Is Defence Procurement Broken or is this Normal?
DAN ROSS
[field_copyright]
Nov 15, 2013

This is a topic that never seems to go away whether progress in equipping the Canadian Forces is happening or not happening. My view, from close personal experience, is that we have a system of vague accountabilities and endless analysis by process gatekeepers with conflicting priorities that drive schedules off the chart to the right. True, our system evolved over decades and through many governments, but there was a brief period where extraordinary success occurred.

Let’s start by understanding what the subject is and what it isn’t. The defence materiel business is not just about procurement, it’s about the management of defence materiel throughout its entire life cycle – from requirements identification, options analysis, project definition, acquisition, in-service support to disposal. It includes the management of a complex, global supply chain to get the right stuff to our troops wherever and whenever they need it. It also includes the management of contracted services for training, transportation, IT, and contracted support in overseas theatres of operation. The contracting for major new equipment, which gets all the heat and light, is a supporting activity to the whole business of defence materiel management.

The defence materiel business was consolidated 49 years ago by Bill C-90 which created Materiel Command and eliminated the three separate logistic services, the Quartermaster General and the Master General of Ordnance.
 
By the mid-1980s the materiel organization was reduced to 13,500 people, and further reduced by Program Review in the 1990s to the 4,600-person Materiel Group of today, which is supported by a hundred or so analysts within DND and about 500 contract staff at PWGSC. Materiel Group will decline in size through the current deficit reduction program by another 400 civilians.

With an annual budget of $5-6 billion, Materiel Group is largely a department in itself with the internal capacity to function without significant DND corporate support.

Managing defence materiel is an integrated function that depends enormously on the unique training and experience of 1600 military experts. It is also highly dependent on close cooperation with the Army, Navy and Air Force and the Vice Chief of the Defence Staff to identify and articulate requirements and manage readiness levels. Public money cannot be spent without Treasury Board authorization or the delegation from Treasury Board to do so – projects are regularly briefed to the Secretariat and their guidance is sought on any matter pertaining to authorities.
 
Almost all projects are completed under budget with unused funding that can be reallocated. Not a single project, of the thousands managed by DND, has a “cost overrun”. The notion that DND would contract without the appropriate authorities (as suggested around the cancellation of the Standard Military Pattern truck request for proposal) is simply ridiculous.

The defence materiel business has also changed substantively in recent years. Materiel Group implemented performance-based, best value procurement and in-service sustainment processes. Traditionally, evaluations techniques have been designed and weighted to focus on demonstrated performance. However, in many instances, technical specifications are now being substantially reduced so that proven, off-the-shelf solutions could be pursued. These changes are aimed at minimizing risks from development, schedule and cost factors.

That being said, decades-old culture and traditional engineering training is hard to change in a few years, and many smaller projects were pursued with detailed technical specifications and lowest price. In many instances that is entirely appropriate.

For a few years, the Canada First Defence Strategy eliminated the uncertainty about affordability in defence procurement. It was the most ambitious re-equipping program for the CF since the Korean Conflict. Under the CFDS, the Government announced 13 multi-billion dollar projects and has advanced seven to contract award. This does not include several dozen acquisitions greater than $100 million. C17 airlifters, C130J Hercules transports, Leopard tanks, M777 lightweight howitzers, armoured logistics vehicles and many smaller capabilities are already in service, and new C47F Chinook helicopters, upgraded LAVs, and new Tactical Patrol Vehicles are in production. The $2B modernization program for the CF 18 has been hugely successful and the aircraft performed very well over Libya. Modernized frigates are undergoing sea trials as part of their $4B modernization program.

DND will spend approximately $30B on new equipment and another $30B on the sustainment of in-service equipment over the next decade. $12B for new equipment is already under contract for Chinook helicopters, armoured patrol vehicles, modernized frigates and other new capabilities. Approximately $2.5B of sustainment funds will be spent replenishing consumables such as clothing, rations, and ammunition. Approximately 75% of the overall sustainment budget will go to spare parts and repair and overhaul of in-service equipment – almost always to the company that won the initial acquisition. Much of the uncontracted capital will go to build Joint Support ships, Arctic Patrol ships and warships for the Navy.
 
Results from about 2005 to 2010 were driven by two extraordinary factors: the all-powerful ‘political will’ backed by a funded strategy, and by the urgency of supporting our troops in combat during that period. But political will is flagging and the relative success of the Government’s reequipping of the CF doesn’t sell newspapers or win elections. The Government appears to be very intent on achieving a balanced budget before the next election. Most stakeholders believe that we are back to “normal” times in the defence procurement business, so the legions of analysts are re-exerting their control, PWGSC is ensuring that everyone knows they own the contracting mechanism and that their processes have to play out to perfection and perfection is equated to zero risk.

It is fair to characterize Canada’s normal defence acquisition process as highly risk averse and unbelievably slow. No one minister or deputy minister is accountable for the business. There are many cooks in the kitchen, three departments and three central agencies with different agendas that all have equal veto – and often don’t agree. Schedules take a beating and, as they slip, capital budgets lapse (and contribute to deficit reduction), buying power erodes and estimates go stale, political and communications risk goes up, existing equipment becomes more costly to maintain, and operational capability is more difficult to sustain.

Analysts in many places and at multiple times inflict years of delays on projects, financial attestation by both DND and PWGSC routinely takes at least six months for every decision point. Materiel Group’s project management teams devote most of their time to feeding Secretariats and almost endless consultation exercises. The business is a part-time job for Ministers, Deputy Ministers, financial officers, and analysts at Treasury Board. Only DND’s Materiel Group and one division of PWGSC’s Acquisition Branch are devoted to this $6B business full time.
 
The Materiel Group could be 90% of a separate Department with a Minister and Deputy Minister focussed solely on this multi-billion dollar business. A dedicated chief financial officer and small policy shop could streamline the approval and financial processes of capital materiel projects. Duplication between DND and PWGSC contracting personnel could be eliminated with the reassignment of the Defence ­Production Act to a Minister of Defence Materiel.

With or without a separate Department for Defence Materiel, there needs to be a more robust program integrity capacity in the defence materiel business. Critics of this option suggest it will “look like” another National Defence department by its close relationship to DND and its military/civilian workforce and it therefore cannot be trusted to be unbiased. A broad and comprehensive program integrity capacity would address the issue of bias and re-establish a contract audit capability; provide more comprehensive review services; coordinate an independent third-party review of the overall business annually; and work proactively and collaboratively with the Auditor General and Parliamentary Budget Officer. The Minister of Defence Materiel should also have an advisory board of distinguished Canadians to provide an independent second look at major procurements at the end of the options analysis work and before it goes to Government for policy approval.

Yes, the acquisition piece is broken but I believe it is really just business as usual in our system of vague accountability. In many aspects we are leaders among G8 countries in the management of defence materiel. We drive positive results out of a much smaller and more efficient organization than most of our allies. To shatter that organizational strength would be counterproductive. What needs to be fixed is the fragmentation of accountability, the duplication of effort, and the lack of contracting authority in the organization that manages defence materiel

====
Dan Ross retired from his position as ADM (Mat) in January 2013.
© FrontLine Defence 2013

RELATED LINKS

Comments