Anatomy of a ventilator procurement order: How arbitrary changes to specifications led to delays and cost overruns

With the MNCs in no position to step up supplies, the government turned to domestic manufacturers such as BEL-Skanray Technologies, Agva and APMZ. The domestic manufacturers looked all set to make the most of the opportunity.

More than three months on, however, the reality on the ground tells a rather different tale. The manufacturers now say that arbitrary changes to specifications have led to delays and cost overruns.

To be sure, no manufacturer globally has had to handle this kind of scale. Nevertheless, say analysts, the planning and process laid out for ventilator procurement could have been better.

Skanray’s story

Skanray Technologies, a Mysore-based medical devices company that manufactures X-Ray machines and ventilators, was in the spotlight in March, when the Indian government was scrambling to buy ventilators.

“We got a call from the government in March. They asked us how many ventilators we could deliver. We told them we could move a batch of 5,000 at the most. They asked what we were doing now with the ventilators. I told them we were exporting them. So, on the same day, March 19, they banned exports,” said Vishwaprasad Alva, Founder and Managing Director of Skanray.

Alva had quit a high-paying job with GE's healthcare division to start his own X-Ray equipment venture in 2007. Skanray was built on a series of acquisitions, including its 2012 buyout of Larsen & Toubro (L&T's) medical equipment business. The device maker, with Rs 220 crore crore in revenues in FY20, makes an array of 45 products, with applications in areas such as radiology, cardiology, respiratory support, and diathermy.

Alva said the government was talking about 30,000- 50000 ventilators. “We didn't have that kind of a capacity,” he said.

Tie-up with PSUs

So, Skanray tied up with public sector undertakings BEL and DRDO. As part of the agreement, Skanray transferred manufacturing technology for the CV200 model to BEL. The company also based its team at the BEL factory in Bengaluru to train personnel from BEL and DRDO in software and hardware manufacturing, testing and sourcing of components.

Orders for 30,000 ventilator units were placed by HLL Lifecare (a PSU under the Ministry of Health) with BEL, with a June 30 deadline. The order was placed under the aegis of the PM CARES Fund, which had an outlay to procure some 60,000 ventilators from Indian manufacturers.

Alva says that as per the supply agreement, the government had agreed to buy each unit at Rs 4 lakh. He added that for a Government bulk order, it was rather rare, in the sense that there was no scope for graft or corruption.

Frequent specification changes

The HLL unit under the Health Ministry was entrusted with designing specifications and placing orders. Alva says HLL chose the leading ventilator brand in the world, went to its website, took down their specifications and “told us that is what they want”.

“It was like this: you have a budget for a basic car (like a Maruti 800) that runs efficiently, but you want a Toyota Camry specification. Not just that, if you put Camry specifications, only Toyota can supply — others can't supply,” said Alva.

Reality soon dawned, and the government adopted a more consultative approach. They called the manufacturers and asked them what was required for COVID-19 and what could be provided in a short timeframe. Eventually, it took about 3 weeks, after the order had been placed, to finalise the specifications.

Hang on, there’s more

Then, after the units were ready, there was to be another round of approvals from an empowered committee of the Government of India, said Alva. This committee consisted of doctors from AIIMS-Delhi, Safdarjung and other government hospitals.

“Once you give specifications, you are supposed to test as per the specifications. Not as per the new requirements. The empowered committee began independent assessment. Each member had a different set of suggestions,” Alva said.

From that meeting came seven points relating to specifications and functionalities. The committee said some were absolutely necessary, and some were desirable to have.

“BEL, being a Government of India unit, can’t push back, and the Skanray, DRDO and BEL teams had to quickly design, test and release new versions,” Alva said. “Some of the specs were useful to simplify the process and it was not a bad idea to go beyond the contractual terms for the cause,” he added.

The problem, however, didn't end there. When the ventilator shipments began to reach hospitals, the doctors who used them came out with another set of specifications. “They said: ‘You should have this beep; you should have that screen.’ We know these are good things to have, but those ventilators are selling at Rs 10-12 lakh. You are paying 1.5 lakh to Agva and 4 lakh to BEL. If you ask for a sunroof and seat massager in a Maruti 800… how are they even necessary,” says Alva.

The ventilators, said Alva, are now undergoing the fourth round of specification changes.

Delays in deliveries

The changes in specifications have taken a toll on the delivery timelines and led to cost overruns. According to an industry insider, only one-fifth of the 60,000 ventilator units ordered have been delivered.

BEL has orders for 30,000 units, of which 12,000 units have been delivered, and another 8,000 are at an advanced stage of production. Full delivery is slated to be completed by the end of August.

Agva is still struggling to deliver its 10,000 orders. Sources say that AMTZ, which has orders for 13,500 units, is yet to deliver a single ventilator.

Calls and messages to Agva Co-founder Diwakar Vaish did not elicit any response.

Jitendra Sharma, the CEO of APMZ, is yet to respond to Moneycontrol.

“In the field of healthcare, no two doctors agree on a spec. That is why we see so many contradicting requirements and opinions on the same treatment. This is not new to us. BEL found it tough to handle this since they were vulnerable to the government on the one end and the customers on the other,” said Alva.

There is another big problem, a shortage of doctors and trained paramedics, says Alva. “On many occasions, government hospitals refused to accept ventilators because they didn’t have staff, and accepting them created pressure to admit patients. Blaming hospital beds, equipment, PPE etc came in handy to cover the shortage of staff and the reluctance of some to work in Covid wards,” he said.

This is the second part of a three-part series. The first part was on how domestic manufacturers went from exuberance to despair in 3 months. The third part will deal with how, in the pursuit of ventilators, we may have missed out on quality and service.