Performance-Based Acquisition: What is it?

© 2006 FrontLine Defence (Vol 3, No 1)

Canada’s armed forces are transforming. As outlined in the 2005 Defence Policy Statement, the transformation centres on encouraging innovation, promoting efficiency, and above all, on instigating a “fundamental change in military culture.” 

Ongoing transformations include the incorporation of new technologies, a streamlining of command and operational structures, and a rethinking of strategic concepts and doctrines. Yet more needs to be done. Insofar as procurements determine the CF’s long-term force structure, the culture and practices of procurement offices must also evolve for defence transformation to yield its intended results. 

To transform defence procurement in Canada, DND must reevaluate existing acquisition procedures and consider alternative strategies for buying capital equipment. Performance-based acquisition (PBA) strategies would permit DND to set exacting standards for new platforms and capabilities, without sacrificing innovation, efficiency or procurement choices. Unlike current acquisition strategies, PBAs determine only what capabilities are needed and what goals must be accomplished, not the way the capability is delivered or the way goals are achieved. Under PBAs, moreover, defence contractors are less hindered by design specifications, allowing them to propose more innovative and efficient means of delivering capabilities and meeting objectives. 

PBAs focus on results, not processes. When using a PBA strategy to procure capital equipment, the aim is to specify what capabilities platforms must provide and what goals platforms must accomplish. To the full extent possible, a PBA should avoid delineating how goals are attained or how capability is delivered. The reasoning behind this formula is ­simple: the fewer design constraints contractors must meet, the freer they will be to propose creative ways of attaining goals. As a result, since more contractors are likely to submit proposals when there are fewer design constraints, there will be more options for the government to ­consider. Market forces will also compel competing firms to either lower their costs or increase their productivity. PBAs thus allow the government to compare a variety of products, and award the ­contract to the firm whose proposal offers the best value for the price paid. 

Focus on the Mission, not the Asset
The Coast Guard is one of the U.S. armed services. Increasingly, the Coast Guard was finding that its aging, technologically obsolescent maritime and air assets were weakening mission effectiveness and efficiency. Its readiness was reduced, maintenance and total ownership costs were rising, and it lacked key capabilities such as appropriate sensors for search, detection and identification, a network-centric command and joint interoperability with the DOD and other related agencies. In short the ‘system’ was broken. 

To fix the ‘system’ the U.S. Coast Guard was faced with the task of creating a new suite of capabilities that would allow it to effectively execute its complex security, surveillance and SAR missions for decades to come. The Deepwater ­project emerged as the solution. 

The Coast Guard had always used the traditional acquisition model: replacing ships and aircraft as they become obsolete or unsupportable on a platform, class-by-class basis. In this approach, military personnel define the solution they desire, setting out detailed specifications for the assets they seek to replace. Industry must then meet those specifications. 

The Deepwater project broke out of the paradigm. The IDS Mission Statement put it succinctly: “The goal of this effort is not to replace ships, aircraft and sensors with more ships, aircraft and sensors but to provide the Coast Guard with the functional capabilities required to achieve mission success safely.” Industry was then asked to produce solutions rather than meeting a single pre-defined solution. 

Results and Benefits
The Coast Guard awarded the contract to Integrated Coast Guard Systems, (ICGS) a partnership between Lockheed Martin and Northrop Grumman. 

ICGS is to deliver an entire system of interoperable platforms and systems complete with the required life cycle support.

The benefits of the process were described by Coast Guard Program Executive Officer for IDS, Rear Admiral Patrick Stillman, in Defense News, April 2004: “The transformational power of the Deepwater program is profound – nothing less than the ability to alloy the Coast Guard’s operational experience and expertise with our industry partners’ world-class technical mastery, innovation and industrial capability.”

Search and Rescue 
Canada has its own SAR ‘system’ which rivals that of the US Coast Guard in its complexity. Assets include Naval and Coast Guard vessels, helicopters, and fixed wing aircraft. The Coast Guard ­auxiliary and the volunteer aviators of CASARA add further resources to the system. Ground search capabilities and command and control assets are also an integral part. 

The aging Buffalo and Hercules aircraft, dedicated to SAR, will shortly be removed from service. The capability they contribute to the overall system must be replaced in order for mission objectives to be maintained. A PBA approach to finding solutions would first define the overall objective of the SAR system as an essential beginning. Incorporating Government policy objectives for Canadians, the SAR system objective must surely include the goal of equal service to all Canadians. Response times must be redefined, again in terms of objectives. 

It is immediately clear that taking 16 aircraft out of service and replacing them with 16 aircraft flying from the same locations cannot meet the redefined objective, no matter how capable the aircraft might be. In fact, DND has stated that the ­present procurement plan for FWSAR is aimed at maintaining at least the status quo. But the status quo, which is the SAR system that exists today, is incapable of meeting the wider objective.

To spend 1.3 billion dollars to maintain the status quo should be unacceptable. A PBA approach at least allows the higher objective to be set and challenges industry to provide innovative and cost effective solutions. If the wider objective cannot be met within the existing budget then compromises must be reached. Whatever compromise is chosen, however, it will undoubtedly provide a capability greater than today’s status quo. A key point for PBA. With a defined requirement at the system level, potential bidders include aircraft operators as well as aircraft manufacturers. The number of potential bidders expands beyond those that just manufacture aircraft. In the end it is all about broader and more demanding objectives; objectives which can best be met in a fully competitive environment. 

Conclusion
In conclusion, embracing PBA methods for capital equipment procurements is a wise and transformational choice for the Canadian government. A PBA strategy would allow various proposals – some novel, some conservative – to compete for the capital equipment tenders. Hence, a PBA strategy would subject existing practices to a reasonable level of scrutiny and highlight alternate means of delivering capabilities. 

Nothing in the PBA approach would prevent government from choosing a conservative proposal if it is deemed superior to other offers. DND, therefore, stands only to gain by adopting transformational PBA procurement methods instead of ­traditional, micromanaging acquisition strategies. Under PBA procurements, the number choices and amount of information available to government would expand, leaving government officials more confident that they are buying the right equipment for the Canadian Forces. 

The implementation of PBA has demonstrated numerous benefits. Perhaps most importantly, it can dramatically reduce overall procurement time. It also allows for a more competitive environment thereby offering more choice for the customer. This unique and innovative procurement approach provides the customer with faster delivery and reduced risk. In order for the Canadian Forces to meet the defence transformation objectives, procurement offices must also evolve to yield its intended results. Performance Based Acquisitions provides the opportunity for the Canadian Forces to achieve procurement transformation. 

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