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Sunday, February 9, 2014

The Canadianization of military procurement

Iain Hunter: Defence procurement is not about war
Last week, Public Works Minister Diane Finley outlined for defence contractors and lobbyists a new strategy to be run by a secretariat in her department that will challenge expressed military requirements and emphasize “international sales opportunities” for Canadian companies engaged in filling them. She said conditions attached by military planners to procurements “too often appear to be set to achieve pre-determined outcomes.”

In other words, the brass is setting specifications that are so precise that they favour the plane or truck they think is best, and therefore one bidder. And with one bidder in the running, the price inevitably is higher, and better economic spinoffs might be lost.

It wasn’t long ago that nations acquired things like tanks, ships and planes solely for the purpose of fighting wars. Today, the tanks, ships and planes are called platforms and their purpose is not just military.

Defence procurement in Canada also is about things like industrial and regional benefits, value to the Canadian economy, global markets and thriving domestic defence contractors.

There might be some retired colonels and commodores who find this odd, but in an age when so much stuff rusts out before it can be used in battle, and when new technologies have to be found to meet rapidly changing threats, a lot more than defence of the realm is at stake.

And as new “platforms” become more expensive, it makes sense to upgrade and maintain existing ones. Canadian defence analysts say that for every dollar, or million dollars, spent to acquire a new engine of war, five dollars or $5 million will be spent to keep it working over a life cycle of 30 years or more.

And that means that when the shiny new engine is unpacked, Canadian firms must find in the crate a guarantee that they have the terms and conditions, including access to intellectual property, to do the maintenance.
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Canada revamps military procurement policy after controversies
Defense is one area where countries are allowed under international trade rules to favor their own industries. The question then becomes one of how much more governments are willing to pay to get domestic benefits. In addition to the governance changes, Finley will also now require that bidders for major projects put together a "value proposition" that will show what industrial spinoffs and subcontracts would go to Canadian companies. This would be given a 10 percent weight, suggesting that companies promising rich industrial benefits to Canada could still win even if their costs are slightly higher than those of their rivals.
Leveraging Defence Procurement to Create Jobs and Economic Growth in Canada
The three key objectives of the Defence Procurement Strategy (DPS) are to: deliver the right equipment to the Canadian Armed Forces (CAF) and the Canadian Coast Guard in a timely manner; leverage our purchases of defence equipment to create jobs and economic growth in Canada; and streamline defence procurement processes.

The Defence Procurement Strategy (DPS) represents a fundamental change in the Government of Canada's approach to defence procurement.
New plan for military procurement dilutes power of defence department
Finley sought to assure Canadians “that the capability of our men and women in uniform will remain paramount.” But she also left no doubt that the government is counting on industry turning $240 billion in planned defence spending over the next two decades into high-value, high-skill jobs.

“The defence procurement strategy underlines the goals that our government has had from the start,” she said. “Jobs, growth and economic prosperity. That’s what we pledged to Canadians. And that’s what we’ve been delivering.”

Defence officials had quietly expressed concern about military procurement being shifted too far towards business interests, warning in a secret briefing in November 2012 that National Defence “would, all things being equal, likely obtain less equipment and services.” The warning is rooted in fears the government will end up paying a premium to buy Canadian or boost otherwise boost Canadian industry, which is what is already happening with the government’s $38-billion national shipbuilding plan.
Canada Unveils Sweeping New Procurement Rules
The government’s initiatives closely follow a report from the Canadian government’s procurement adviser issued last year, which recommended that foreign defense companies be required to provide domestic companies with quality offset work in a number of key areas such as cybersecurity, training systems and soldier protection. The 88-page report, titled “Canada First: Leveraging Defence Procurement Through Key Industrial Capabilities,” was aimed at addressing growing frustration among Canadian defense firms that complain they have seen little quality work from the billions of dollars of military contracts announced in the past several years by Canada’s Conservative Party government. Those include the purchases of tanks, helicopters and transport aircraft.

The report from Tom Jenkins, special procurement adviser, noted that the Canadian government intends to invest CAN $240 billion (US $216 billion on new defense equipment in the next 20 years.

It recommended developing, at least initially, key industrial capabilities in six areas: Arctic and maritime security, soldier protection, command and support, cybersecurity, training systems, and in-service support. Foreign firms that want to bid on Canadian defense contracts would be required to provide offsets in those areas and would receive better consideration for their bids if they provide Canadian companies with work on international programs.

In their announcement Wednesday, Finley and Nicholson noted that an export strategy will also be developed to support international sales of Canadian defense products. Key industrial capabilities that the government wants to promote among industry will also be identified and highlighted.

The government also plans to provide more information to industry about military procurements, including informing companies early on about projects and publishing an annual acquisition guide to outline its priority programs.

The Defence Procurement Secretariat to be established within Public Works would provide expertise needed to oversee purchases of military equipment. The secretariat will use the principles of early and frequent engagement, independent advice and efficient decision-making to streamline defense procurement processes, the ministers stated.

An independent, third-party Defence Analytics Institute to provide expert analysis to support the objectives of the Defence Procurement Strategy will be established.

Tim Page, president of the Canadian Association of Defence and Security Industries, called the move a “critical and positive milestone” that will enhance security and economic interests. The association represents more than a 1,000 defense and security companies in Canada.
Ottawa to curb military’s role in procurement after costly delays
The dysfunctional record of military procurement in the last eight years – from light-armored combat vehicles to joint support ships to F-35 fighters – has hurt the Conservatives’ carefully cultivated reputation as prudent stewards of the public purse.

Wednesday, Mrs. Finley and Mr. Nicholson will announce they’re going to require that military suppliers provide more high-value industrial spinoff work for Canadian companies and well-paying jobs. The government is dissatisfied with the industrial regional benefits it received for several big purchases of military aircraft.

Major military purchases in Canada have frequently lacked what critics call a single point of accountability because as many as three or four government departments play a part in selecting what to buy – decisions that are sometimes made in isolation from one another.

National Defence currently has particularly strong influence because it first draws up specifications for what features it needs in equipment – which can result in the department effectively picking a supplier before a competition is held.  Defence officials will still have a central role in deciding what to buy for the Canadian Armed Forces, but other departments and outside advisers will now have the ability to properly question what is being requested.

This will change with what is unofficially called the “super secretariat,” a term the government does not embrace but which captures the concentration of decision-making taking place.

For instance, as one person who was familiar with the Wednesday announcement said, if the request is for a “Cadillac and you actually need a Corolla” then the system needs someone who “has the authority to ask why do you need this Cadillac?”

Part of the focus Wednesday will be on using defence spending to develop a competitive advantage in certain technologies. Foreign companies play a large role in supplying Canada’s military needs, yet in the past 30 years, this country has shied away from using defence policy to promote and build domestic industries.
Military defeated in war over procurement reform
Liberal defence critic Joyce Murray on Wednesday seemed prepared to hold her most serious criticisms to see if the government's proposed changes might have a positive effect. "It’s good that the government has admitted their failure," Murray said.

"I hope, as I think most Canadians hope, that they can do a better job ... with this new procurement mechanism. At the same time, you have to wonder whether adding a layer of bureaucracy and continuing to add additional ministers and deputy ministers into the pot, is actually going to be the correction that is needed. I don’t see clear improvement here," she added. "But let’s be optimistic. They can’t do a lot worse than has been done so far."

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