Procurement Options for Surface Combatants
Sep 15, 2013

There have been a great many complicated and embarrassingly mishandled military procurements in recent years. So far, the National Shipbuilding Procurement Strategy has dodged most of the public criticism, but the time has come to make some real decisions that will affect our navy for decades to come.

It has been more than three years since the NSPS was rolled out to the cautiously optimistic defence industry. Almost exactly two years ago, the only two financially viable of three contenders were chosen to fulfill the shipyard roles. To great nation-wide fanfare, Irving Shipbuilding Inc. was selected for the $25 billion combat ships, and Seaspan Marine Corp. won the $8 billion package for non-combat vessels.

Progress since then has been slow, but we are anticipating movement on the surface combatant package. Nearly one year ago, on November 15th, the Crown (in this case, Public Works, National Defence, and Industry Canada) organized an Industry Day in Ottawa to formally launch the Canadian Surface Combatant (CSC) project and initiate discussions with industry. To its credit, the government was interested in feedback from the naval industry regarding the procurement process that would eventually be implemented for this project. A cynic might suggest they were just looking for another method to (a) stall and (b) avoid risk at any cost.


May 2013 – Commander Ryan Tettamanti, Captain of HMCS Algonquin, ponders information received from Lt(N) David Turnbridge, Operations Room Officer in training during Exercise Trident Fury, off the coast of British Columbia. Algonquin was Commissioned in 1972. Photo: MCpl Patrick Blanchard, CAF COMBAT CAMERA
 
Regardless of the underlying reason, industry representatives were invited to state and justify their preferred procurement approach among five possible options:

  1. Funded Dual Design – competitive procurement resulting in the selection of two teams which would be contracted to develop costed preliminary designs. One of these teams, and its design, would be selected for implementation.
  2. Funded Multiple Design – competitive procurement resulting in the selection of three or more teams which would then be contracted to develop costed preliminary designs. One of these teams, and its design, would be selected for implementation.
  3. Corporate Capability – competitive procurement to select a firm or a team of firms on the basis of having the best corporate capability to successfully deliver under the implementation contract(s). Canada would negotiate contract(s) for the conceptual design through delivery of the CSC.
  4. System by System – Canada conducts multiple competitive procurements to select the designer and to select the supplier of the major systems in the CSC. Examples are design, combat management system, propulsion system, overall integration etc.
  5. Shipyard Led – negotiated contract with the NSPS selected shipyard where the shipyard would select the design firm and each of the systems to meet Canada’s operational requirements. The shipyard would be responsible for demonstrating that each of the selections satisfies Canada’s operational and contractual requirements and for demonstrating competition and/or value for money in these selections.

 
Some six month down the road, in May of this year, the Crown then invited industry respondents to attend another meeting to present their choices and discuss them though working group sessions. Some selected companies also participated in half-hour one-on-one discussions with the Crown. PWGSC informed industry representatives that two Procurement Approaches had been short listed – a Most Qualified Team and a Most Capable Design.
   
MQT: Contractor selection based on assessing the qualifications of the team – the “Most Qualified Team” approach has its roots in the Corporate Capability example.
MCD: Contractor selection based on assessing the relative capabilities of proposed designs – the “Most Capable Design” approach which has its roots in the Funded Dual Design example.
 
The aim of the discussions, as articulated in the invitation to industry, was to provide the Crown with “clarification/detailed input from the original Industry respondents on the relative strengths and weaknesses of these short listed approaches prior to making a recommendation to ­Government”.

According to those in attendance, the discussions indicated that a majority of companies were in favour of the Most Capable Design approach.

Various official sources have indicated a decision on which procurement approach is chosen may be made very soon. As soon as a decision is announced, the process will be implemented as described in the slide presentation by PWGSC back in May.
 
It is important to note that all official presentations and speeches about the CSC project (from DND, PWGSC and Industry Canada), state that “Canada’s Principles for the CSC Project” are: fairness, openness transparency, and competition.
 
Choosing the Most Qualified Team means that a single team will be selected based on capabilities rather than a specific solution, and that team will have “carte blanche” in designing a combat system, selecting its suppliers, and possibly even designing the platform. Since there are minimal specifications to this option, critics say that once an MQT contract is awarded, the Crown will hold no leverage whatsoever to ensure the solution meets budget requirements or delivery schedules… any of DND’s requirements for that matter. With no hammer, how can Canada ensure proper implementation of requirements such as the regional benefits and Key Industrial Capabilities from companies chosen by the team? Another argument against the MQT approach is that, should this team fail, there is no alternative left since there is actually no competition. It is obvious that design alternatives that would be proposed by the MQT will be limited, reflecting solutions proprietary to the team members even though other solutions could be more advantageous to Canada from a cost, performance schedule, or risk perspective.
 
As many people knowledgeable about the NSPS (and the CSC in particular) have confided, choosing MQT leaves only one option. Without naming names, it is obvious to all that only one team can qualify as the MQT selection. This option goes against the very clear “Canadian Principles” before it even starts.

The Most Capable Design approach, on the other hand, seems the most balanced option to meet Canada’s principles of competition, fairness, openness, transparency and value for money. How? Through a real competition the contending teams will be obliged to sharpen their pencils to propose the best solutions (combat system and ship), at the best price, and with the best benefits for Canada. The evaluation will be based on a solution and not merely on potential capabilities as for MQT. Should discussions with the first selected team reach an impasse for any reason, this model will allow the Crown to turn to the second team if necessary.
 
Detractors of MCD point to the first JSS project as an example of inadequacies of this approach. As a matter of fact, JSS failed, not because of the procurement strategy - which was the right one - but because looking for a design unique to Canada exceeded even the most conservative budget estimates which had been based on existing designs.
 
Clearly, an MCD approach will provide a foundation for flexibility. It provides the most obvious option to acquire the most competitive solution on the market, at the best value for the money. Proponents of this option suggest that funding two teams during a Pre-Definition phase allows the Government to utilize the pressure of competition while it compares existing designs and how they can be adapted to Canada’s specific requirements.
 
Implications
The choice between MCD and MQT is of the highest importance for the project, for industry and for Canada. It also creates a precedent that is key to the future of defence procurement. A non-competitive approach, such as an early selection of an industrial team based solely on perceived corporate capability, could not possibly ensure “best value for money” for Canada.
 
For Canada to realize the greatest cost savings, maximize industrial participation, and acquire the greatest number of ships practical for the defined budget, the project definition phase of CSC must be an open, transparent, and robust competition.
 
A common sense approach that has been generally adopted worldwide is to select an off-the-shelf design and adapt it to Navy requirements. This is typically a much cheaper option, as long as officials don’t go overboard with customization. Are there existing vessel designs that could save the taxpayer a lot of money and save the Navy a lot of time?
 
Clearly, Canada’s best option is to select the best proven design, modified for Canada by Canada through a competitive process, and managed by a team with proven ability and experience.
 
Has the Government of Canada learned from mistakes made in other programs by early selection without competition? We shall soon find out.
 
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Chris MacLean is Editor-in-Chief of FrontLine magazine.
© FrontLine Defence 2013

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