Defence Procurement
Jan 15, 2010

view pdf

One of my favourite shows in the 1980’s was the popular BBC series “Yes, Minister.” In one episode, Sir Humphrey patiently explains to his new Minister the rules of engagement that exist between the Ministers and the Civil Service. He advises his new ­Minister that he exists to provide the Civil Service with the Government’s policy decisions and to maintain amicable relationship with the other ministries and the Prime Minister’s office. Humphrey then advises the Minister that it is the responsibility the Civil Service to actually run the department and to make most of important decisions regarding budget and personnel.

You might think no one would believe that such a state of events could occur in “real life.” Well, you would be wrong! In 1913, Robert Borden set up a board of inquiry to take an in depth look at the state of the Canadian Civil Service. When the mainly adverse contents of the commission were published (after only three months of inquiry), there was a hue and cry from the Civil Service about the contents of the report. The results were resented not only by the Civil Service but also the opposition party, the Liberals. In essence, the report charged that Deputy Ministers held the real power in the departments it had reviewed. The Minister was kept isolated and busy dealing with party issues and minor questions. The study revealed a significant lack of oversight of contracts – civil servants often simply changed the dates on existing contracts and sent them to tender. This resulted in such anomalies as the dredging of the same stretch of river for a period of five years. Duties of significant importance were reserved for the Deputy Minister’s attention.

Unfortunately, plans for a major overhaul of the Civil Service were interrupted by World War I. In 1915, the self-serving attitude of the Civil Service was fully exposed when it was discovered that ­several Deputy Ministers were willfully ignoring directions on priority procurement that had been issued personally by the Prime ­Minister, Robert Borden. In response the PM set up a War Production Board which took over war procurement duties that had previously been done by a variety of ministries. Much the same thing occurred in 1939, when the Treasury Board and the various procurement agencies focused for the first six months of the war drafting “appropriate” procedures that, in essence, centralized the procurement instrument approvals to agencies within Treasury Board and restricted the ability of the Military Supply system to purchase anything that cost over $500 even though it was approved by the Commander of a Military District or requested by the military headquarters without the explicit approval of Treasury Board. The view of their self-importance was revealed once again in 1940 when the Treasury Board cut the Cabinet-approved armed forces naval acquisition plan of 41 ships down to 22, without consultation or discussion with Cabinet or the Navy Minister.

The final coupe by the Public Service was contained in the recommendations of the Glassco Commission when the Commissioners recommended that the Defence Procurement Agency be dissolved and all of their assets and personnel deployed to a new agency, to be called Supply & Services Canada, under the control of Treasury Board. This recommendation was enacted in the mid-1960’s with most of the personnel (PYs) and assets assigned to the new department. The only difference being that the new agency was to be revenue-neutral and would be funded by surcharges and fees charged for their “services.”

This proposal, while supposedly aimed at overall government efficiency, eventually became a tool with which the administrative organizations arrogated all of the procurement authority firmly back under their control. With their reacquired control of approval and funding, they could cancel or delay any military project that they deemed not to be in the national interest. As such, under their “new” mandate they could choose to delay, restrict or even terminate projects for purely “administrative” reasons – and often did.

Under the previous structure, the Defence Procurement Board worked directly for the Minister of National Defence and would liaise with the Treasury Board on behalf of the MND. The subtle difference being that under the new arrangement, procurement, as a department, was moved from a Defence action agency to just another government department that was totally under the control of the Treasury Board.

Under this new administrative organization, defence procurement became just “another customer.” This new agency was to be able to consolidate procurement, seek new Canadian sources of goods and services and achieve greater economies through procurement. In point of fact it achieved none of these things. Instead, it became a “requirement” to procure 85% of all purchases from Supply and Services Canada. Their prices for stocked items were often twice as expensive as items that could be procured direct from the trade in the local economy. Their deliveries were often late and damaged. With capital items that could have easily been directed to DND to meet critical shortages in the areas of office furniture, Supply and Services often just sent the items for disposal.

While visiting a Regional SSC office, I noted that the warehouse was filled with returned office furnishings in excellent condition. Our unit, a radar station, suffered with furniture that had been left by the USAF and sorely needed replacing. As one might imagine I was very interested in having these assets directed to meet my unit’s needs. I was bluntly advised by the Regional Director that these items were destined for disposal and that he had no intention of redirecting the assets. It was his mandate to offer attractive items for ­disposal in order to build up a clientele.

Much later in my career, I watched as good furniture was disposed of by Supply and Services. I noted that the buyers were offering minimal, almost comical, prices for office chairs and desks that originally cost hundreds of dollars. I managed to protect a significant amount of much needed furnishings and support equipment like white boards which I knew were badly needed in other areas. I was able  to ensure that these items could be redistributed to areas of great need: the reserve and cadet units in the local area – all with appropriate transfer documents. We were able to redirect enough equipment to satisfy all existing demands for “09” standard objective funds. I later heard that I had angered several bidders by taking all of the “good stuff.” This was not hard to take when the Sergeant told me that they had bid 50 cents for each chair, a dollar for side tables, and a whopping five dollars for a desk. I relate the story merely to show that there are a significant number of areas that can be improved in order to obtain greater economies from existing funds.

Centralized agencies often think they save money by cutting human resources. Sadly they only achieve a short horizon return for a reduced bottom line  cost. They haven’t really solve the problem, they simply deferred it. In the end, the cost of the replacement equipment downstream always outweighed the cost of regular maintenance and local unit repair. This “short sightedness” has been a very sad experience that I have encountered over the course of my lengthy career.

At the National level, as with any new government department, the new procurement agency was in a state of perpetual flux as it struggled to find the perfect combination of staff skills and funding to achieve its mandate for the first several years of its existence. However, when all was said and done, it lacked the expertise and authoritative judgment that had been entrenched in the previous Defence Procurement Board. It did not seem to matter to the new generation of senior management that this experience and skill had been achieved through hard work and dedication. It was the proverbial “Throwing out the baby with the bathwater” by government managers who had no military experience or who had served at a very low level during the war. They did not seem to appreciate that the skills had been acquired at the “coal face.”

The sheer volume undertaken by the War Production Board from the outset of World War II, and later by the Department of Supply Munitions, provided the requisite skill to cut through the “red tape” and expeditiously solve problems by careful oversight of all major defence projects up to the 1960’s. Links between the manufacturers were allowed wither and die. Gone was the ability of the government to field a respectable jet fighter interceptor within two years and gone was the orderly and efficient production of naval vessels. ­Production of many items previously ­manufactured in Canada were now only available from “offshore” sources.

Instead of an orderly progression of military procurement projects set out over a number of years, there emerged instead a confused system of procurement that was, and still is, overly complex and ­burdened with too many “administrative requirement.” Instead of the end user and the producer having meetings and making independent decisions to solve problems, there now was a system whereby a third party could interpose themselves into the process. If there had been consistency by the third party this new “troika” might have worked, but it was doomed due to the volatility of the personnel within the new procurement organization. It was not uncommon then, as it is not uncommon now, to have to deal with a constantly revolving procurement agency project staff. These new administrative roadblocks only served to lengthen the time that it took to achieve any new project.

The following example underlines this latest assertion. An acquaintance of mine, a Combat Arms officer, served for a short time in the old CLDO shop. During his tender he was the Army’s project officer for the acquisition of some specialist ammunition for a weapon system that was in used by the field force. We met often for coffee and one day I noticed he was downcast. He had just signed off approval for the project to acquire specialist ammunition and noted that it had taken some 25 years to accomplish. These were not the flashy, glitzy projects for new systems, but modest items that were just outside the limits of the MND’s approval authority. Such delays are unacceptable. The constant mantra of “rules is rules” chanted by many of the non-military players as justification for going through the same hoops for a $100,000,000 dollar maintenance project as a major equipment project costing perhaps $3.5 Billion is just ludicrous. Nor should these contracts go through every government department that thinks that it has a “stake” in the process so that it can squeeze money and human resources out of a major military project. For instance, it does not make sense for an agency like CIDA for instance to suggest that it is a major contributor because it has access to most of the world’s governments, or the Department of Agriculture suggesting that it can bring expertise to the table in the JSS project. An 8 year old Boy Scout would know that there is no link between most military activities and most government administration. One has to wonder if the Canadian Forces decided to say that it had expertise in dealing with international foreign aid agencies or dry-land farming techniques, if the other government departments would find that acceptable and ­provide the forces with extra funds and personnel!

 No doubt some will find this preamble to the recommendations to be somewhat strident. Well so be it, I can and will stack my 30-plus years as a Logistics Officer against any comer. Without this extensive lead-in, my comments would perhaps not be as self-evident as they should and would, therefore, lack the requisite authority to be taken seriously.

Given the portents to come in this new decade of a new millennium, we, as a nation, need to accept the fact that we can no longer accept administrative delays when it comes to the provision of new arms and equipment to enable the Canadian Forces to provide our nation with reasonable security. Antiquated and largely disproved administrative theories and governmental processes and practices need to be dispensed with and, in their place, new both effective and efficient procedures shoud be established. Spending time on “wordsmithing,” testing the “political waters” and artificial concerns over budgets and other spurious concerns regarding the acquisition of equipment that is already in satisfactory service with other allied military forces is just plain unjustifiable nonsense. Delaying the approval to proceed with the building of new naval platforms simply because someone in an agency worries about the possibility of adverse effects on the environment/economy/potential offshore sales caused by the new design at some distant future date down the road, indicates to me that their agencies staffed with people that have far too much time on their hands. They remind me of a civil servant clerk in the UK who was renowned for labouring over approval documents (it was said that he felt that he was the “Wing Nut” that held the civil service together). In the end he was left with little to do because people learned to bypass him. We do not have the luxury of taking extra time to work around an inefficient and out-dated management structure.

What is needed, is a series of bold and progressive acts that will streamline the current military procurement system. This can be done by eliminating or simplifying procedures, allowing increased levels of authority for project approvals, and immdiate action of government announcements of project approvals.

At this juncture, I feel that I can make my recommendations:

  • Amend the Authority Level for approval of defence contracts for the Minister of National Defence to $250 million, providing there is demonstrated need, dedicated budgetary resources and sufficient personnel to prosecute the project.
  • Re-establish a Defence Procurement Agency directly under the CDS and the VCDS and ADM (Mat) that responds to directions from the Minister of National Defence and the Prime Minister. This would produce an agency solely focused on acquiring the minor equipment, spares, replacement ammunition stores and services that are required by our military forces. This agency would report to the CDS for routine matters, such as signoffs for projects that have been delegated or to advise the government of Major Crown Projects or sensitive projects with security or international issues.
  • Once the government has decided to proceed with a project and has given specific direction for a project to proceed, then the power of the PCO and TBS should change from administrative control to solely a monitoring function. Audits of major projects should occur on a regular basis.
  • Every attempt should be made to “buy Canadian,” yet if the operational need is great, the Defence Procurement Agency should be free to choose foreign suppliers.
  • National depots and third level regional supply agencies should be re-established. A Central Army Depot, for example, to hold the Army’s national level war or emergency stocks, would have a rapid outload capability manned with military Logistics personnel. A central provisioning centre would provide the logistics support to formations in the forward area. Similar depots for both the Air Force and the Navy will ensure a capability to have prepared outloads that can be quickly moved to meet any internal or external deployment.
  • The current structure should be split into military and civilian components – essentially to follow previous guidance as described in the conclusions of the Woods Gordon Report on defence administration.
  • In concert with the government of the day, the military must provide a reasoned and well substantiated defence policy and procurement plan which will cover the next five years. That plan would be subject to review and amendment every two years. After five years, the military would produce another policy document outlining defence priorities assigned by the government and with a detailed list of resources needed to accomplish their assigned task. Once finalized all concerned government agencies should be required to accomplish their tasks and any procurement directives contained therein. An addendum plan for anticipated requirements in the medium and long term must also be prepared and updated annually for Cabinet consideration and approval. This will obviate the requirement to constantly use the Urgent Operational Requirement option and enable the CF procurement system to develop better forecasting and acquisition strategies.
  • Surpluses created by slippage or unforeseen contract delays should be allowed to be retained by being placed in a “carousel” fund which can be protected for up to five years for the project. ­Regular procurement and base budgets should be given the same capability. This will ensure that the practice of “year end rush buying” is minimized and that the agency which has protected the funds is encouraged to practice judicious control. This will enable them to contribute saved base funds towards needed facilities of equipment. At the national procurement point, supply managers could use their reserved funds for any unforeseen emergency buys without damaging their existing capital or Organization and Maintenance (O & M) funds.
  • The practice of adding GST, Tariff duties and charges for administrative services such as translation, should be stopped. The accounting, tracking and payment of these charges should be used, instead, for the prosecution of capital projects. DND and the CF could pay an honorarium lump sum at the start of each fiscal year. Removal of these levies will reveal the true costs of acquisition and allow for more accurate future budget forecasting.
  • The current procurement structure has proven to be unworkable and a source of frustration for all concerned. If we simplify some of the tasks as mentioned, we will have started along the road to solving our current procure­ment woes. By addressing these issues we will ensure that the ­Canadian Forces are properly equipped and supplied and able to take on any assigned task without having take on “after the task” procurement. It is a win-win; we will have an efficient and effective acquisition system and our servicemen will be better protected and have the right tools to do their assigned tasks.  

Rob Day is a former Air Force Logistics Officer with the CF.
© FrontLine Defence 2010