Ian Mack on the questions industry needs answered before the Strategy can deliver.
Some people see things as they are and wonder why, I dream of things that never were and say why not – Robert Kennedy
Some would say that the Defence Industrial Strategy somewhat fits this quote by Kennedy in terms of dreaming: why not for Canada?
The Defence Industrial Strategy (hereafter referred to as ‘the Strategy’) was released in February after wide consultation. It has fairly broad agreement on the 15 to 20 program change improvements. The Defence Investment Agency (DIA) is the assigned engine of change, working with about eight other government entities. Goals have been set for 2026 and 2035. It is ambitious and fairly well described, going beyond strategy to define key elements of implementation.
Media outlets and learned observers have been reporting on the Strategy and some of the potential risks since its release. I have counted around 25 concerns in various articles, perhaps led by the lack of an updated Defence Policy reflecting the enhanced defence budget and emerging threats, to confirm or adjust past policy priorities before committing funds. Also mentioned are the potential for increased bureaucracy, inadequate funding to match ambition, mismanagement and fraud driven by greed, uncertainty regarding when the Strategy will gain traction and within guardrails, the lack of a clear definition of the attributes qualifying a company as ‘Canadian’ and the inability for the fledgling DIA to deliver the Strategy. That last concern may now be addressed by a recent ways and means motion addressing the Budget 2025 Implementation Act, No. 2, which lays out significant authorities intended for the DIA as a true single point of accountability for its acquisition mandate.
My thoughts are likely to have been raised already and perhaps even addressed, as much has been written and many conferences held. What I have noticed generally is that, beyond kudos, the published response by Canadian companies has been sparse, although perhaps the media has harvested some industry input.
This note captures what I think is likely to have been the tactical perspectives of Canadian companies, hereafter referred to as the ‘CEOs’.
Potential CEO Concerns
Whither Procurement Reform
With a 60-page document released on the Strategy that the DIA is required to coordinate across government, and the recent authorities identified in the Economic Update mentioned above, CEOs may be looking for the equivalent document describing procurement reform activity that goes beyond ‘consolidating and streamlining processes and reducing duplication.’ Risk aversion, mistrust, and a lack of transparency may be expected reform priorities. CEOs would ask why they should invest in the Strategy if getting into contract remains confusing and bureaucratic. As well, it appears that major platform acquisitions breaching the DIA’s authority of one billion dollars will still involve the Treasury Board, its policies and the longstanding and onerous contracting requirements. One senior official has said that work is underway to completely revamp procurement processes. If so, perhaps transparency is all that is needed.
Governance
In terms of governance, CEOs are likely hoping for many more timely decisions akin to the submarine project down-select. With coordination required across a minimum of eight government entities to deliver the Strategy, CEOs could be worried about bureaucracy and disagreements between Ministers, despite the authorities intended for the Minister of the DIA. As others have suggested, CEOs might expect that the Chair sit within the Privy Council and closer to the Prime Minister, rather than in the DIA.
Winners and Losers
All defence industrial policies have winners and losers. CEOs of legacy suppliers (those in contract and between contracts) may still be wondering what rules will apply to them and when. Will they be eligible for innovation funding? Will they be ‘unseated’ by other Canadian companies with higher Canadian sovereign content? How might Canada treat the less fortunate entities? What about foreign contracts with US suppliers?
Strategic Partnerships
CEOs know that unique designs of complex weapon and sensor systems are routinely delayed by unpredictable and emerging risks, such as the potential poaching of their personnel as the search for competent personnel now grows exponentially under the DIS. Many CEOs would hope to be Canadian Champions to reap the Strategy’s related benefits. Regardless of government assurances, they will always wonder what will happen if they cannot consistently employ lower-tier sovereign suppliers and still deliver on time and budget. This raises a number of related questions:
- Will large contracts be structured into multiple small tasks to enable CEOs to estimate properly? If so, will tasks be approved fast enough to ensure no interruption in planned work requiring layoffs of engineers and production teams in tiers below the Prime?
- If a continuous flow of directed contracts is solely a benefit for strong performance from Canadian Champions, will those CEOs be motivated to cut corners to deliver efficiency, but at the expense of effectiveness for decades once in service?
- Since CEOs are expected to purchase products from sovereign start-ups and perhaps accept delays to achieve higher Technical Readiness Levels (TRLs), CEOs could ask whether the government will routinely accept fitted-for-but-not-with options, very large risk premiums and/or government waivers of low TRLs.
- If not crowned as Canadian Champions, CEOs could wonder what priority they will have to receive an ongoing thread of R&D funding and access to test facilities, all in support of product modernisation to enable ongoing export success.
- In the volatile world of international competition, CEOs could fear pressure and unspecified penalties from the Canadian government, if they can no longer compete profitably from Canada and if allied countries offer a more supportive environment.
Sovereign IP
CEOs may still be unclear whether Canada is prepared to buy IP with authority to share and subsequently compete in an export market. Might they need to partially or fully fund such rights? Who will have ownership: Canada or the companies? If owned by Canada, can the government manage its IP rights in the dynamic world of modifications and shared innovation with other companies in a timely manner? Will CEOs have to wait for years before such IP rights are available at lower costs, delaying sovereign support and export rights? CEOs could wonder if foreign countries will expect reciprocal IP rights. Generally, CEOs know how exceptionally complex the IP domain is, and that it is too often oversimplified by government; they will want and need IP ground truth.
Security
Few CEOs trust the government to hasten security clearances or ease export rules, having been promised but never delivered. They are looking for the magic to reduce these irritants to a level conducive to doing business at speed, as more and more companies pursue clearances, maybe every one of the hundred or so drone companies for example.
Sole Canadian Sources
CEOs would not expect Canada to invest in two or more sovereign companies in the same product sector to ensure value for money through competition. Thus CEOs could worry that lower-tier sovereign suppliers could be single points of failure and jeopardize business. They may be asking if they can qualify foreign suppliers as a fallback option and/or get paid to stockpile single-source Canadian products.
Skills Development
CEOs will wonder if Employment and Social Development Canada (ESDC) can launch and manage such a huge hiring program, when the scale seems to be beyond its common departmental business lines. CEOs would also want to be paid for their own efforts to hire, train and qualify personnel.
Innovation
CEOs are aware of the critical importance of innovative solutions to both sovereign defence capabilities and the essential exports to maintain their demand signals. In the significantly competitive global defence market, that implies disruptive innovation, which some reports indicate suffers from a 90% failure to achieve commercialisation. Even incremental innovation could be overtaken by events after years of development and trials, with changing threats or emerging technologies, citing Ukraine’s drone program’s impacts. While applauding the Strategy’s focus on innovation funding and intent to expedite acquisition, CEOs outside the ten targeted capabilities and dual-use opportunities would ask whether they should invest talent entirely at their own risk.
Resilient Government Support
CEOs could ask how a future complement of 400 personnel in the DIA can execute the Strategy, procurement reform and a plethora of project management office execution activities for acquisitions over $100 million, when 1,000 trained personnel would seem to be a more credible HR requirement, if not floor. And with the fragility of government support to the Canadian Armed Forces (CAF) in the past, CEOs may be asking whether future governments will support the Strategy with the necessary funding growth and international advocacy: this to enable a viable export demand beyond that of the CAF.
Guardrails
CEOs would expect the government to establish new guardrails to protect taxpayers’ funds. They will want to assess the size of such requirements that the Strategy will demand, from constraints on such things as lobbying, additional audits and binding ‘open book’ requirements.
Why These Considerations Matter
To be very clear, I offer kudos for releasing the Strategy as a sign that Canada is now serious about national defence. And I note that defence contracts aplenty are being announced weekly: the Strategy seems to have been the necessary catalyst.
As mentioned above, I expect that many CEOs will fret that future governments will renege. CEOs felt that way when we launched the National Shipbuilding Strategy; it has survived for 15 years despite the legendary problems of traditional acquisition processes and policies, which should give all hope.
I also suspect that CEOs are caught between waiting patiently for answers when the Strategy, the DIA and their government partners get resourced and have time to settle into the new paradigm, and ‘fear of missing out (FOMO)’. With contract announcements pouring out, FOMO is more likely if they sense that a spending frenzy is underway, something one of the major consulting companies has actually recommended.
What mature industries usually look for are answers to hundreds of questions, to understand their risks as the Strategy enters implementation, and when those answers will be available. As Vice-Admiral Topshee stated during a CGAI Defence Deconstructed podcast not too long ago, “Lots of details have yet to be worked out on how we are going to convince companies that we are serious.”
We all know that there is no certainty in this VUCA world. CEOs understand the answer to most questions will be ‘it depends’, but they need the related decision-making criteria soonest. Only then can CEOs get the clarity to make smart investment decisions of their time and human capital.
Hopefully, the DIA has two sets of expectations well in hand: the path and timing ahead for CEOs to achieve clarity, and the public’s understanding of the decades-long life of this risky program: risk meaning not every dollar will deliver results.
As the Defence Attaché to the USA, I repeatedly saw how Canadians excel in most challenging endeavours, once they get on track in a mature manner. Our excellence was recognised and often envied by our American colleagues.
If CEOs have all the answers already, this note should be discarded. If not, the DIA must ‘make it so’ with the Strategy, because this too is one more no-fail mission.