Unanswered questions about the Canadian Surface Combatant

The Canadian Surface Combatant (CSC) is a key project of the National Shipbuilding Procurement Strategy (NSPS) and is intended to provide Canada with modern replacements for the Royal Canadian Navy’s existing fleet of destroyers and frigates. CSC is currently at the earliest stages of project definition. By 2016, the RCN anticipates working toward finalizing the design of CSC and delivering its first of 15 vessels by 2022.

So it was with some anticipation and enthusiasm that 300 industry participants and government principals met in Ottawa in mid November for the first formal industrial engagement for the CSC program, to review critical components and seek industry input.

Considered by many to be a success, the workshop provided an information baseline and a view into the level of cooperation between the various departments. The day exposed both the strengths and current challenges the RCN and Public Works and Government Services Canada (PWGSC) face in their quest for new ships in a changing procurement environment.

Importantly, the event was attended by the leadership of each key department. Some credit is due to the leadership of Minister Rona Ambrose, who has repeatedly indicated her desire for engaging industry at the earliest stages of complex procurements such as CSC. And during the day, Vice-Admiral Paul Maddison, commander of the RCN, Tom Ring, assistant deputy minister of PWGSC, and Dan Ross, assistant deputy minister, Materiel, for National Defence, spoke in succession of the need for a collaborative relationship, strong processes, and transparent competition.

This initial industry engagement was one of two parts of PWGSC’s early engagement plan. The event was also twinned with a letter of interest (LOI) requesting feedback from interested companies, and invited industrial suppliers to evaluate and rate five possible procurement strategies based on their effectiveness to deliver the CSC.

The dual approach is designed to help provide information to the Crown against competing objectives. The RCN must manage not only defining the ship requirements but, with PWGSC, manage the risk associated with the procurement strategy.

It remains to be seen whether this will be a competition between new warship designs – with all the implications of risk that entails – or a competition between military off-the-shelf (MOTS) designs that will leverage efficiencies and MOTS designs with Canadian modifications. There is also a question of how much and what equipment will be designated as either portable/transferable or government furnished, potentially narrowing or limiting the competition.

The key objective of early engagement with industry is to reduce this risk and leverage lessons learned to ensure best value.

The exercise has already exposed one challenge due to the lack of clarity around who will be the prime contractor in building the CSC. The most commonly expected procurement strategy – and one of the five outlined by the Crown in the LOI – is a funded dual design option: a competitive procurement resulting in the selection of two teams. The teams would be contracted to develop costed preliminary designs for evaluation. One of these teams, and its design, would then be selected for implementation.

The implication here is that the winning team would be designated as the prime contractor. The request for costed preliminary designs also implies that cost will be a factor in the final selection, unlike the selection of the shipyard, where final cost of the ship was not a criterion.

Assessing this option is complicated without further clarity on the designation of prime. Partnerships, sub-contracting of specialized capabilities, regional development, pricing, risk management, schedule, delivery, long-term industrial support – all of these are affected by who is prime.

Then there is the question of how to define “best value” in this procurement of 15 warships. The Crown’s definition at this point is not clear, though Ambrose has in the past discussed best value. During his presentation, Ross described some key principles, including a focus on performance specifications, a robust competition at the system level, and maximum platforms for the budget. However, there was some confusion between the different objectives when he spoke of total cost of ownership as a critical factor, despite a separate competition for the in-service support, and performance-based logistics.

In the absence of a clear strategic vision for the RCN, which has yet to refresh its strategic position paper, and without navy direction on equipment and key capabilities – and how they’ll be evaluated – as well as who is prime, it will be difficult for industry to shape a best value discussion with one coherent voice. Instead, competitors will end up grouped and pitted against each other, each providing responses based on how they see best value in their own favour.

To some, best value will mean leveraging as much existing capability as possible, “saving” money by re-using what’s already been paid for. To others, best value will mean maximizing the number of ships for the budget. Some will claim it is the full life cost of the ship, from cradle to grave. Offshore shipbuilders will raise the importance of off-the-shelf and lowering risk, while past and current suppliers to the RCN will point to investments already made in Canada.

Best value, then, is clearly defined by the end objective.

So, three issues hover over the CSC program: the procurement process itself, including how it will be conducted; who will ultimately prime the effort; and the budget available for building ships, already under enormous pressure in a risk averse environment that demands justification for every decision made and every dollar spent.

Strategic issues also remain unresolved. The RCN, ADM MAT, PWGSC and Industry Canada are attempting to not only provide Canada with modern warships, but to also meet the government’s quest to leverage this procurement to modernize Canada’s shipbuilding industry for future growth and development. Unlike the United States, which categorically protects its shipbuilding industry as a strategic asset with the Jones Act, Canada is just now coming to terms with how to reinvigorate its industry under the NSPS.

Hopes are high that quality warships can be built, shipyards can be reinvigorated, the maximum number of ships needed can be attainted – all within Canadian budgets – and all will be delivered according to a challenging schedule.

An effective, comprehensive industrial engagement strategy, mobilizing international experience, is the right place to start. Leveraging lessons learned from successful warship integrators ensures Canada is putting its first foot forward correctly.

Louise Mercier is a senior defence procurement associate with Hill & Knowlton.

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