Defence Procurement More Change Needed
DAVID PERRY
© 2015 FrontLine Defence (Vol 12, No 1)

Putting the ‘Armed’ back into the Armed Forces, a study recently published by the Conference of Defence Associations Institute and the Macdonald-Laurier Institute, was intended to be considered as part of the overall study of the defence of North America. In a January testimony to the House of Commons Standing Committee on National Defence, I focused on the paper’s recommendations, which I now share with FrontLine readers.

Announced almost exactly a year ago, the Defence Procurement Strategy (DPS) was to reform the way Canada acquires military equipment. Its objectives are threefold; delivering the right equipment to the Canadian Armed Forces (CAF) in a timely manner, leveraging those purchases to create jobs and economic growth, and streamlining defence procurement processes. Fast forward to 2015 and the implementation of this strategy remains a work in progress. Unfortunately, aspects of the new strategy that focus on streamlining the procurement process appear to be the least advanced.

Why is change in this area needed? Many would say it is because DND is facing an unprecedented problem in actually spending its procurement funds. Since 2007/2008, an average of 23% of the DND’s available Vote 5 funding was not spent as intended. Prior to this period, dating back to 1973, the historical average for Vote 5 not being spent as intended was a mere 2%. This inability to use the available resources has meant a combined $7.2 billion earmarked for procurement was not spent as intended.

It is important to recognize that defence procurement is a problem around the world and has never been easy in Canada. But the recent inability to spend money points to a relatively new set of problems that have significantly impeded defence acquisitions.

This is attributable to five interrelated factors. First, the procurement workload has expanded significantly over the last decade. Budgets 2005, 2006, and the Canada First Defence Strategy (CFDS), provided funding and policy coverage for the largest recapitalization program since the Korean War. Much of the funding increase that was earmarked for procurement specifically took effect in 2007/2008 – the same year DND began to underspend its budget. As a result, the number of Major Crown Projects at DND increased threefold. There are currently 13 projects underway that are worth a billion dollars or more, and many of them, including shipbuilding, are extremely complex. At the same time, the amount of staff work required to ensure projects comply with Treasury Board and other reporting requirements has increased significantly.

Second, while the workload has increased, the acquisition workforce has not. The key acquisition departments – DND, Industry Canada and Public Works and Government Services Canada (PWGSC) – were all downsized substantially during in the 1990s. This left a much smaller and less experienced workforce by the early 2000s. Although procurement plans and budgets to fund them have increased since then, the workforce still has not. As a result, adjusting for changes to the organization’s responsibilities and the impact of inflation, the ADM Materiel Group at DND is now managing essentially twice the workload that is was 20 years ago.

A third set of factors contributing to the recent problem is program affordability and budgeting difficulties. The budget outlined in the CFDS was too small to acquire all of the capital acquisitions listed in the document, and since its release, this funding has been reduced and delayed. A lack of articulated strategic priorities has made resolving the gap between funding and capabilities difficult. Most problematic, a change to the accounting practices for capital projects means that project budgets are now eroded due to lost purchasing power with each year of delay. Because of this, procurement delays have resulted in significant capability decreases in order to keep projects within budget.

Fourth, DND’s process of generating military requirements has come under significant scrutiny. Concerns about the military seeking gold plated equipment or ‘wiring’ their requirements to obtain a specific platform are not new, however, the level of difficulty created by DND’s challenges in both generating its requirements and then communicating them to the rest of the acquisition workforce have intensified in the last decade. Because of this, several major projects have faced significant delay over questions regarding the appropriateness of the requirements specified by the military – Fixed Wing SAR and F-18 replacement projects are prime examples.

Finally, all of these factors have led to a serious erosion of trust in the procurement process and have exacerbated the other problems. Trust within the bureaucracy, between departments, and between the bureaucracy and the defence industry all suffered. This has contributed to delay-inducing increases in reporting requirements, committee-based governance structures, and extensive use of third parties.

All of these factors remain prevalent today, but there have been some promising signs of improvement, most notably with the Halifax Class Modernization and Frigate Life Extension project, which is proceeding on time and on budget.

To further improve the defence procurement process and ensure National Defence can make best use of available resources, I have identified 10 recommendations.

Recommendations:

    Complete the review of the Canada First Defence Strategy. In part:
    i) establish geostrategic priorities than can direct future procurements; ii) resolve the mismatch between funding and capabilities; and iii) prioritize planned defence acquisitions;
    Increase the size of the acquisition workforce, with a particular focus on the ADM (Mat), Major Projects Delivery organizations, Industry Canada’s ITB branch and the National Shipbuilding Procurement and Defence Procurement secretariats;
    Increase the capacity of the acquisition workforce: i) improve access to training opportunities; ii) reduce the posting cycle for both public servants and military members into acquisition positions; iii) link­ staff rotations to key project milestones; and iv) create a dedicated, non-command career path for procurement specialists in the Canadian military;
    Extend recent efforts by DND to familiarize the central agencies and other acquisition workforce officials with the defence program;
    Continue industry engagements, with a focus on providing opportunities for honest, two-way dialogue;
    Improve communications about defence procurement, both inside government and between the government and the public. Increase the use of technical briefings on key files;
    Develop a common basis for life cycle costing that is based on best practices, and institute it across Government. This should include assigning project contingencies appropriate to the nature of each project and the Canadian procurement system, and ensuring that project budgets include protection against lost purchasing power;
    Build flexibility into DND’s Investment Plan to account for cost escalation, delay, and new priorities;
    Factor in changes to procurement costs created by the Defence Procurement Strategy (DPS) into current and future project budgets; and
    Implement the DPS changes as a comprehensive package rather than as individual initiatives, and provide annual progress reports on the new strategy’s implementation.

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David Perry, Senior Security and Defence Analyst, CDA Institute.
© 2015 Frontline Defence

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