SAP and IBM under scanner of Indian investigative agency for Air India deal

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SAP and IBM under scanner of Indian investigative agency for Air India deal

It is alleged Air India failed to adhere to the rules while awarding an ERP contract worth $27 million to SAP India and IBM India.

Published on 8th February 2024

India’s premier investigating agency, the Central Bureau of Investigation (CBI), has filed a charge sheet against former Air India Chief Managing Director, SAP India, and IBM India for alleged irregularities in acquiring an ERP solution by Air India in 2011.

CBI had registered the case based on the recommendations of the Central Vigilance Commission (CVC), which detected irregularities. As per a report by the Times of India, Air India opted for SAP and IBM’s ERP solution for $27 million (Rs 2,250 million) without going through a proper tendering process.

At the time, Air India was owned by the government and was required to get approval from the Civil Aviation Ministry for any major purchase. As per CVC, Air India failed to acquire this approval even though it made a presentation to the Group of Secretaries and Group of Ministers. Air India was taken over by the Tata Group in 2022.

The chargesheet is now filed against former Air India Chairman and Managing Director, Arvind Jadhav, IBM India, and SAP India, among six others under the IPC (Indian Penal Court) section 120-B (criminal conspiracy and provisions of the Prevention of Corruption Act), after six years of investigation.

CVC has also alleged that Air India awarded the contract to SAP and IBM even when it was already using Oracle’s ERP. SAP and IBM did not respond to the questionnaire shared with them on this development at the time of publishing.

Spotlight on the government procurement process

“From the CBI report, it seems they [Air India] did not follow this process [procurement guidelines] and went with SAP and IBM. However, not following the process would have led to a single vendor sourcing, which for a project of that size would be a violation of laid down procedures. It isn’t clear if Air India found Oracle lacking in the features and services they were looking for and, even if it did, why they went with SAP without an open tender,” said Biswajeet Mahapatra, Principal Analyst at Forrester.

The incident draws attention to the complicated and complex government procurement processes, which can make it tough for the agencies to adhere to them. “Government procurement processes must strike the right balance between meeting the business needs in a timely manner and following the due process. It is even more true for sectors where public sector firms are competing with more nimble private sector players – such as airlines, telecom, banking, oil and gas, utilities and more,” said Mahapatra.

“This case highlights public sector enterprises need to develop solid business case and necessary approvals before going on with investments and should have transparent selection and tender process to avoid this kind of situation,” said Pareekh Jain, CEO of Pareekh Consulting.

Minimal impact on technology giants

While SAP and IBM have extensive presence in India, the ongoing investigation is unlikely to impact their business in India. “As far as the impact on SAP and IBM are concerned – it should not affect their operations in any manner unless there was some wrongdoing on their part. Global firms operating in India must adhere to both the local regulations and the norms laid down by their parent countries,” explained Forrester’s Mahapatra.

The investigations can serve as a reminder for public sector companies and enterprises to comply with the regulations. “Going forward, both service providers and technology providers will be more careful and evaluate risk while doing business with the public sector as these cases can be opened even after a decade and give them negative publicity,” Jain said.