Who gets a 'say' in Defence Procurement?
KEN POLE
© 2011 FrontLine Defence (Vol 8, No 4)

The fact that three federal departments are involved in Canada’s military procurement – often with input from other bureaucratic and political elements, and still with no single source of accountability (each has equal veto power, and none have overriding authority) – is a long-standing and acknowledged irritant for government officials, the military, and potential suppliers alike.

While the idea of consolidating the varied and sometimes conflicting departmental roles into a stand-alone agency is not new, it was lent some heft by a Canadian Association of Defence & Security Industries (CADSI) proposal to the government last year. A government review team, having analyzed the CADSI report, has agreed that “a Defence Procurement Agency is the most appropriate option.”

As the government plans to spend more than a quarter of a billion dollars on military equipment and support services over the next couple of decades, it seems prudent to implement key CADSI recommendations sooner rather than later.

While the Department of National Defence ostensibly sets out the Statement of Requirements for its programs, Industry Canada is routinely involved to secure industrial regional benefits, and Public Works & Government Services Canada crafts the contracts and cuts the cheques. And let’s not forget, Treasury Board must also be convinced of the need for the expenditure in the first place. However, the sharing of full veto powers with DND, has meant that Industry Canada and PWGSC have become involved in defining and amending operational requirements. This has led to inevitable delays and, in some cases, cost increases.

In an executive summary of the report provided to FrontLine, the review team notes that the procurement process tends to be secretive and that the government does not communicate well with either industry bidders or the public at large. “Defence procurement and defence trade are neither free, open, nor transparent,” it states. Also acknowledged (or validated) by the review team is the uniqueness of defence procurement. “Domestic defence procurement policies and practices determine, to a very large part, the size, structure, capability, and competitiveness of defence industry. Governments do, and must, treat defence procurement and defence industry differently than they treat their non-defence counterparts.”

While the government’s initiation of the CADSI report was described as “an excellent first step” in modernizing the procurement process, the government is urged by the review team to create a Defence Industry Advisory Committee, comprised of the ministers of the three departments plus the presidents of CADSI and the Aerospace Industries Association of Canada, as a foundation for real accountability and transparency. The goal would be “a clearly defined policy framework… that aims at optimizing the overall benefit to Canada and to industry.”

In addition to endorsing the concept of a central agency – which it suggests should mirror Australia’s experience with, importantly, a single point of accountability at the cabinet level – the review team notes that Canada’s procurement structure precludes being able to hold anyone accountable for delays or cost overruns. “Make managers accountable for program delivery, not just for following the process,” suggests the review, adding that the creation of “a cadre of project management and procurement professionals” is key to improved performance.
 
Other suggestions by the team include:

  • aligning a defence industrial policy to the Canada First Defence Strategy and national economic objectives;
  • aligning procurement strategies and processes to support the policy;
  • balancing program delivery objectives against legal and contract risks;
  • sharing risk between government and industry;
  • annual reports to industry on Canadian Forces plans, including project schedules and budgets;
  • articulating domestic industry objectives during the requirement definition stage of a project;
  • shifting in-service support to Canadian companies after the initial warranty period on “significant” procurements from foreign suppliers has expired; and
  • annual reports to Parliament on the readiness and competitiveness of the defence industrial base and its economic contributions. 

The government’s only comment on the review committee’s endorsement of CADSI’s recommendations came from Associate Defence Minister (Procurement) Julian Fantino’s office, which told the Ottawa Citizen in an e-mail that the government has a mandate “to continue to provide our troops the equipment necessary to do the jobs asked of them and we are committed to delivering on that promise.”

Not long before that, Dan Ross, Assistant Deputy Minister (Materiel) at DND since 2005, acknowledged frustration at a recent executive breakfast organized by the Ottawa chapter of the international Armed Forces Communications and Electronics Association (AFCEA), and countered any personal optimism derived from improvements in the procurement process in recent years with pessimism about the prospect of a central agency.

His optimism is based on what he described as a “big cultural change” in how the government views its defence options, as evidenced by the array of pending capital programs now at various stages in the procurement pipeline. It had been made possible by a shift to accrual budgeting for capital equipment. For instance, if the amortization of a new piece of hardware is 20 years, the government sequesters 5% of the cost annually, essentially mortgaging the acquisition. Once that’s paid for, space is opened up for additional major Crown projects and additional capabilities. This effectively sets the stage for the next generation of that hardware.

But Ross conceded that the philosophical change needed to achieve that change hadn’t been entirely smooth, notably the government’s attempts to be a prime systems integrator in various capital programs. “I think we’ve proven that, with rare exceptions, we’re not capable of doing that,” he admitted. “Anecdotally, when I arrived, our engineers were working hard on designing five new… radars, and we were going to be the systems integrator. We were going to write the software until we eventually got it right. I said, ‘no we’re not; we’re not going to do that … We have a ship out of water; there’s no way’.”

The answer on that front has been the successful engagement of original equipment manufacturers who supply the various platforms, as was the case with Boeing’s successful CF-18 modernization – which came in on-time and under budget. Ross also mentioned Lockheed Martin’s ongoing Halifax-class frigate refit, which includes a package of new systems engineering, radar, communications, mission software and combat systems. “It’s our highest-risk and most complex program, ever.” Ross complimented the navy for its “great requirement discipline” in a program which is also on-schedule and under-budget.

Insofar as procurement overall is concerned, however, “the amount of friction in the approval process” remains a “major challenge” that he has to deal with daily. “That generates schedule risks,” and he admitted to having “very little control” over schedules before a program gets to the contract-award state. Asked afterward about the prospects for reducing that bureaucratic friction, Ross suggested that it would take a “fundamental change in the machinery of government” and he was “not optimistic” about that prospect.

While the government has “changed a lot of stuff” in the procurement process – including reducing to an average 48 months from 104 months the length of time to contract award – “there’s a lot of money at stake” in Crown projects.

And the current reality is that Parliamentarians, and the federal cabinet in general, and the private sector, and DND, PWGSC, Industry Canada, and Treasury Board in particular, all want a say in the defence procurement process.

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Ken Pole is a Contributing Editor at FrontLine Defence.
© Frontline Defence 2011

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