Canadian Government Executive - Volume 23 - Issue 09

The failed acquisition of the F-35 from 2008 to 2015, the troubles with the Sea King replacement program and the National Shipbuilding Procurement Strategy, among many others, have loomed large over the procurement process. Procurement December 2017 // Canadian Government Executive / 13 dertake a greater role. In some cases this is an attempt to more efficiently use resourc- es by increasing the utility of an existing platform. This is evident in the acquisition of 15 CH-47 Chinook helicopters. Originally, the program was intended to meet urgent operational needs in Afghanistan, where a heavy lift helicopter was required to deploy large numbers of soldiers to the battlefield. This was fulfilled by the lease of surplus U.S. Army Chinooks. However for a long-term solution, Canada would acquire a number of newly manufactured airframes. At this point military officials identified a series of potential modifica- tions that would greatly increase its util- ity in domestic operations. This led to the funding of an exterior fuel tank and other options which significantly increased the unit cost. This unit cost increase without corresponding funding increase required a reduction of units procured to stay with- in the budget envelope. This overall approach is typically known as best value, and can be a source of con- tention between the military and other government actors. The CAF is unique in that it must purchase equipment that must respond to such a wide range of contingencies. Acquiring additional ca- pabilities at an incremental cost can be a cost-effective approach to meet a wide spectrum of requirements. However, that must be balanced with cost considerations and process format questions, which com- plicate matters. Industry Considering its position outside of gov- ernment, industry’s objectives are the least congruent to any other party in the process. Whereas the government, civil service and the military are focused pri- marily on providing a public good, firms are dedicated to a private one. Their pri- mary responsibility is to ensure their own profitability and financial survival. Any ac- tivity must be profitable; otherwise, there is little incentive to actually undertake it. In that vein, industry is willing to accept greater risk, but offsets it by increasing costs. In some cases, a firm may even de- termine not to participate, as the potential cost and risk is not worth the reward. This has been a constant issue sur- rounding the Canadian Surface Combat- ant, particularly concerning intellectual property. In the program’s RFP, the gov- ernment made the requirement for com- peting firms to hand over all data related to their entry. For government, this would allow the country to be able to maintain and modify the design without outside interference. However a number of firms saw this as unacceptable and threat- ened to withdrawal from the program if changes weren’t made. In particular, they were concerned that they would be giving valuable technical data and intellectual property to a potential competitor, Irving Shipyards in Halifax, who was actually building the vessels. The nature of industry is changing as well. The sector has seen massive con- solidation, leading to fewer and fewer potential options for any given program. Moreover, the rapid acceleration of tech- nology means that industrial actors are of- ten far more familiar with a particular sec- tor than the government. Often they can provide unique solutions not apparent to the other actors, if provided a format that encourages them to do so. Since 2010 how- ever, government-to-industry relations as a whole have become increasingly stilted, in part due to a number of controversies and the desire to avoid the appearance of impropriety. This is unfortunate, given the potential that could be unlocked if prop- erly harnessed. Final remarks Over the past ten years, procurement has undergone significant changes, in part due to several controversies. The failed acquisition of the F-35 from 2008 to 2015, the troubles with the Sea King replace- ment program and the National Ship- building Procurement Strategy, among many others, have loomed large over the procurement process. One of the most obvious consequences is how the process of sole-sourcing has fallen out of favour, and this procurement option has virtu- ally disappeared from major acquisition projects. This is problematic, given that the consolidation of the defence industry noted above has decreased the number of potential bidders available for any partic- ular contract. Moreover, there has been a more stringent application of existing reg- ulations in order to avoid potential risks, sometimes ignoring the potential benefits of alternatives. Indeed, there are circum- stances where sole-sourcing obliges the selected company to negotiate its profit margin on the sale and, subsequently, can increase value to Canada; this is complete- ly overlooked in public debate. With Canada facing significant and en- during challenges to its defence procure- ment system, understanding the interest held by the major stakeholders and their approaches helps clarify some of these issues. It is evident that procurement re- form in Canada is focused on process and regulatory improvements as a path to avoid failures. Unfortunately it is unlikely to achieve the aims desired. Although the political leadership and civil service seek to mitigate or avoid risks altogether, this is a nearly impossible objective. It results in other negative consequences, such as arti- ficially high costs. Moreover the process-driven approach runs counter to trends in other states. The United States, for example, has begun to embark on a series of foundational re- forms on its procurement system, involv- ing Congress, the military and industry. Rather than attempting to add more regu- lations, the crux of these efforts has been to accept greater risk, while providing program officials more ability to manage it effectively. These efforts have started to bear fruit, despite the disruptive political effects on defence policymaking. Achieving a better balance between risk and process is a difficult one, which may take decades and never be achieved. Never- theless it is a worthwhile effort, which may result in vastly better outcomes for Canada and the Canadian Armed Forces. R ichard S himooka is a Senior Research Fellow at the Macdonald-Laurier Institute. His research focus is on comparative defence and procurement policymaking.