Boeing had claimed it undertook $845 million worth of offset work in place of its obligation of $641 million

NEW DELHI: The defence ministry has granted time till 2020 to global aviation giant Boeing to prove that it carried out offsets work worth $641 million for a naval jet deal that came under heavy fire from the Comptroller and Auditor General (CAG) of India earlier this year.

The $2.1billion deal to procure P8 I maritime reconnaissance aircraft that was inked in 2009 took political colour after a CAG audit, with senior government ministers including Piyush Goyal and Rajyavardhan Rathore charging that it put the national security at risk and that the previous UPA government had bought “defective spy planes”.

ET has learnt that in a decision taken in late October by the Nirmala Sitharaman-led Defence Acquisition Council (DAC), the US company has been given an extension of the ‘period of performance’ till December 2020 to provide all necessary documents to prove it carried out the offsets.

The ministry has kept a legal measure at hand to recover ‘full penalty payable’ in case of non-compliance in the form of a $106 million bank guarantee. The dispute over the offsets arises from 2016, when Boeing claimed to have not just met but exceeded its offset obligations for the deal. The company had claimed it undertook $845 million worth of offset work in place of its obligation of $641 million.

However, the ministry’s legal department raised concerns on the claims, asking for a list of supporting documents to prove the claim. Now, after the US company pleaded that asking for this list is an afterthought and that it would need to go back to all its partners to collect the documents, the ministry has agreed to give it till 2020 to complete the process.

While an audit of the company’s claim is being carried out, the assurance received before taking the decision was that the bank guarantee is sufficient to “cover the likely penalty which was concurred by MoD (finance) and approved by the acquisition wing”. In addition, the company is likely to discharge $40 million additional offsets till 2020 for the deal to cater for shortfalls that have been pointed out by a government survey. Sources said that the US company put its performance bond at risk and is confident that the paperwork would be put in place.

Boeing has also contended that the requirement of additional paperwork was a requirement that the ministry insisted on despite there being no rule book or policy mandating it. In August, the CAG had torn apart the P8 I deal, hinting in a report that a deliberate attempt was made to favour Boeing over its Spanish competitor by masking the offer price. Coming down heavily on how the deal, which was inked to meet urgent requirements of the Navy for a long range reconnaissance platform, was finalised, CAG had also alleged that Boeing had not met its offset obligations of $641 million till date, despite the contract specifying that all obligations had to be fulfilled by August 2016. The CAG had also alleged that the American platform did not fully meet the requirements of the Indian Navy.