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The problem with single-point accountability

Recent headlines about the cost and value of new fighter aircraft for the RCAF have captured national attention, generating a broader debate about defence procurement. While media focus has been on the cost of military equipment, many other factors should weigh into to this debate include transparency, long-term support and single point of accountability.

For instance, important changes within National Defence’s in-service support contracting framework have reshaped the competitive landscape quietly and without parliamentary oversight and some would argue that unintended consequences to Canadian industrial growth have ensued as a result.

In 2005, National Defence began developing a contracting approach for maintenance and repair of new fleets, a policy that evolved into the In-Service Support Contracting Framework (ISSCF) which the assistant deputy minister (ADM) for Materiel has applied since July 2008. In August 2010, it became a departmental directive risking lower Canadian content (and fewer Canadian jobs) despite an Industrial Regional Benefits (IRB) policy.

Canadian defence capital spending forecasts exceed $70 billion over the next 15 years across a spectrum of planes, ships and army vehicles. In addition, a similar value will be spent on maintenance and support for an additional 25 years, more than doubling the value of defence spending on the economy.

Canadian-based companies and the government are looking to ensure that this investment generates long-term, meaningful work.

According to the 2011 Fall Report of the Auditor General, the ISSCF was developed with the intention of furthering changes that began under the Optimized Weapon System Management program. According to ISSCF, there is only one prime contractor per fleet, who is awarded both the acquisition and in-service support (ISS) contracts, to create a single point of accountability (SPA).

The original equipment supplier then becomes prime contractor by default. Contracted ISS can extend up to 20 years, and the contract will include many fixed-price elements. Additional responsibilities, such as the ownership and management of spare parts and all subcontractors, are also transferred to the prime contractor. Simply put, the ISSCF puts the prime contractor, or OEM, in a singularly powerful position for an entire program without meaningful incentives to invest in Canadian work share, especially when intellectual property is a factor.

From DND’s perspective, the SPA approach was intended to provide the Crown with one key accountable provider while accruing additional benefits.

By most accounts, SPA was implemented by DND to solve the debilitating conflicts that can erupt between ISS providers and OEMs on major capital programs. In some high profile instances, none of the key contractors were ultimately held responsible on multi-million dollar contracts, resulting in non-performance of the contract – the Crown was left to pay the lion’s share of additional costs on a failing program.

Despite the original intent of SPA to manage risk and cost, problems have been exposed.

A strong argument can be made that the ISSCF does not take into account the value of highly skilled jobs, technology advancement, and industrial growth beyond mere build-to-print capability, ultimately short-changing Canadian industry. A review of the trade-offs to Canada’s sovereignty should be examined to determine if this framework is deteriorating Canada’s indigenous ability to support its own defence resources, and if it conflicts with Canada’s IRB policy.

Second, capital procurement and in-service support were bundled in part because a “one belly button to push” solution was thought to lower risk. It’s not clear if that has in fact been the case and an examination by the entire stakeholder community is warranted to determine if overall risk reduction has been achieved.

One might also ask whether the ISSCF should be solely at the discretion of ADM MAT. At present, this framework lies outside the accountability of Treasury Board despite the fact that it has the potential to affect the “off-shoring” of hundreds of jobs.

The challenge with bundling contracts and creating one über prime for both equipment and ISS is that it limits Canadian business creation and growth, and reduces the opportunities to participate in the long-term, high-value engineering associated with 20-year lifecycle support.

While the IRB policy does require subcontracting of ISS work to Canadian companies through a competitive process, it does not require that the work be “high tech” or “high value” that can be grown and expanded globally.

Ultimately, a review of the current ISSCF framework and an assessment of its impact on business while keeping in mind the demands for accountability by DND would provide at a minimum a roadmap of sorts for technology advancement in the defence sector. A comprehensive defence industrial strategy with improved stakeholder engagement would help the Crown strike a better balance between accountability and the need for improved industrial growth. This would result in higher quality and quantity of work for Canada.

Louise Mercier is president of FMJ Solutions and a defence consultant with specific focus on naval and air programs.

Author: Louise Mercier from the April/May 2012 issue published

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