PROCUREMENT: Over the Fence
BY PETE and JAKE
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May 15, 2009

Peter and Jake are neighbours. They are good friends with similar backgrounds, but when it comes to defence procurement they really are on “Opposite Sides of the Fence.”

After a number of years in the Canadian military, Pete now works for a defence firm. His views on procurement are similar to many of his peers in the defence industrial sector. Pete asks a lot of questions and likes simple answers.

A senior official at DND, Jake had a long and enjoyable career in the CF. He then spent some years in industry and has now returned to the public service. Jake understands the complex demands of government and how the system works.

Pete: Hey Jake, what are you planting over there? It must be a perennial because you government guys take so many years to get things to bloom (ha ha).

Jake: Well Pete, it may take a few years for it to get as high as our fence, but when it does it will be there for a long time. Besides, the nursery guarantees success… just like our defence suppliers. Right?

Pete: OK. I deserved that. But seriously, I am concerned that some of Canada’s defence procurements are taking so long that we are not getting the kit out to the soldiers when they really need it. Lately I have seen pressure to get things moving but after they sit in DND for months or years then we in industry are barely given enough time to respond to an RFP, or we are criticized if we suggest any improvements because we are told that will slow things down. It seems to me there is a time for study and a time for haste. How do we improve that?

Jake: You know, Pete, just about everyone within the procurement system, including within DND, would agree that the process takes longer than they want or need. Seeing how impatient we’ve all become waiting a whole minute for a computer to flash up, I suspect that would still be true even if we were measuring procurement timelines in weeks instead of years or months.

The fact is, we’ve made great strides in a series of recent major procurements in reducing the amount of time it takes from identification of the need to delivery of the capability. By some counts, the average major procurement timeframe has reduced from over 8 years to less than 30 months. And when it comes to getting kit out to the soldiers when they really need it, I can tell you that in the case of urgent procurements for our troops in Afghanistan, everyone’s pulled together and we’ve brought capability into an active, operational theatre in under 12 months.

That said, we can all point to situations where the operational need was identified long ago, and yet the project still has not come to fruition. There will be different reasons in each case. It may be due to an emerging policy issue which has been difficult to resolve. Or we may not have been successful in a first attempt for reasons that may be beyond anyone’s control, like when a shipbuilding project gets caught up in what’s happened in the broader global marketplace.

But it may also simply be a matter of priority and capacity. There’s a tremendous amount to do for our first priority, which is support to operations and the urgent requirements that arise there. There are also systems and structures on fleets of aircraft, vehicles and ships that are advancing in age and need urgent attention to make it through to when a replacement is available. And there are only so many people and so many hours in the day to try to get it done. It’s a necessary and constant struggle to balance the need for immediate action with the pressing need to move forward for the longer term.

Making any progress in this complex business that both of us work in generally means moving as aggressively as we can on a day-to-day basis. That in turn means that, while it’s in a Project Manager’s overall interest in having a fair competition to ensure that adequate time is given for industry to respond to an RFP, that same Project Manager will resist extending the response time any longer than she or he thinks it needs unless there are good reasons to do so. We do try to be open to requests for a longer period, or for extensions, and in most cases will be sympathetic, particularly if the request comes from more than one bidder. There are times, though, when the operational or obsolescence need means we can’t accommodate a request for a longer period, or when it wouldn’t be fair to the bidders who are prepared and ready.

Suggestions for improvement generally fit into the same category. As a former Soviet Admiral of the Fleet often said, “Better is the enemy of good enough.” Again, Project Managers try to be open to suggestions for improvement, but will resist if they judge that it will not make a significant difference. Once the enabling windows of policy, priority, resources and schedule finally align ... you worry about how much the project’s going to get delayed by even a desirable improvement!
All that said, several folk are looking at how the overall system and process can be made smoother and faster. Everything can be improved – even when the fundamentals are in better shape than most appreciate. We all need it to be even better. And we need to build on the lessons learned from projects that have done a good job engaging industry early on in the process.

Pete: You know Jake, one of the things that bothers me is that it seems a lot of guys in government see industry as a bunch of tawdry peddlers. They don’t trust us or believe that we have any interests except to line our pockets. It is true that industry has to make money or it goes out of business, but we do care about the mission too. And we don’t need to worry too much about making more than a minimal profit – PWGSC rules see to that. So, how do we convince you “G-men” to make us members of “Team Canada” and work together to get the job done?

Jake: And here I thought that what I learned from my time in industry was that all industry does care about is profit! Just kiddin’.

Profit is often a bad word in our popular culture, and sometimes that notion carries over into the attitudes of those with less experience in the business of government. I generally find that those of us with more experience understand that providing a fair return to a company and its shareholders – including the retired couple living on a dividend-based pension – is not only appropriate but necessary if that company is to remain in business. And having financially sound companies in the business of supplying to government is in the best interests of Canadians.

In fact, I’ve observed that industry leaders who are solely motivated by profit tend to make the wrong strategic decisions, which in the end is bad for their company. It’s also true, though, that those who aren’t sufficiently motivated to make enough profit to grow and innovate make the wrong tactical decisions, which then squeezes the margins that are essential for that company’s strategic investment and flexibility.

So how to convince us “G-men”?  I’ve been on the receiving end of that type of comment on numerous occasions, and I try to make a point of pushing back. Hey, Pete, you know what it’s like in industry. How about sharing your insights into the rich complexity of motivations that exist within industry? Why, for example, do most companies have a balance between the engineers who want to push the technology that bit further, the business developers who would really like to win that order, and the financial types who are typically accountable through to the highest level in the company to ensure financial probity, including meeting the profit commitments to the shareholders?

Pete: You’re right Jake. Successful companies have a good check and balance system in place. With different skill sets and interests among the various departments – engineering, production, marketing, finance, contracts, legal – it ensures that the right balance is achieved on any issue. Call it workplace diversity. You can bet there are many differences of opinion exchanged, but this is healthy and necessary for business success. In the end, the President has to balance all those points of view and come to a decision – not unlike inside the military unit where the CO listens to his G staff who may have differing views on operations and tactics, and then he gives the orders and everybody salutes.

Speaking of different views, one important area where government and industry are far apart is IRBs that are required when a big purchase is made offshore. Industry thinks that IRBs are important for the economy and jobs. But a lot of people at DND feel that this gets in the way of getting the kit they want and chews up a part of their budget. I know, because I used to think that too when I was in uniform. I now realize that there are 140 countries in the world that require offsets. Like Canada, none of them can justify pumping money out of the country without getting a long-term benefit in return. And it is not really DND’s money. It is the taxpayer’s money – and if the government cannot see economic payback, they will simply give less of it to DND. Why is it that some of your buddies over there in the ‘Castle on the Rideau’ get so bent on this?

Jake: Good point, Pete. Some folks do see IRBs as one more obstacle to bringing a project to reality. A bit like the profit question we were just discussing, those who’ve had the opportunity to work on a project or two learn that procurement isn’t just a DND or Public Works responsibility. It’s a whole-of-government responsibility where the procurement objectives include maximizing the value to Canada. And IRBs are a key mechanism for that.

With its relatively small defence industrial base, and its relative openness to U.S. and foreign suppliers for its equipment needs, Canada has been a leader in the field of requiring offsets in the form of direct and indirect IRBs. In fact, the link between having IRB requirements and being able to source offshore is not always obvious to most people. If the example of other major countries is anything to go by, the alternative to “having IRBs” isn’t “not having IRBs,” it’s being required to source your procurement within the country. This sounds on first blush like it would be good for our defence industrial base, but Canada’s typical fleet volumes are relatively small, and the reality of sourcing the majority of our defence needs from the limited Canadian marketplace – regardless of how good our Canadian companies are – would be ‘boom and bust’ cycles which are disruptively expensive to governments, companies, communities and individuals.

Rather than view them as an obstacle to procurement, IRBs should be seen to be an integral part of our defence procurement, and we should seek ways to do it even better, to gain that benefit for our economy, our defence industrial base, and our communities.

Done right, IRBs can be a seed from which a competitive global capability might grow, and the strengthened economy that results can then better afford the defence procurement that our Armed Forces needs. A 100% IRB requirement, managed properly, is a tremendous tool to bring long-term business opportunities into Canada. And as I remind myself, IRBs generally aren’t always just in dollar-to-dollar terms. Where it makes sense, it often also comes in the form of direct Canadian content, which adds to our defence industrial base.

I can tell you, Pete, that discussions are underway into how Canada can make its IRBs do even more for our country – by moving from a tactical, project-by-project basis, to a more strategic defence program basis. From what I can tell, it’s a win-win proposition: industry could then make strategic investments that would benefit the company in the long run; and Canada and its regions would be the beneficiary of investments made with a view of a long term engagement and business proposition.

By the way, some day I’ll tell you what I found in the dungeons of that ‘Castle on the Rideau’...!

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Listen in on more of Pete and Jake’s backyard conversation next issue. If you have any questions or comments for Pete or Jake, send them to thefence@frontline-canada.com
© 2009 FrontLine Defence

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