approved” status. The net effect? A classic case of policy-induced cartelization. Genuine vendors are sidelined, the same clique of approved suppliers retains monopolistic control, and the Railways’ stated objective of broadening the vendor base becomes not only farcical but counterproductive. This distortion—enabled by an unregulated policy breach—has weaponized procedural ambiguity to undermine the integrity of the procurement ecosystem.

(iii) Third, this unilateral invention not only mocked policy discipline but exposed purchasing officers to serious administrative risk. Left without guidelines (since the Board never sanctioned such a category), officers in ZRs/PUs were forced to make decisions in the dark. Some treated these “conditional” vendors as equivalent to regular developmental ones; others hesitated. What followed was inevitable—conflicting interpretations, procedural inconsistencies, and a wave of #Vigilance cases. Officers are now left to answer for actions taken under a category that should not have existed in the first place.

(iv) Fourth—and perhaps most important—is the fact that these ‘conditionally approved’ firms cannot supply anything until they first manufacture, then test, and then obtain RDSO’s prototype clearance. A process that takes months—if not longer. And yet, Zonal Railways and Production Units are left with no choice but to place orders on them, wait, guess, and hope that the firm eventually meets the mark. The outcome? Supply chain breakdown, planning uncertainty, failed procurement schedules, and cascading operational delays. All this, because someone decided to “innovate” outside the bounds of law, policy, and procedural sanity without mandate from Railway Board. Unfortunately, despite abolition of such category by Railway Board, large number of vendors still find place in RDSO vendor directory even today.

2.5 In Conclusion – The so-called “conditional development” classification is not just a policy aberration—it is a case study in how unchecked discretion and administrative overreach can derail an entire procurement ecosystem. That such a construct was ever allowed to operate, and that it still lingers on in defiance of Railway Board’s abolition order, is both inexplicable and indefensible. Contd..