Future Ships for Canada
LOUISE MERCIER-JOHNSON
© 2010 FrontLine Defence (Vol 7, No 1)

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Canada enjoys the longest coastlines of any country in the world (60,180 km excluding islands) and yet, since the launch of the Canadian Patrol Frigates in 1983 and the Maritime Coastal Defence Vessels in the mid-1990’s, Canada has struggled to procure replacements or even refits for its military fleet of ships.

The tone and tempo of procurement by the Canadian government became increasingly ­complex over the last 27 years; it was riddled with worries of accountability and transparency – and in the end had stagnated. This atmosphere now appears to be in a transition phase towards improvement, due largely to the increased level of information sharing occurring between the Maritime Industry and the Canadian Government.

Such improvement however will only be validated and seen as meaningful if the government of the day is able to establish a Canadian National Ship Building Procurement strategy, ensuring that ships are built in Canada by Canadian companies.

Several federal departments have willingly met with industry for discussions where meaningful information was shared and encouraged, leading industry stakeholders to remain optimistic.

This improvement in communication with the Canadian industrial base has been critical to the Crowns appreciation and accommodation of an industry they had lost contact with. The legacy of inaction is a long and difficult one to overcome.

In April 1994, a presentation to the Senate Defence committee by Dudley Allan and Admiral Ed Healey addressed the industrial perspective of national security. It identified many of the same issues that plague ship procurement today – both within and between ­government departments, and between industry and government.

Fourteen years later, in January 2008, newly retired Alan Williams, formerly the Assistant Deputy Minister of Materiel (ADM Mat) in the Department of National Defence (DND), wrote a succinct summary of procurement as he saw it. Published in a special FrontLine edition on procurement, Williams’ submission, entitled “Procurement Reform: Fact, Fantasy or... Trap?” described his efforts and frustrations to improve the defence capital procurement process that at that time had been identified as flawed and inefficient. He wrote of the mounting, overwhelming, and widespread evidence that the procurement process was at risk of not achieving its objective to provide a fair and transparent procurement process to meet the operational needs of the defence department.

Williams cited non-action on 38 recommendations for reform by the Standing Committee on National Defence; 49 recommendations by the Advisory Committee on Administrative Efficiency, and 55 recommendations to PWGSC January 2005. Still, little changed.

The repeated media criticism of multiple aspects of defence procurement, including examples in Ottawa Citizen articles where David Pugliese brought to light the lack of adequate oversight in defence contracts. Beginning in January 2006, ­FrontLine had featured no less than three ‘Great Debates’ on various defence procurement topics, and published numerous follow up articles – all highlighting deficiencies and offering solutions from informed analysts.

Nevertheless, in spite of all this posturing, little substantive change was being demanded. Despite evidence of failure, and Williams’s disappointment in the realization there was no appetite for change, change was, and is in fact, slowly emerging.

Restoring the Faith
In the fall of 2008, the Canadian shipbuilding industry had all but lost faith in the procurement capability of the Canadian government collective, when program after program seemed to regress or fail after millions of dollars of investment by both industry and the Crown. In September of 2008 the Mid Shore Patrol Vessel project had failed for the second time, and the Joint Support Ship (JSS) project had no compliant bidders. The main reason for these being that, in both projects, all bids were over budget. A third program, a refit program was left with one bidder standing (despite PWGSC’s best efforts to ensure the submission of two compliant bids) to upgrade the Canadian Patrol Frigates, and the upgrade program for the submarines was subsequently embroiled in what was to become a long, expensive legal battle.

Tensions were running high between frustrated senior government officials who believed they had articulated clearly their requirements, and industry who were not satisfied when, after substantial investments, programs were cancelled, or where international experts were being found non-compliant in Canada while being awarded contracts in other countries. The Federal government had found it necessary to cancel important shipbuilding procurements – each central to rebuilding our national fleets.

As a result of this consistent evidence of “brokenness,” change finally began to materialize. As VP Maritime Alliance of Navy League, Ken Bowering described it, “procurement reform, shipbuilding, and ocean management quickly became central topics within the marine sector – government, academia, and the private sector.”

Members of Parliament and Senators had received and read the letter submitted by Navy League expressing its concern about procurement. It had sounded the first bell that there would be multiple failed ­procurements.

In November 2008, CADSI (the Canadian Association for Defence and Security Industries) coordinated a meeting between DND officials and industry partners. This created a unique forum for candid discussion about lessons learned from an industry perspective. Senior industry partners, ­collectively and intentionally avoiding parochial interests, addressed key problems and issues from the industrial delivery perspective and DND actively listened.

This was the beginning of several ­discussions to improve understanding of specific changes that were required to make the procurement process function more effectively. The risk paradigm had changed, and where the Crown once operated on a premise of risk aversion, measured by minimizing CITT challenges and law suits, they were now re-examining the risk of multiple failed procurements, the cost to taxpayers, the loss of high technology jobs in Canada, and the loss of military operational capability.

In 2009, 12 separate working groups, conducted between the shipbuilding industry and key government departments, pointed to both growing industrial cooperation and improving interdepartmental cooperation. Separate, but critical, interdependent industry/government discussions about the procurement of shipbuilding capability in Canada began to unfold.

These working groups between government and industry would slowly begin to demonstrate that industry was being heard, government officials wanted/needed improvements that would lead to more effective procurement for the government.

Granted, there is not always consensus between the industrial partners, but strong participation in these events contributes to effective procurement discussions. Compared to the finger pointing climate of five years ago, this activity indicates, at a minimum, a new willingness to listen and accommodate change for the sake of progress. And progress is being made. The Coast Guard’s Mid-Shore Patrol Vessel ­Procurement was re-tendered and a contract for 9 ships was awarded recently to the Irving Halifax Shipyard.

The government is now treating the procurement process and its issues seriously and is working towards addressing critical challenges on the requirement of liability.

Industry Canada is relaxing its requirement to identify their proposed Industrial Regional Benefit transaction – dropping it from 60% upfront, to 30%, and additionally, is considering the banking industrial regional benefits, to encourage investment.

In another sign of progress, a National Shipbuilding Procurement Strategy Office within DND was created under the leadership of Commodore Pat Finn; it is addressing the entire federal fleet requirement, including those for Transport Canada, Coast Guard and RCMP.

This willingness to provide the Government with international experience and lessons learned from the shipbuilding industry from around the world is intended to provide shape to the way ahead and assist in the creation of a long-term sustainable shipbuilding strategy for Canada.

With the announcement and approval of a National Shipbuilding Strategy, it is anticipated that long-discussed projects will be launched, including the Arctic Offshore Patrol Ship Project, JSS Project, other complex ship projects in addition to other projects that account for the $30B earmarked for shipbuilding over the next 30 years.

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Louise Mercier is President of FrontLineServices.
© FrontLine Defence 2010

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