Disentangling the Vendor Development Processes of RDSO, Part-III

Editorial Comment: #Vendor Approval policies of #IndianRailways have been in state of confusion since 2010-11 when then Minister for Railways, #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 Production Units (#PUs). 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, PUs 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 PUs began to decline, which is evident from the increasing asset failure rates across Indian Railways, 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 four 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 (Continued from Part-II)

Please read in continuation..

“Disentangling the Vendor Development Processes of RDSO, Part-I”

“Disentangling the Vendor Development Processes of RDSO, Part-II”

4. On the Infeasibility and Operational Risks of the Recent Railway Board Directive Mandating Placement of Developmental Orders by RDSO

4.1 The directive issued by the #RailwayBoard requiring #RDSO to place all #developmental orders suffers from significant conceptual and operational deficiencies. This directive, which appears to have been issued without full appreciation of ground realities and established #procurement practices, lacks clarity on critical aspects and risks undermining the efficiency and integrity of the #vendor-approval and procurement process. In order to place the issue in its proper #Administrative and #Policy perspective, it is imperative to first outline the scenarios under which developmental orders are necessitated for approval as Developmental source:

4.2 Category-1: Standard Items Not Requiring Developmental Orders by RDSO

This #category, covering over 90% of items handled by RDSO, includes those for which vendors are granted developmental status immediately upon successful #prototype clearance. For such items, there is no need to place separate developmental orders.

Once developmental status is granted, these vendors automatically become eligible to participate in tenders floated by Zonal Railways (#ZRs) and Production Units (#PUs) under the 20% developmental quota, as per extant Railway Board #vendor-policy. These orders:

• Reflect genuine procurement requirements,
• Are covered by sanctioned budget allocations, and
• Enable performance evaluation under actual service conditions.

This framework is both cost-effective and demand-driven, aligning vendor development with operational needs—without necessitating redundant procurement action by RDSO.

4.3. Category-2: High-Value Capital-Intensive Items Requiring Controlled Exception

A limited number of high-value, capital-intensive items—such as #traction power transformers (costing upwards of ₹10 Crore per unit)—present a unique challenge. In such cases, vendors are understandably unwilling to undertake the financial burden of prototype manufacturing without a firm purchase order. To address this situation prudently, the following structured mechanism is proposed:

1. Identification of High-Value Items: RDSO should maintain a notified list of items exceeding ₹25 Lakh in unit cost, based on historical procurement and strategic relevance.
2. Requirement Verification: For such items, RDSO must proactively seek confirmation of current or anticipated demand from the relevant ZRs/PUs.
3. Order Placement: Upon receiving formal requirement confirmation, RDSO may place the developmental order on single tender basis.
4. Prototype Development: Only after order issuance should the vendor proceed with prototype manufacturing, followed by due inspection and type testing by RDSO.

This limited exception upholds vendor financial viability while preserving systemic discipline in procurement. It prevents speculative manufacturing, avoids unnecessary fund lock-in, and ensures trial-based evaluation aligns with actual operational needs.

4.4. Category-3: Items Requiring Field Trials Prior to Developmental Status

This third and narrow category comprises rare items explicitly identified by RDSO that necessitate field trials as a precondition for developmental approval. In such cases:

• Developmental orders may be placed directly by RDSO only after confirming active requirement with the ZRs/PUs.
• Such decisions must not be left to administrative discretion; need assessment must be a mandatory precondition to safeguard against idle inventory and resource misallocation.

4.5. Summary Position on Developmental Order Placement

In conclusion, the blanket directive mandating RDSO to place all developmental orders is both impractical and contrary to established procurement logic. RDSO may be directed to place such orders only in the limited circumstances falling under Categories 2 and 3, where:

• Unit costs are prohibitively high, or
• Pre-approval field trials for approval as developmental source, are explicitly mandated.

All other developmental sourcing should continue via ZRs/PUs under the existing vendor policy framework, which remains fit-for-purpose, demand-linked, and fiscally prudent.

4.6. Upgradation from Developmental to Approved Source

(i) Post-developmental approval, the upgrade to ‘approved vendor’ status is governed by extant policy provisions which require:

• Supply of the minimum specified quantity, and
• Satisfactory in-service performance for the stipulated duration.

(ii) Since such supplies are made under regular tenders floated by ZRs/PUs and are tied to actual requirements, the process is naturally efficient, performance-oriented, and avoids unnecessary inventory buildup. There exists no necessity to place a separate developmental order solely for the purpose of vendor up-gradation. Upon being accorded developmental status, a vendor becomes ipso facto eligible to participate in tenders floated by Zonal Railways (ZRs) and Production Units (PUs), availing the designated 20% developmental quota as per extant Railway Board policy. Through such participation—anchored to actual procurement needs—vendors are afforded adequate and recurring opportunities to meet the prescribed eligibility criteria for upgradation to ‘approved’ status. Thus, The Railway Board’s objectives of vendor base expansion, supply chain resilience, and quality assurance are best served by allowing this demand-driven model to function without undue intervention in the existing policy prevailing since decades.

(iii) Needless to mention, any direction to RDSO to place developmental orders for the purpose of up-gradation is not only administratively untenable but also financially unviable. This approach, while perhaps well-intentioned, fundamentally ignores the operational realities of the procurement ecosystem and threatens to disrupt an otherwise efficient and self-correcting process. It must be emphasized that the current model—wherein developmental vendors participate in decentralized procurement processes based on actual requirements—has proven to be functionally sound and financially prudent. There is no compelling justification to replace this model with a centrally driven and administratively burdensome alternative.

The Board’s directive for RDSO to place these developmental orders creates the following impracticalities:

1. Redundant Procurement Exercise: RDSO would be required to place individual developmental orders for each item and for each vendor—on a single-tender basis—regardless of whether there is any live demand at the time. This undermines basic principles of public procurement and need-based acquisition.
2. Artificial Consignee Nomination: ZRs/PUs would be designated as consignees even when they have no actual requirement for the item. This contravenes standard inventory management protocols.
3. Evaluation Infeasibility: Without genuine operational demand, no performance evaluation can be conducted. Materials would remain unutilized, and vendor up-gradation would be indefinitely delayed, defeating the purpose of developmental ordering.
4. Resource Drain and Idle Inventory: Funds will be unnecessarily locked in unutilized stock, adding to inventory without strategic value.
5. Institutional Role Misalignment: RDSO is, by mandate, a standards-setting and technical evaluation body—not a procurement agency. Forcing RDSO into a procurement function dilutes its core objectives and diverts critical resources from research and development. Contd…