Next month in Halifax, executives from across the defence industry will gather for DEFSEC Atlantic, an international trade show. With recent talk of a national shipbuilding strategy, money for a new fleet of combat vehicles, and progress on fixed-wing search and rescue aircraft, procurement will be at the top of their agenda. Dan Ross, Assistant Deputy Minister of Materiel, spoke with executive editor R. (Bob) Beaudoin about the changes National Defence has made to improve the procurement process.
Based on media reports over the past few years, one is left with the impression that the defence procurement process is broken. When you last spoke with Vanguard, you emphasized the need to move to performance-based, single accountability procurement. Where are we now?
I have very strong views on performance-based procurement, which we began implementing in the spring/summer of 2005. Many of our projects have since gone from a state of uncertainty about funding and approvals to actually being contracted. There has been a significant improvement in our track record – not just for the C-17s and the CC130Js, but also the Boeing Chinooks, a whole range of equipment for the Army, and the huge refit and modernization program for the Navy’s frigates. Performance-based procurement has had a huge effect. We now measure the procurement process to contract in months and not years.
Another factor is accrual accounting. Defence gets the cash from the Department of Finance to make major Defence procurements and then effectively repays the acquisition by amortizing the investment over the planned life of the asset; for example, over the 20-year-life of an aircraft fleet, we would “repay” 1/20th of the value each year. Defence has to protect those repayments in its A-base and not exceed its ability to meet its accrual investment commitments. In the past, it was very difficult to budget a large amount of money, say $3 billion, to acquire a fleet of transport aircraft and make the expenditures over a relatively short period of time.
A third factor is the Canada First Defence Strategy where this government has provided a long-term commitment to stable investment in defence. With that commitment, programs are funded and approved and accrual cash is provided for major equipment projects. Using performance-based procurement, we are able to get to contract in a year or two. But there is keen interest in these major purchases involving billions of dollars. There are many interested stakeholders and these often competing interests have to be managed.
You had indicated that a cultural change was required to make these changes happen. How much progress has been achieved?
I think most of the necessary changes have already occurred; there remains perhaps some lack of understanding. DND Headquarters talks high level performance parameters automatically, which is good – that’s what PWGSC is looking for right away. They are not seeking a detailed SOR [statement of requirements] with 5000 mandatories with which to do an evaluation. I think most of the old mindset is behind us. Having set expectations of moving programs in months, it would be extremely difficult to go back to a lowest price compliance and weighting methodology, taking for example four to five years to get a technical specification to build a C-17. Why would we ever do that again?
Performance-based logistics is also being used for in-service support, where we pay for availability wherever we can, although this can’t always be done with all fleets of equipment. This is a significant change from invoicing for labour and parts, which is labour intensive in both people and time. Whether we pay the contractor for that service, the same would hold true if you try to do the same thing with several hundred public servants. These two performance-based logistics aspects in support of performance-based procurement for acquiring capital equipment are major changes over which we had enough control to implement.
We continue to hear concerns expressed by industry about the lack of a clear “road map” for defence procurement. You’ve talked of ensuring earlier and better industry involvement. Is the recent presentation to industry on the status of the fixed-wing SAR project an indication of how you want to do this?
DND is developing a long-term investment plan where it will engage industry sooner. This plan will form the basis for consultations between industry and PWGSC/DND. Sector presentations are scheduled where the whole of the upcoming Army, Navy and Air Force programs are laid out for industry. These are very comprehensive and give industry a very good appreciation of what programs are coming forward and when RFPs can be expected. They can decide whether they can submit a bid alone or whether they could partner with another company where they could perhaps do the maintenance on a particular piece of kit. This past spring, the Navy Outlook was done in Newfoundland.
The fixed-wing SAR industry event is what we want to do for industry. We already do this quite frequently. The purpose of these events is to ensure a crystal clear understanding of the requirements, not necessarily being able to respond to what specific solutions might be taken. These sessions address such things as the anticipated IRB requirements. However, industry stakeholders and observers are not always aware of these events. At this point in the acquisition process, the department has no preferred option. We can say how big the SAR sector is and how we provide SAR service now. However, as the options become clearer, government will eventually post its minimum contractable requirements and provide the detailed draft elements of an RFP.
Another issue that has surfaced in recent years as a cause for procurement delays is the apparent shortage of trained, experienced project management staff in the department. What is your plan for the development and long-term sustainability of project management and engineering staff?
We have public service and military personnel who are great engineers, leaders and managers but lack the experience to manage the ambiguity and the politics of the bureaucracy involved in moving major projects. We’ve taken a very aggressive and rigorous approach to renewing our depth of talent in experienced project managers. When you don’t do major programs for a long time, the talent pool starts to get pretty shallow; we have some great people, but few of them have experience in the management of large, complex projects. Ian Mack, Director General, Major Projects Delivery (Land and Sea), has a team of dedicated persons that works on this issue.
In the past, there was a concern that when there was a project management vacancy, military officers (or retired military officers) would be the first considered. However, it was soon recognized that very few of them came to the job with the experience in managing large, complex projects. Moreover, it is easier to retain our civilian staff, because military personnel regularly get posted and only seldom do they come back to do a second major project. Moreover, they will eventually require the same qualifications as their civilian counterparts for both risk management and experience.
It has become necessary for us to grow these people ourselves. We have now selected a competency standard for project management. We’re working on providing the necessary training and the level of actual firsthand experience that will give our senior project managers (PM) the skills and proficiency they need. Together with the Treasury Board Secretariat, we’ve completed the development of the Project Complexity and Risk Assessment (PCRA) tool. That is the standard risk assessment tool that is done on every project. We’re now going to match the experience and skill level of every manager to the assessed risk level of all our projects. I believe that there will be four levels of risk management and three levels of experience or skill in project managers. As a result, each level will require specific courses and experience in project management. Working with our Australian, American and British colleagues, we have finished all of our preparatory work and we’re into the next phase of how can this be delivered in terms of specific courses or qualifications. In addition, we are also working on the broader professionalization of those skills. For example, once a quarter, we hold half-day seminars with our PMs, directors and directors general to discuss issues such as risk assessment, limits of liability, parameters of contracts and so on. This forms the basis for a lessons learned activity where PMs will discuss their project issues, the good, the bad and the ugly. It focuses on case studies. Without this, there is virtually no one who can see all the issues, good and bad, and no one person can fix all the problems one by one. The new PMs must have the opportunity to hear how projects have progressed, what went well, what didn’t and what needs to be done. We’ve come a long way, and we continue to integrate many junior managers so that they have a better understanding of the issues that can and do affect them and how to deal with them.
We currently manage our core group of PMs in the two major project divisions as part of a pool. We have also co-located all the support functions for those divisions. This provides a central directorate that does scheduling and the risk assessments, and the comptrollership, business planning and the human resource issues for the two divisions. If resources have to be moved from one to the other, there is only one button to push. Rather than the old “potted plant’ project organizations, the divisions can now manage down times more effectively and can reassign resources where necessary.
Is Canada looking at using strategic partnering with industry in Canada and abroad to address the needs of DND more effectively through such means as joint purchasing programs?
I am the Canadian National Armaments Director and I meet with my NATO colleagues twice a year where we can collaborate and discuss issues of common concern. Many of the large international programs are difficult to accomplish. Canada does not design major equipment platforms. It’s a high-risk endeavour with a high cost which takes a long time. We don’t have the funding and the depth of the requirement to do that; but we do look for opportunities where you can partner – the Joint Strike fighter being the best example, where we have been a partner since 1998 and have invested money with the other seven countries. We think that this has been an extremely successful program that has targeted cost control as a major objective from the first day.
Canadian industry has been extremely successful in winning contracts for the Joint Strike fighter – this benefits industry not only for any aircraft that Canada might buy but also worldwide sales. This represents a model program – if you can do it. There aren’t very many of them and Canada probably would not lead any of them. We think that our maritime helicopter from Sikorsky, which has been customized from a civilian aircraft to include a folding rotor and folding tail and the sensors to do ASW SAR, etc., will be an outstanding platform. I always look to our NATO colleagues for any who would like to participate in that program with us because a larger worldwide fleet would be better for Canada. Interoperability on the platform and the sensors, collaboration on in-service support – having a bigger global fleet is an example of interesting programs where we look to collaborate.
In addition, we always participate in international user groups such as for the C130J, Leopard tanks, Griffin helicopters and the like so that we can share upgrade costs of, for example, the next release of software. We intend to keep our aircraft or whatever platform to the exact international standard so we can share those development and engineering cost.
We often hear what industry wants from government. What would you like from industry?
We have a good relationship with many of the good industry leaders. We meet quite frequently and listen to their concerns, what they are working on, what they are interested in. This dialogue is very helpful. Industry generally does its best to respond to the department’s concerns but they operate within a highly constrained environment. They are responsible to the chair of their board of directors and they have to manage their cash flow in tough times, their risk assessments, because they get to choose whether they will do a project. For the department, if the Army needs tanks then we must buy tanks.
Entering into a dialogue with companies, particularly Canadian companies, at an early stage, even in an informal way, is extremely important. We have to help them and ensure that they know what is coming and encourage them to be ready. Having as much competition with as many good organizations as possible is a big deal for us. It is not a good situation for either the department or Canadian taxpayers to have only one choice. Through the Canada First Defence Strategy, the government has been generous in providing funding for the department and we have a responsibility to get maximum value for money spent. There will always be items that are unaffordable and things that we can’t do.
Another important issue is the Industrial Regional Benefits policy where foreign companies have to invest in Canada, an amount equal to their contract value, in Canadian content, for technology, equipment, services of a sufficient caliber within a certain number of years. Industry Canada is being more strategic. We want there to be an opportunity for Canadian companies to be part of the acquisition of items such as landing gear, engine maintenance on the entire worldwide Hercules fleet. We work very hard to achieve these commitments and as we continue to communicate it better, a lot of success is happening. Canadians are frequently getting more than dollar-for-dollar return on their defence investment – they get not only a greater defence capability, they get jobs and access to long-term, fleet-wide economic opportunities.
An interview with Dan Ross, ADM Materiel