The government’s Defence Procurement Strategy may be six months old, but there is still considerable speculation about what value propositions, technological benefits, assistance with export strategies and leveraging of key industrial capabilities will mean for the defence sector.
DEFSEC Atlantic will host a panel on the implications of the DPS in early September. Derrick Rowe, Chairman of the Board for training and simulation experts Bluedrop Performance Learning in St. John’s and one of the panellists, believes the strategy is an opportunity to change the relationship between Original Equipment Manufacturers and their Tier 1 suppliers and the thousands of small- and medium-sized companies that make up much of the Canadian sector.
What’s your impression of the DPS? Has it changed your landscape?
I think it is a step in the right direction for everybody. How well this plan will be executed and how it will be rolled out are important, though. The government has said they are going to impact procurement on things like the value propositions in key industry capabilities and on a host of leveraging issues, all of which industry has talked about for years, but the real question remains how it will affect both larger organizations – OEMs and Tier I and Tier 2 suppliers – and smaller Tier 3 SMEs like us.
Do you have specific hopes or concerns?
We have had a classic IRB check box approach – pass or fail. Exactly what an industrial technological benefit (ITB) calculation looks like, we still are learning. But I see it as an opportunity to do things differently in a way that could impact SMEs positively right across the spectrum.
In a major procurement program under the IRB model, you have teaming arrangements where the OEMs and Tier 1 suppliers put together their teams to meet their IRB compliment, and part of the strategy is to gobble up capacity in the IRB compliance sector – make your team stronger and make everyone else’s team weaker. That has been a problem area for most SMEs in this country because often they request exclusivity and yet we have very little influence on the outcome. Our strategy at Bluedrop has always been to team with everybody, treat everybody fairly and transparently because we don’t want to be dependent on one supplier. We want to be the partner of choice for our niche.
So I think under an ITB approach, we can do that differently: now we are not just checking an IRB compliance box, we are actually looking at opportunities to have unique value propositions with each of our partners. This has the potential to be very positive for smaller companies, to establish unique relationships with bidding partners that are different and hopefully more beneficial to the company in developing products for export and resale outside of the initial delivery. The OEMs or Tier 1 suppliers that deliver more technology benefits to their SME suppliers will score higher and again each can have a unique approach. It will require a bit of a mindset shift for some people.
Does an emphasis on value propositions and ITBs change the nature of partnerships? Could it force OEMs to delve a little deeper into the SME community to find that high value Canadian content?
I think so. That’s why I look at it in a very optimistic way. But we don’t really know yet and the devil is always in the details of the execution. I firmly believe we need to have this discussion within industry early. This is not specific to anyone company, this is applicable to everybody. As a Tier 3 SME, when I look at this process, I see a good opportunity if the thought leadership is there and the response to that discussion is accepted by the OEMs and by the procurement agencies. Then I think you will see the OEMs do exactly has you’ve highlighted – dig deeper, find those value propositions – which is exactly what we need as SMEs.
What is your ideal model for that?
The most valuable thing that an OEM can do for an SME in Canada is help get them into their global supply chain. It’s very hard for anyone except the Tier 1’s and the OEMs to go international directly. Selling to NATO countries directly for SMEs is very difficult. So the ideal model in my world is one in which a service or product is developed to satisfy a Canadian requirement and is then applicable to the OEM or supplier’s business opportunities, and it becomes part of their supply chain. In our instance, it will be building a simulator that solves a Canadian problem that also has applications for an OEM’s aircraft training elsewhere. To me, that is the highest value creation. The DPS talks about leverage; that is the ultimate leverage. But to get there you need a lot of cooperation.
What gets you to that ideal?
I think this kind of discussion we are having now is what needs to happen. We can’t expect the government to do all the work for us. We in industry have responsibilities to articulate what we think should happen and how it should be shaped. I think the government has given us the framework. We always complain when they get too specific and don’t listen, so now they have said, here’s the framework and I believe their consultative process is asking, what do you want to do with it? Now is the time for thought leadership, for discussion, and we as industry representatives need to set aside our personal corporate interests and think about the right things to do for the industry as a whole.
If the DPS is about early engagement, can you leverage your existing IRB relationships to define what ITBs will be?
I think we are still operating under the old IRB framework; we can’t forget that there are about $23 billion worth of IRB commitments still out there. So we should be using those IRB programs as an early step transition into ITBs because ITBs are going to take a little time to come through. ITBs are a positive step, but it will be complicated and slow. As a company, right now we are thinking IRBs more than ITBs – getting that early engagement with OEMs, learning how to work together in a complex world of IRBs, and then together shaping the relationship for ITBs – so I think it is time to get the ITB framework discussion active.
You have seen the first iteration of the Defence Acquisition Guide. Is it useful?
For a small supplier like us, I don’t know that it is that helpful yet. We are more focused on making sure we are on the right teams. The practice of pushing everything to the right on procurement is probably more of a concern to us. But I think it is a bold statement by the government and the right direction. It will be an evolutionary process.
Does knowing a bit about the programs of interest to the Forces help identify potential partners and relations you need to pursue?
It is extremely useful on that front. We are seeing a shift. The air force was very active for a number of years and, in our instance, we were very active on the C-130 program, the Chinook program and now on the maritime helicopter program. Now we are seeing a shift to naval procurement – some of the biggest in Canadian history – so our strategy and our partnerships have, no question, shifted toward that.
As an SME, what else would you like to see?
I think we are still missing the boat on technology demonstration programs. That is what gets exports. You need to have demonstrated your technology or product at home and it needs to be certified and tested. There are a lot of good projects out there that are not huge, that don’t fall under major procurement programs, that I think are getting overlooked.
Would an increase in the delegated authority above the current $25,000 level, as indicated in the strategy, help with that?
I think that should be expedited. Smaller projects need more flexibility in procurement. These are not a lot of money, and they are often export oriented. You need millions, not tens of millions. It is not going to upset the marketplace, it’s not going to skew anything. It is going to give smaller companies the opportunity to sell their first product. As important as the sale and revenue are, it is more important in many ways to having that customer reference, to have your product installed, tested and validated for foreign sales.
What needs to happen next for this to be successful?
The engagement process the government has initiated is important. I also think that industry has a responsibility to get their act together and take advantage of the opportunity. Finally, there needs to be some kind of OEM arrangement that maybe connects the OEMs with the SMEs to try and figure out what this means. I think the work that CADSI does is critical, but I also think people like myself need to get out there and communicate, communicate, communicate what we need.