NEW DELHI — Israel Aerospace Industries on Friday emerged as the lowest bidder against Thales of France for the Indian Army's $500 million procurement program of 66 new-generation 3-D surveillance and tracking radars, which will replace aging Flycatcher radar systems.

However, signing of the contract with IAI will take time because the Indian Ministry of Defense will continue to pursue an even cheaper option for the program, a senior MoD official said.

As per tender norms, IAI will discharge 30 percent of the contract value as offsets to Indian companies, he added.

Executives from both IAI and Thales were unavailable for comments.

Following the failure of an acquisition during its first attempt, the MoD floated a second Buy Global request for proposal in December 2012 to Raytheon of the United States, Thales, IAI, SELEX Sistemi Integrati of Italy and Rosoboronexport of Russia. The RFPs also were sent to two Indian companies — state-owned Bharat Electronics Limited and private sector Larsen & Toubro.

Rheinmetall Defence of Germany was not given the tender because it was blacklisted in July 2010 for 10 years.

However, only Thales, IAI, and L&T (with Cassidian, which is now Airbus, and Elta Systems of Israel) submitted a bid.

Out of the three bidders, only IAI and Thales, both foreign original equipment manufacturers, were cleared after field trials from August to December 2015, followed by a commercial bid opening last week where IAI emerged as the lowest bidder.

An initial RFP was issued in 2008 and was sent to Rheinmetall Defence, Thales, IAI, Rosoboronoexport, Bumar of Poland and Raytheon. Only Thales and Rheinmetall Defence filed their bids. The other vendors did not file their technical or commercial bids for the program.

However, Rheinmetall Defence was rejected because it did not conform to the specified requirements for the Flycatcher's successor. And Thales could not field its radar for trials, thus its tender was withdrawn.

An executive with industry advocate the Federation of Indian Chambers of Commerce and Industry, who spoke on condition of anonymity, said: "For Indian private industry participating in this program, the import of radio frequency systems and parts [for radar] are classified as restricted items in India, and thus their import is in denial category for private sector companies without specific authorization, which resulted [in] months delay in imports severely constrained system assembly, integration and trials."

A senior Indian Army official said the Flycatcher radar systems currently in service are outdated. Flycatcher is a legacy system more than 20 years old, thus the system's replacement is essential for systems compatibility with the upgraded air defense gun program being undertaken, according to Rahul Bhonsle, a defense analyst and retired Indian Army brigadier.

The CEO of a private sector defense company, speaking on condition of anonymity, said if the MoD had kick-started the Make in India program for 3-D surveillance and tracking radar systems in 2008, domestic companies would have supplied these radar systems by now. "This is primarily for defending India's vulnerable assets and locations. Since all the critical technologies are already available within India, Indian OEM will be in a position to deliver contemporary system under Buy India category," he said.

The senior MoD official said this program will go ahead and not be scrapped, but also noted that air defense fire control radars

, while 3-D/4-D surveillance radars (both short and long range),

​ are the future requirements of the Army, and these can easily be built by domestic companies either on their own or through program-level partnership with a foreign companies.

"There is a distinct possibility of converting this program into Make in India; it is surprising why same has been perused based on a legacy request for information and request for proposal. Today, Indian companies in public and private sector have the capability to manufacture these, albeit in tandem with technology collaboration," Bhonsle said.