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Total life responsibility: Shifting the onus on defence procurement

It has been more than 50 years since Canadian Forces procurement garnered so much attention. The Navy, Air Force and Army all require major platform renewals, and intense combat operations in Afghanistan continue to test the timeliness of procurement. Dan Ross, Assistant Deputy Minister of Materiel for National Defence, spoke with Vanguard about the changes and challenges the department and industry face.

The Canadian Forces is undergoing a structural transformation. How has that affected the procurement process?

The CDS’s (Chief of Defence Staff) transformation from a staff-centric to a command-centric organization hasn’t had much effect on procurement. Where we are going with procurement I would have gone anyway. I continue to deal with the army, navy and air force chiefs of staff as the requirement authorities. I did give up a significant portion of my field units on logistics and supply to the Canadian Operational Support Command so that there would be unity of that function right from the supply depot to the deployed theatre. My former materiel field units are the nucleus of that new organization. We work closely with them every day. In my view, that has been the most successful part of transformation.

In terms of procurement transformation, and the move away from the enormous roomfuls of technical specifications, I would have done it anyway. There are some things – the maritime helicopter project and upgrading our CF18s – that were successful, but few major projects have progressed. And we had some entirely unsuccessful programs because we got into a technical design process in great detail, with hundreds of ’mandatories’ for an off-the-shelf product that was proven and available, and when contenders missed just one mandatory requirement, they were deemed non-compliant and three years of work went out the window.

How challenging is it to do the forecasting given your procurement timelines?

Our finance people work well with Treasury Board and Finance to manage the cash flow within the department’s program. The hard part is the front end – getting government approvals, going through the RFP, bid negotiation and contract negotiation phases in a reasonable timeframe. Of course, 15 years is not a reasonable timeframe, in my view. Two to three years is reasonable, and you can do things in months.

Procurement has become much more rapid, in part to meet immediate operational needs in Afghanistan. What kind of pressure has that created?

I spend over half my time on that. Our main focus is on trying to improve the process, get the right types of equipment there, solve problems, improve survivability, introduce better electronic counter measures, etc. We had no artillery capable of being used in combat operations before Afghanistan – we did not have a single operational artillery gun. We were in the process of disbanding our last tanks. We couldn’t push a mine plough because you need a tank to do that. We have had to recover all of that.

How quickly have you been able to adapt to what is happening in theatre, given some of the process restrictions?

The enemy is innovative, threats constantly change, and we’re trying to match that curve as fast as we can. It is tough to do that in a contracting procurement environment, but we’re doing well. We’re taking vehicle design to places that have surprised others, and many are amazed that we’ve done it so quickly – armoured heavy vehicles in less than one year. Even the urgent 16-tonne truck project was fully competitive, with five or six major bids from around the world.

You have stressed an emphasis on a performance-based, best-value competitive process for procurement, with a single point of accountability. Has that reduced the complexity of the process?

It hasn’t reduced the complexity of dealing with central agencies and policy approvals, but it has decreased it with industry and internally. We had some self-inflicted wounds that we had to come to grips with. For example, with some of the recent aircraft projects, we had a one-page, high-level performance specification, and a 20-page performance test where anyone with a prototype was invited to come and fly it, and carry the required load, etc. That cuts through probably five years of work. That’s an enormous difference. With ships, that’s at least five years of development planning. We used to try to design our own ships, which is fine if you plan to do these things over decades. But when you’re only going to buy three tankers once every 30 years…I think we can do much better. We don’t need to take 15 years to get to a government decision on a program.

Many Canadian companies have developed a niche with in-service support (ISS). How have they reacted to the emphasis on a single point of accountability by the prime contractor?

It has been mixed. We have a new ISS framework that will push a lot more work out to industry. We’re going to get out of, for example, the supply management of spare parts for some aircraft. We will only keep certain emergency backup parts in Canada at our main air base and we’ll let the prime of that contract, which is normally the original equipment manufacturer (OEM), run his supply chain right up to the hangar door. We’ll pay for serviceable aircraft on the runway.

Because we require direct industrial regional benefits (IRB), Canadian firms do all that work. However, some of them say that is not enough – they want to be the prime and run the entire operation. That’s not unreasonable, but I have one problem, and it’s the Cormorant example: when there are design, reliability or serviceability issues that they cannot fix, they cannot force the original equipment manufacturers to fix it. We have to have a link right back to the company that designed and built it. At the end of the day, it’s operational availability and value for taxpayers’ money, and when you split those two you are not in a place you want to be. Single point of accountability is an enormous principle for us.

How is industry involved in helping to define your needs?

That is a major parameter that has changed. In the past, when we tried to acquire a simple army weapon, our engineers would write how to design and build that weapon. We’re no longer doing that. We’re saying, it needs to shoot 2000m, it needs to penetrate tanks or bunkers, two guys have got to carry it, and it has got to be safe to transport in an aircraft and drop. With the arctic offshore patrol ships, right from the beginning we’re sitting down with industry to say, this is generally what we want to do. What do you think? We’ll work collaboratively with industry to put together some of the elements of the process.

When you’re in the design business, you’d better be talking with your industry partners to get their advice. If you’re in the off-the-shelf business, in my view, it’s performance demonstration: state your combat requirements and invite interested industry to demonstrate their equipment. It’s simple, but it’s hard to change thousands of people who have never done it that way. To give the air force credit, they have figured this out and do it well; they write good, thin, concise performance statements of requirements and they’re profiting from it – their programs are moving quickly because they have figured out performance-based procurement.

You mentioned a move to more off-the-shelf procurement. Is that unique to DND or is that a trend across government?

No one else in government buys as much as DND. Across NATO, there is a trend towards good, modern, proven up-to-date solutions. Some countries invest in development more than others for non-military reasons because of jobs, technology and transfers of knowledge and industrial growth. In Canada, we don’t have deep pockets. When you get into unproven, developmental, high-risk, high-cost projects, that’s a path for which you have to have deep pockets.

Media say that the C-17s and Chinook helicopters were sole-sourced. That’s garbage. They were not sole-sourced. Those programs were competitively selected. With the Chinooks, there were no other medium-to-heavy lift helicopters being produced. We went out with high-level requirements and one company answered. Is that sole source? No, that’s one source of supply because that’s reality. It was a similar situation with the C-17 acquisition – a textbook example of off-the-shelf procurement. When you look at that acquisition it is truly remarkable what the government achieved – from announcement to arrival in a little over a year. The first aircraft has already conducted a humanitarian flight to Jamaica and been to Afghanistan.

When there are several great solutions out there, we state our high-level requirements, get two or three respondents and put out a full RFP. We evaluate based largely on performance, then IRBs, then costs and other areas of risk. But it has to be on real performance, and the cost is not based on the initial price, but on total cost of ownership. The aircraft costs far more for DND to own than to buy. I have colleagues around NATO who separate acquisition from the in-service support, and their governments may spend more money than they need to because the company you have bought it from is never accountable for quality components and reliability – somebody else is.

Afghanistan has shown us that certain capabilities or skills we thought might no longer be necessary are still relevant. What are we doing to ensure that we retain certain capability both in industry and in the department to meet our needs 10-20 years down the road?

That’s a force development issue, but I think there is a renewed understanding by senior officers and senior officials that the world is an unpredictable place. Terrorist organizations around the world are very innovative and very dangerous. The days of the Cold War, where you had one adversary and you knew exactly where he was – life isn’t that easy anymore. I think after our Afghanistan experience, there will be a determination to make sure we have balance – we have an effective navy, an effective, broadly capable air force, and a range of tools in the kit for the army. Five years ago, people said you didn’t need artillery. We had no operational artillery. Now, being able to put a very small, GPS-guided projectile with a five kilogram warhead into one end of a building, compared to a 500-pound bomb that will cause casualties to innocent bystanders in a village, is an enormously effective tool and it reaches out 40 kilometres from wherever you put that delivery system.

This requires a lot of collaboration with other departments. Does that relationship get affected by headlines?

I think it has. I use the term disinformation about relevant facts, and disinformation about what is sole-source and what isn’t. The media and lobbyists’ characterization of everything as being sole-sourced has affected our business.

How has the 3D concept been incorporated into DND’s procurement process? Are you purchasing solely for the CF or has it become more integrated, to incorporate joint requirements in operations?

The only aspect that I see is the contracting collaboration in theatre, where we have Treasury Board authority to do construction and services contracting for CIDA and DFAIT on developmental projects. We can reconstruct a wall or a bridge with a local company. We’ll manage that and CIDA or DFAIT will provide the funding.

The recent purchase of Cougars and Buffaloes addresses, in part, an immediate threat from improvised explosive devices. What other short-term priorities need to be addressed?

Support to operations, and survivability and the right equipment to support the mission, remains my top priority. My second is continuing to drive cultural change on performance-based procurement, best value, total cost of ownership, concise performance-driven procurements and collaboration with industry. You have to maintain the pressure and develop people who understand complex project management – we have very few people who have that experience. We’ve been out of the business of big programs for a long time.

Longer-term, as you confront what is being called fourth generation warfare, how do you change procurement to respond to innovative and agile opponents?

You really do have to have an agile system, which is kind of an oxymoron when you talk about government. You have to do all those things I’ve talked about and have procedures with Public Works and Treasury Board that allow you to go through those steps quicker and at the same time ensure accountability and value for taxpayers.

Author: Robert Parkins and Chris Thatcher from the Sept/Oct 2007 issue published

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