Enhancing Quality in Procurement
Jul 15, 2015

When the Best Price is Not Enough...

The criticality of time in the sporting context is like price for simple procurements. A hundred yard dash is simple, and we measure time in minute divisions. A hockey game, on the other hand, is an infinitely more complex endeavour requiring skill, strategy, performance, endurance and psychology. While team or individual sports won by points may include a time component, the outcome is actually determined by quality and performance differences between the opponents.

Analogous to the use of clocked time as the measure of success in racing events, price is generally the major determinant of success in evaluating federal procurement bids. This approach is appropriate for many simple, undifferentiated high-volume products and services, where the requirement is both unambiguous and unchanging. However, when it comes to major procurements of small volume, for very specialized items such as military platforms, the process should weigh quality as a prime factor.

Just as in sports where the competitive outcome is based on qualitative differences that result in goals or points scored, there is a need for procurement outcomes that explicitly recognize both value and quality.

There is no question that innovation and the commercialization of R&D drive economies and, as many will attest, that innovation in military operations is a key determinant of battlespace success. It is therefore logical, and in the national interest, to encourage our defence procurement system to become more innovative, to nurture quality, to be quicker, and to build in the capacity to adapt and be resilient.

Such a statement seems self-evident, and we all recognize the value that quality products and services bring to our daily lives, so why s the “Quality Factor” not a top priority of the decision-making process? There are many points of view.

There is a supplier view that sees prolonged application of lowest cost compliant evaluation schemes as discriminating against lower volume domestic suppliers and forcing the exit of high innovation firms seeking a premium for their investment. Some segments of the consulting service industry serving the federal government see the continuing downward pressure on prices affecting their ability to deliver innovative solutions and to attract and retain quality employees. This viewpoint would argue that compliance and cost-control is displacing excellence.

Views of quality in procurement need to take account of processes that allow for fair and open competition, as required by law. Quality is invariably subjective to some degree, as are perceptions of supplier reputation. In Canada, unlike in the United States, there has been no systemization of user feedback on the results of previous procurements from a given firm, so reputational factors are effectively ignored here. When large and expensive projects are being evaluated, there is always a risk of biases, undue influence, corruption and fraud. Any evaluative process for measuring quality or “value-added” requires built-in checks and balances, with particular attention to weighting schemes.

Under Canadian law, a potential supplier has the right to submit a complaint to the Canadian International Trade Tribunal (CITT) if they feel the procurement process was unfair. A CITT ruling may then be appealed to the Federal Court of Appeal. Results of litigation since the formation of CITT in 1994 have informed procurement process and standards. The net effect of this litigation experience is to pre-dispose the government to discriminate primarily on the basis of price, and to avoid any approaches that may add contracting risk.

An additional factor is the nature of the domestic and global industry base. Even in the U.S., there are rarely more than two or three providers for any segment, and in many cases only one. In Canada there is a limited number of defence and aerospace firms – none of which could survive if they only served the domestic market. The reality is that many defence needs cannot be met by Canadian firms alone, and this has led to the now-common practice of teaming for large projects. It has also generated Canada’s Industrial and Technological Benefits (ITB) policy (formerly Industrial Regional Benefits).

This article will attempt to frame four opportunities to re-assert the role of quality in procurement outcomes, with emphasis on those in the defence sphere. In this context, quality is defined by ISO 9000 as the “degree to which a set of inherent characteristics fulfills requirements” and by Joseph Juran’s idea of “fitness for use”, as defined by the customer. We will focus less on quality that is built into the Statement of Work and its associated technical standards, and more on quality aspects built into the overall commercial approach.

“Gold plating” system requirements by the user has long been criticized as a cost-driver in military acquisition. While value engineering as long been part of the standard design process, as a means of aligning product cost and value, requirements trade-offs are never easy for mission-critical systems where lives are at stake. Achieving a fully compliant bid has become more difficult with large numbers of mandatory requirements, and a significant number of complex procurements now yield only one compliant bidder. Within the new Defence Procurement Strategy, there is now a process for civilian oversight of high-level military requirements to challenge any disproportionate ‘need’ statements.

The first procurement innovation in the past decade has been to bundle capital and in-service support contracts together onto an overall acquisition approach for a “single point of accountability”. This incentivizes the prime contractor to provide a high quality product so as to minimize expensive in-service fixes, and reinforces cascading of quality standards down the supply chain. This is akin to acquiring a car with an excellent warranty and after sales service. This process has been applied in particular to the C-17 and C-130J military transport aircraft procurements, where Canada acquired a small number of airframes from large foreign production runs with existing in-service support capacity.

Specialized Knowledge
A second area where a procurement quality approach is needed, is on specialized knowledge work such as in science and technology, specialized industries, or business transformation services. The frontiers of knowledge and best practice in these domains are advancing asymmetrically among potential providers.

In these cases, a “value for money” subjective scoring by subject matter experts may form a significant part of the decision process. This was effectively the approach used in the National Shipbuilding Procurement Strategy (NSPS). This process scores not the ultimate product, but the ability of the firm’s team to develop the product or service with a reasonable probability of success. Use of expert third party advisory firms with no stake in the outcome can improve objectivity.

Speed of Obsolescence
A third area for procurement quality is emerging in areas where the speed of technological and product innovation outpaces the time between first supplier consultation and bid award. While this has always been a challenge for military procurement, it becomes even more difficult when procurement slows down and technology speeds up.

The Individual Soldier System Project, which was finally awarded to Rheinmetall Canada in July 2015, took some years of definition followed by two procurement attempts over four years, at a time when smartphone technology was advancing in yearly cycles.

This project did employ a field user trial with prototypes in addition to the proposal evaluation to ensure “fitness for use” in performing complex tactical tasks. Nonetheless time is money, and at least one potential supplier exited this contest when the program went into overtime.

Service Contracts
Fourth, and perhaps most important, is the opportunity to achieve efficiencies and economies in in-service support and service contracts.

Under Defence Renewal, there is now considerable leadership attention on this domain, as it consumes a significant proportion of the discretionary defence budget. Performance-based in-service support contracting, when done well and with firms that have invested in the necessary skill sets and systems, can produce a quantum improvement over the classic “time and materials” repair and overhaul approach.

Implementing Quality
In a globalized supply chain, there is the opportunity to apply contemporary near-commercial supply chain practices, minimizing expensive inventory through, for example, continuous push logistics. Exploitation of integrated enterprise systems such as DREMIS may permit innovation in how and when we procure, levering industry capabilities with direct connections to frontline operations. In one small example, during peace support operations in Eritrea-Ethiopia in 2000, the CAF successfully deployed the then-new LAV 3 vehicle into a scorching desert before logistic spares and test equipment were available, but with assured industry direct in-theatre support. The potential of coupling DND and supplier logistic systems with direct information exchange could reduce costs while increasing readiness and availability.

How could such an approach be implemented? To enhance quality in procurement will require a continuous search for best practices, benchmarking against other jurisdictions and investment in professional development for its practitioners.

There needs to be increased conversation between the public and private sectors, and leveraging the work of professional associations and academic institutions. Given the current risk-averse environment, there needs to be a program of pilot procurement schemes with senior-level championship to explore new approaches suited to the four kinds of procurement challenges described above.

Quality in terms of “fit for purpose” is invariably uppermost in the mind of requirements authorities, and most reputable suppliers seek to provide quality products.

Our economy will flourish only if we recognize quality and innovation, and build adaptability and resilience into the procurement model.

As we consider the economic value proposition as part of the Defence Procurement Strategy, so too should we re-consider how best to incorporate more quality-enhancing elements into the procurement process itself.

Major-General (Retired) Doug Dempster is the Executive Director, Centre for Executive Leadership at the Telfer School of Manage­ment in Ottawa. He served previously as Assistant Secretary General for Executive Management at NATO Brussels 2005-2010 and as Director General Strategic Planning in DND in the post 9/11 period.
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