Middlemen Muddle

We seem never to be free from the spectre of corruption in most of our fields of governance. It we are not doing post mortems on past deals we are seeing ghosts in current and future deals.I am happy to hear that your new procurement policy  aims to change this course and has introduced measures which recognise the existence of middlemen and seek to remove their sinister secrecy from procurement proceedings. This will stop us from shooting ourselves in the foot and losing out on chosen military products.

My purpose in writing this is to share my experience of dealing with the “middleman” bogey when I was MD of a quarter billion USdollar joint sector project in the 1970’s. That was the worst time in India for business with bad politics, bad economy, pressures of a hostile environment with active agents and  middlemen. Ottavio Quattrocchi led the powerful group of deal-makers I had to contend with.

The Chief Minister of the State government and my company, promoting the project, were determined not to spend a paisa more than essential as the country was cash-strapped for

foreign exchange. The foreign contractors had all cushioned their prices as they had been advised that extra-legal payments were unavoidable in India, particularly when government controlled every move.

In our negotiations with contractors we agreed  all government clearances  would be our responsibility even to the extent of assisting them with their problems. In return, with great difficulty, we managed to include a provision in our contracts barring use of agents. The provision also said that if extra-legal payments were seen to be made the contractors would pay the client ”n” times the payment made to middlemen. The “n” was kept to 2 or3, just enough to recover any cushioning in the quote and impose a penalty not so large as to raise another dispute. It worked well.

It is my suggestion that this format  deserves your attention. My assessment is that as a long term  defence procurement prospect, India will be able to enforce the penal provision we used. It is my conviction that the middleman  has become a regular feature only because of artificial obstructions created in the procedures and arising during negotiations.