Canadian Military/Defence procurement process (Mega Thread)

[GAP]

Wow!! What a boondoggle..... :

 

[Kirkhill]

Wow!! What a boondoggle..... :

As the man said: A high price just to keep them out of the pubs.

 

[Edward Campbell]

Prof Philippe Lagassé of uOttawa takes a pretty fair look at the problems that bedevil defence procurement in this article which is reproduced under the fair Dealing provisions of the Copyright Act from the Ottawa Citizen:

http://www.ottawacitizen.com/opinion/op-ed/Defence+procurement+problems+deeper+than/7663899/story.html

Defence procurement problems run deeper than the F-35

By Philippe Lagassé, Ottawa Citizen December 6, 2012

It’s been a rough year for Canadian defence procurement.

This past spring, the Auditor General lambasted the defence department’s lack of due diligence in selecting the F-35 to replace the air force’s aging CF-18 fighters. A few months later, the acquisition of new army trucks was cancelled when it became clear that industry would be unable to meet the military’s specifications within budget.

There are also signs that the widely lauded shipbuilding strategy is facing difficulties, as naval planners struggle to design vessels that do not exceed cost estimates. The 2012 federal budget, meanwhile, announced that the defence budget would grow at a slower pace than previously promised and that billions of procurement dollars would go unspent until 2015.

Defence procurement officials deny that there is anything worrisome going on. They insist that these are minor hiccups. A good deal of new military equipment has been bought in recent years without difficulty, and it is not unusual for complex military acquisitions to encounter setbacks.

Though things are not as disconcerting as they seem, it is time to accept that the recapitalization of the CF has not gone as well hoped, and the factors that have slowed the replacement of several major equipment fleets will continue to derail important acquisitions if left unaddressed.

A first obstacle was the situation inherited by Paul Martin’s Liberals and the current government. The defence department initiated relatively few large-scale procurements between 1994 and 2004. When the new Conservative government announced that all of the CF’s major fleets would be replaced, the news was therefore greeted with relief and enthusiasm.

But there was a problem: a defence bureaucracy that was staffed to manage a relatively small number of projects was now being asked to undertake a wholesale rejuvenation of the military’s equipment.

However well-intentioned, the accelerated recapitalization of the military overburdened a small procurement organization, which likely led to corner-cutting, mistakes, and poorer project management. To address this issue, the government will need to examine how the defence department can be better resourced to effectively manage the recapitalization of the CF.

A lack of resources, however, does not explain the more troubling procurement practices that have been allowed to fester in recent years. If these tendencies are not reined in, we can expect still more military procurement foibles.

Several acquisitions have been undermined or delayed because of inflated requirements and overly optimistic cost-estimates. While it is understandable that the military wants the best equipment possible, the trade-off between cost and capability must be tackled with greater caution, especially at a time when defence expenditures will be increasing at a slower pace.

Attempts to rig contract competitions in favour of one manufacturer or piece of equipment have not only been unethical, but counterproductive, too. A contract for new search and rescue planes, for instance, has been delayed for more than six years owing to the air force’s preference for a particular plane. With each additional postponement, the military’s ability to effectively perform search and rescue in the future has been further compromised.

Certain sole-sourced procurements have created a good deal of controversy as well. Declaring that the F-35 was the only aircraft that can replace the CF-18s has produced the exact opposite of the effect sought by the Joint Strike Fighter’s advocates; it led to a wave criticism which led the government to re-examine Canada’s fighter aircraft options. If the F-35 was clearly the best aircraft, it would have prevailed in a rigorous cost-benefit analysis of various alternatives. Despite Thursday’s confusing news about the F-35, the government’s insistence that all options are being examined suggests that such a comparative assessment may eventually take place.

Finally, the defence department must accept an uncomfortable reality: the plan to recapitalize the military was never properly costed and is no longer affordable under the existing defence budget. Unless there is a significant reinvestment in defence procurements after the deficit is eliminated, this means that the military must reconsider what the CF’s future equipment will look like, both in terms of quantity and quality.

A prudent government will ensure that the defence establishment comes to grip with this fact; otherwise, Canada’s defence procurement woes will continue for years to come.

Philippe Lagassé is an assistant professor at the University of Ottawa. His paper, Recapitalizing the Canadian Forces’ Major Fleets: Assessing Lingering Controversies and Challenges, is being published by the Canadian International Council and Canadian Defence and Foreign Affairs Institute.

© Copyright (c) The Ottawa Citizen

I think his penultimate sentence says it all: "Finally, the defence department must accept an uncomfortable reality: the plan to recapitalize the military was never properly costed and is no longer affordable under the existing defence budget. Unless there is a significant reinvestment in defence procurements after the deficit is eliminated, this means that the military must reconsider what the CF’s future equipment will look like, both in terms of quantity and quality."

There is not, in my opinion, a political party anywhere in Canada that supports anything like the kind of military spending that would be necessary to return the CF to something like one suitable for St Laurent's vision of a "leading middle power." Why not? Because in the late 1960s we, a whole generation of Canadians, embraced the notion that we could have "peace and prosperity" without making any significant contribution to making or keeping the peace. In the 21st century, I believe, Canadians will happily accept second rate or insufficient for the CF - until there is a need to deploy and do something that has sufficient celebrity support, at which time the same complacent Canadians will tolerate emergency procurements à la the CC-117, CC-130J and Leopard II. (Of course they weren't "emergencies;" all were "on the books" in one form or another before we went to Afghanistan but the fact that Canadians soldiers were dying in battle removed the major (public opinion) impediment to buying new kit. Then Defence Minsiter O'Connor, through circumstances or, maybe, design, also pushed the procurements past several internal obstacles - mainly people who want to redesign a perfectly acceptable system into something "Canadian.")

Finally, it is important to remember that this government's Canada First Defence Strategy actually threatens promises to reduce defence spending as a percentage of GDP, even assuming a very, very long and weak recovery from the Great Recession of 2008.

 

[Edward Campbell]

And here, reproduced under the Fair Dealing provisions of the Copyright Act from CBC News is another indictment of DND:

http://www.cbc.ca/news/politics/story/2013/02/01/f-vp-weston-fantino.html

Fantino misled by defense department over fake plane parts
[bOfficials knew counterfeit Chinese microchips were in new Hercules cockpits[/b]

By Greg Weston, CBC News

Posted: Feb 4, 2013

In an interview with CBC News last June, then associate defence minister Julian Fantino denied Canada's 17 new Hercules military transport planes are infected with fake Chinese parts, like the kind found on the same type of aircraft in the U.S. Air Force.

Fantino wasn't telling the truth — but he wasn't lying either.

The minister's denial was in response to a damning U.S. congressional report that had just exposed the existence of the bogus parts in the cockpits of the American C-130J Hercules.

The U.S. investigation reported that a malfunction of the parts could cause the cockpit instrument panels in the giant aircraft to go blank in mid-flight with potentially "catastrophic" consequences.

Officials at National Defence headquarters in Ottawa have now admitted to CBC News that the department had known at least four months before Fantino's interview that the same counterfeit parts were also in Canada's brand new Hercules planes.

No one at the time, apparently, shared that information with the minister, even when Fantino's office asked DND officials point-blank if Canada had fake parts in its planes.

Fantino is only the latest in a long history of defence ministers hung out to dry by their own department, many of them hapless victims of a military culture in which political bosses are sometimes viewed as a passing nuisance to be circumvented as much as possible.

In this case, it is possible that an internal failure to communicate left Fantino in the dark, a classic snafu of one hand of DND not knowing what the other was doing.

If so, it may explain how DND has created such huge problems for itself with almost every big procurement — planes, helicopters, ships, armoured vehicles — over the past six years.

But there is also evidence Fantino may have been left misinformed in a bureaucratic attempt to cover up yet another embarrassment for a department already beset with billions of dollars of equipment boondoggles.

The timeline

Here's what we now know.

Last year's U.S. congressional investigation reported that counterfeit microchips from China were first discovered in the American fleet of Hercules planes in June of 2010, after the cockpit instrument panel failed on one of the aircraft.

A top U.S. laboratory, which specializes in detecting counterfeit electronics, subsequently reported the parts had a 27 per cent failure rate in stress tests, and were "not considered to be factory original."

The American manufacturer of the cockpit instrument panels, L-3 Systems, notified its customers of the counterfeit microchips and scrapped its inventory. But it didn't recall the parts, which were by then installed in hundreds of aircraft, including the Hercs.

The congressional probe also reported that the manufacturer of the Hercules itself, Lockheed-Martin, subsequently told the U.S. military the bogus parts were actually the authentic microchips that had just been mislabelled.

Lockheed Martin apparently also told the U.S. Air Force the parts did not pose any immediate danger.

All of this — and the truth about the Hercules parts being counterfeits — became very public during well-publicized U.S. congressional hearings in November 2011.

Who knew what?

But no one, apparently, told the associate defence minister's office in Ottawa — which was then responsible for defence procurement — that there might be a problem with the new Canadian planes, even as DND was about to start taking possession of 17 of them at a cost of more than $1 billion.

On the contrary, in response to a media enquiry after the public congressional hearings in Washington, the Canadian defence department issued the first of many denials that its planes had any bogus parts.

DND now admits that three months later, in February 2012, Lockheed Martin provided the department with a "safety report" confirming there were "suspect counterfeit parts" in Canada's new Hercules fleet.

However, no one, apparently, mentioned that to the associate defence minister's office.

As in the U.S., the aircraft manufacturer's report to DND claimed the fake parts on the Canadian planes posed no immediate danger.

DND now says its own "Weapon System Manager analyzed the manufacturer's safety report and agreed this was not a safety of flight issue."

No one, apparently, mentioned any of that to the minister's office, either.

In May of last year, four months after Lockeed Martin's report to DND on the fake parts, an aide to Fantino said the department had told the minister's office in no uncertain terms that "there's no evidence of counterfeit parts."

About the same time, a memo obtained by CBC and written by one of the top officials in the branch of DND responsible for purchasing and managing the planes stated: "We do not have any information regarding counterfeit parts in CF [Canadian Forces] equipment."

DND now says that official "was not speaking on behalf of the whole department."

No one, apparently, mentioned that to the minister's office.

Instead, Fantino made his ill-fated television appearance to deny there were any counterfeit parts in the Canadian Hercs, months after at least some in his department knew there were.

Fantino has since moved on to become minister of international development, a little older in the ways of Ottawa but apparently still in the dark.

He continues to maintain "the government wasn't aware of any counterfeit parts at the time."

Even now, apparently, no one at DND has told him the truth.

In a long career that included three or four stints in NDHQ I did see a period where clearly disinterested, revolving door ministers were treated as "nuisances," but I served in eras (more than one) where "don't embarrass the minister" was the watchword and that, too, led, to keeping him (or her) in the dark. But what I saw, mostly, was an overly complex staff system that made it hard to move useful information to the people who might need it. I recall an incident from when I was a LCol in the ADM(Mat) Group: I was tasked to write a brief on a certain matter. It moved, fairly briskly, to ADM(Mat) himself and then across to the military staff (DCDS, etc) where there was much "toing and froing" and many changes before the VCDS sent it to the DM's staff for onward transmission to the MND. The DM's office staffed it through ADM(Pol) and ADM(Fin) and, of course, since it dealt with hardware, ADM(Mat) where I reinserted all the stuff the DCDS had wanted removed and deleted some of the stuff the DCDS had added and recommended it for approval by the DM. But by the time the BN made it to the MND it was, in some respects, overtaken by events. And I suspect things are worse now than they were 25 years ago.


Edit: typo and a grammar error  :-[

 

[Colin Parkinson]

Very much so, I make a pointed of including more information than they want in BN's. Some person in HQ or the MO can remove the "fluff" I also keep the draft so if the Minister is not given the needed information we can point to the draft and say we gave your staff the information and they took it out. In fact I have given up trying to carefully craft letters or BN for the MO as they are always butchered anyways into saying as little as possible.

 

[Kirkhill]

Same issue: Civvy World

Two months preparing an info brief for the Divisional President.
Two hours with his Vices (HR and Tech Services) briefing them.
Vices demand the package be reduced in scope.  Apparently I wasn't scintillating enough for them.

Next day, after being up all night revamping the brief and creating new Autocad drawings, I brief the Pres.

10 minutes into the briefing and the President is already asking for documents I had removed from the previous briefing.  I reverted to the full 2 hour version.  Project approved for further review.

More often than not the issue is incompetence, or better yet friction and fog, than it is malevolence.

 

[Edward Campbell]

While I would never fault leveraging contracts when the opportunity presents itself, organizing defence procurement, or any activity, to promote government set industrial development priorities, as "high-tech luminary Tom Jenkins, now serving as a special adviser to federal Public Works Minister Rona Ambrose" suggests, according to this article which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail, is just plain silly:

http://www.theglobeandmail.com/news/politics/ottawa-urged-to-apply-benefit-test-for-defence-contractors/article8479909/

Ottawa urged to apply benefit test for defence contractors

STEVEN CHASE AND BILL CURRY
OTTAWA — The Globe and Mail

Published Tuesday, Feb. 12 2013

Military suppliers should be required to demonstrate how they would help build up key industrial capabilities in Canada before winning defence procurement deals from Ottawa, a special adviser to the Harper government is recommending.

High-tech luminary Tom Jenkins, now serving as a special adviser to federal Public Works Minister Rona Ambrose, is tabling a report in Ottawa Tuesday morning that will help the Conservative government craft a defence industrial policy for Canada – one that harnesses military and security budgets in the service of jobs and economic growth.

In the future, Mr. Jenkins is recommending, Canada should make defence purchasing decisions that help promote and develop domestic expertise in the following “key industrial capabilities”: Arctic and marine security; protection of the soldier; command and support; cybersecurity; training systems; and in-service support.

The Jenkins report also calls for Ottawa to be far more direct about what sort of spinoff benefits it expects for domestic businesses from the major defence contracts – referred to as industrial-regional benefits – that Canada expects from military suppliers.

Foreign companies play a large role in supplying Canada’s military needs, yet in the past 30 years, this country has shied away from using defence policy to promote and build domestic industries.

In the case of major equipment buys, for instance, it has often relied on foreign contractors to share work with Canadian companies in exchange for winning the job. This has had mixed results and, in the worst cases, government officials joke, Canadians have been left with menial work such as building the hangar for airplanes or supplying the fuel to fill a vehicle’s gas tank.

The Harper government’s looking to change this, and will use the advice from Mr. Jenkins, executive chairman of OpenText Corp., to develop a Canada-first military purchasing strategy that funnels as many procurement dollars as possible to domestic firms with the potential to be leaders in their field.

Canada wants to be smarter about backing Canadian industry, where possible, as it spends about $240-billion over the next 20 years on military acquisitions.

European and U.S. defence suppliers are believed to be stepping up their efforts to sell military goods to Canada now that military spending in the United States and the European Union membership is squeezed by hefty deficits and staggering debt.

The Canadian government has until now tended to wait too long to negotiate the industrial benefits from military contracts, only finalizing them after it’s picked a supplier.

Mr. Jenkins is building on a different report headed by former Harper government cabinet minister David Emerson last November that called on Ottawa to extract clear industrial benefits while it’s still holding all the cards.

“Negotiating clearer, more specific industrial and technological benefits plans earlier in the procurement process – when the government’s leverage is greatest – will almost certainly produce quicker and more tangible results,” the Emerson report on aerospace and space sectors recommended last fall.

In recent years, Ottawa has been inundated with ideas on how to build its industrial base using defence spending, including contracting out more of the billions of dollars of research and development the federal government conducts in-house.

This new approach, which Ms. Ambrose has championed throughout government, has its risks and its critics. Some Department of National Defence officials worry it will end up adding costs and delays to military spending. Others in the Industry department feel the current system of extracting spinoff contracts from foreign suppliers is adequate.

Over the past five years, though, the Harper government has become more focused on protecting and fostering a homegrown expertise in defence and security technology. It is an evolution in thinking for the Conservatives, who have tempered their laissez-faire approach to business since they took office.

In 2008, for instance, the Tories blocked the sale of MacDonald Dettwiler and Associates Ltd.’s space technology division to Minneapolis-based Alliant Techsystems Inc., saying the unit was of strategic interest to Canada.

In 2011, the Tories unveiled a 30-year plan to build the next generation of military and government research vessels in Canada, a long-term commitment to support jobs and talent in shipyards.

Ottawa’s been advised to adopt a Canada-first procurement strategy as a means of levelling the playing field for Canadian companies who find themselves competing globally for business against foreign firms that enjoy strong and steady support from their respective governments.

In fact, I need to go beyond saying that this idea is "silly," it (its entirely fallacious reasoning) is part of the reason our defence procurement system is a mess today.

The one and only goal of defence procurement should be to buy what equipment and systems that meet all the military operational and technical requirements (that have been set to accomplish government mandated missions and tasks) at the lowest possible cost. Then, if it is possible, the government, as the customer, can try to leverage a contract in an effort to e.g. promote regional industrial development, but only after the government (customer) has negotiated the best (cost/value) deal.

We must remember that governments are, usually, bad at setting regional industrial and economic goals because retail politicians are incapable at looking at regional problems with a clear, cold, economic eye ~ they look at regions through a wholly political lens. The regional economic decisions that governments make are, generally worse than one would make by doing nothing at all or even tossing a coin.

It is reported that Prime Minister Harper is looking at establishing a separate defence procurement agency, maybe even a separate ministry; I sincerely hope that Mr Jenkins' recommendations are tossed in the trash bin and erased from memory before he thinks about that issue.

 

[dapaterson]

I recall inthe early '90s the OAG noted that DND bought Canadian to support the Defence Industrial Base.  Which turned out to be a few drop-shippers in Canada, buying product from the US and reselling it at considerable markup.

I hope that the writers misunderstood Mr Jenkins' proposals; "in-service support" (ISS) is not a discrete capability.  Rather, it's the ability to leverage capabilities in various fields to sustain in-service equipment.  For example, ISS for a fleet of helicopters requires an aerospace capability; ISS for a fleet of trucks requires an automotive capability, and so on.

 

[Kirkhill]

The only "value proposition" that I am aware of that is commonly used in industry is whether or not the dollar invested in a given project will result in higher returns than putting the money into some other investment.    Beyond that the cost-benefit analysis is usually called a sales pitch.

The fact that the concept is being touted as having been successfully trialled on the National Shipbuilding Procurement Strategy says it all.  The NSPS assigned 10 points out of 100 to the sales pitch.  10%.  Now that may make a difference when it comes down two or three vendors of equal merit solving your problem.  You then have the luxury of considering other factors than the primaries in making your decision.  But normally, first and foremost, you are out to solve your problem at a cost that makes sense to you.

And I am not familiar with many vendors expressing interest in establishing their clients as competitors.

Short form: Bumf.

 

[Edward Campbell]

While I would never fault leveraging contracts when the opportunity presents itself, organizing defence procurement, or any activity, to promote government set industrial development priorities, as "high-tech luminary Tom Jenkins, now serving as a special adviser to federal Public Works Minister Rona Ambrose" suggests, according to this article which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail, is just plain silly:

http://www.theglobeandmail.com/news/politics/ottawa-urged-to-apply-benefit-test-for-defence-contractors/article8479909/

In fact, I need to go beyond saying that this idea is "silly," it (its entirely fallacious reasoning) is part of the reason our defence procurement system is a mess today.

The one and only goal of defence procurement should be to buy what equipment and systems that meet all the military operational and technical requirements (that have been set to accomplish government mandated missions and tasks) at the lowest possible cost. Then, if it is possible, the government, as the customer, can try to leverage a contract in an effort to e.g. promote regional industrial development, but only after the government (customer) has negotiated the best (cost/value) deal.

We must remember that governments are, usually, bad at setting regional industrial and economic goals because retail politicians are incapable at looking at regional problems with a clear, cold, economic eye ~ they look at regions through a wholly political lens. The regional economic decisions that governments make are, generally worse than one would make by doing nothing at all or even tossing a coin.

It is reported that Prime Minister Harper is looking at establishing a separate defence procurement agency, maybe even a separate ministry; I sincerely hope that Mr Jenkins' recommendations are tossed in the trash bin and erased from memory before he thinks about that issue.

Here is Andrew Coyne's take on the report, reproduced under the fair DEaling provisions of the Copyright Act from the National Post:

http://fullcomment.nationalpost.com/2013/02/15/andrew-coyne-pork-barrel-happy-report-could-have-catastrophic-effect-240-billion-military-procurement-plan/?utm_source=dlvr.it&utm_medium=twitter

Pork-barrel happy report could have catastrophic effect on $240-billion military procurement plan

Andrew Coyne

Feb 15, 2013

If all the reactions to this week’s report by a panel advising the government on defence procurement policy, the most hilarious came from the Canadian Association of Defence and Security Industries. “This timely and coherent report truly strikes a chord with the defence and security industry in Canada,” the association’s president said. “The panel calls for urgent action by the government, and CADSI echoes this call.”

No kidding. If the report struck such a chord with the defence industry, it may be because the defence industry more or less wrote it. Two of the panel’s five members are industry executives (a third is a retired army officer); their report, based on “extensive consultations” with CADSI, amounts to a large-sized cheque to domestic arms makers.

It is difficult to adequately express what a train wreck this report is. The panel, chaired by the technology industry executive Tom Jenkins, looks at the recent history of Canadian military procurement — politicized, crawling with lobbyists, beset by infighting over “industrial and regional benefits,” and generally concerned with just about everything except getting the best equipment for the least money — and diagnoses the problem as a shortage of political and bureaucratic meddling, an insufficiency of protectionism and pork-barreling.

Procurement policy, they write, has been obsessed with getting “value for money,” rather than using defence contracts as “leverage” to spur investment and job creation in Canada. The decades-long practice of demanding foreign defence contractors spend a dollar in Canada for every dollar they receive, to the tune of some $80-billion by 2027, is here dismissed as overly “market-driven,” inasmuch as the contractors get to choose which Canadian firms they work with.

That would cease if the panel has its way. Rather, contractors would be instructed where and how to spend the money the government had extracted from them, with a view to promoting a set of “Key Industrial Capabilities” (KICs) the government had selected. Bidders on defence contracts would be required to demonstrate in advance how their bids “add to Canada’s economy,” according to a shopping list of criteria, from technology transfer to global product mandates.

The military’s “operational requirements” would be just one factor among three in the government’s assessment, alongside the “market opportunity” and “innovation” perspectives. So whereas a “value for money” approach might suggest buying from a foreign manufacturer, if that were the lowest-cost bid, the panel sees this as just one of a “portfolio” of possibilities that could include developing and building a new one from scratch.

Amid all the pseudo-economic gobbledygook about “moving up the value chain” and “developing niche solutions” there is only the barest acknowledgement that what this amounts to is overpaying domestic suppliers, guaranteeing them a market they could not win in open competition. The report concedes at one point “there may be extra risk to supporting a home-based supplier of a sophisticated product, or some price premium relative to lowest cost globally” — one of just three references to “price” in the whole document.

The panel appears to believe Canada would be in a strong bargaining position with foreign contractors, given the deep cuts to come in U.S. and European defence spending. But these are companies in a globally competitive market, with shareholders to answer to: they are not in a position to subsidize the government of Canada’s ambitions out of dividends. Rather, the costs of the subsidy would be borne by the taxpayer.

Why on earth would we want to do this? Given the fiscal pressures we are already facing due to the aging population, why would we pay more than a nickel more than we had to for armaments? The report offers a number of rationales: because it’s there (“defence-related industries are unique in that governments are essentially the only customers”); because others do it (“many of the most highly industrialized countries have … strategies that promote their defence-related industries”); but mostly because it’s good for the defence industry.

The report is at pains to emphasize how crucially the industry depends on government, how many successful Canadian companies “got their start with a Department of National Defence contract.” I don’t doubt this so. It does not quite follow that every company that gets a DND contract will be successful. Neither does it explain why it should be government policy to promote the defence industry — why the national interest should be equated with the industry’s interests.

I’m going to let you in on a little secret here: there are other industries in Canada besides the defence industry. The subsidies government provides aren’t just a cost to the taxpayer, but to all those other industries: the capital and labour diverted into making arms at uncompetitive prices are capital and labour unavailable for other purposes. This basic insight of economics, opportunity cost — the growth that doesn’t occur elsewhere, the jobs that are never created, because resources are committed in one place and not the other — is nowhere present in the report.

Oh, there’s a bit of handwaving about defence industries being particularly effective “growth promoters,” on account of their being “technologically advanced and thus rich in opportunities for innovation and the development of leading-edge human skills.” But the report offers no evidence that they are superior in this respect to other technologically advanced industries, nor is there much reason to believe the people who brought you the F-35 are especially adept at assessing these sorts of tradeoffs. As opposed, say, to shareholders.

This is more than just a bad report. With some $48-billion in equipment purchases in the pipeline, most of it in the next three years — part of the government’s 20-year, $240-billion procurement plan — the consequences of following the panel’s recommendations would be catastrophic. The report calls it a “once-in-a-lifetime opportunity.” Indeed. For once in their lives, politicians should take the opportunity to say no.

Postmedia News

I think (maybe just hope) we can trust Prime Minister Harper to consign the report to the trash can, where it belongs.

 

[The Bread Guy]

Just to share a different set of eyes on defence procurement, here's a think tank paper presented to the UK's Commons Select Committee on Defence on "Orthodoxy’s Ten Sacred Truths" on defence acquisitions ....

.... (1)The benefits of competition;

(2)The gains from outsourcing;

(3)The centrality of project management metrics;

(4)The utility of the idea of Value for Money;

(5)The availability of both project certainty and technological advantage;

(6)The belief that defence acquisition projects are particularly prone to failure;

(7)The (naive) endorsement of partnering;

(8)The optimism that change management programmes are transformative;

(9)The assumption that science and technology and research and development are identical; and

(10)The faith that SMEs will help to build a New Jerusalem ....

Happy to let those with more internal insight of our system compare/contrast.

 

[Edward Campbell]

This, a "new" accounting system announced by Treasury Board President Tony Clement, may help by, at least, allowing politicians, bureaucrats, auditors and vendors/contractors to operate from a consistent base.

But: centuries of vitally important parliamentary, indeed, constitutional convention related to how monies are approved may get in the way.

 

[Edward Campbell]

Prof Steve Saideman (Carelton) gets it pretty much exactly right in this article, which is reproduced under the fair Dealing provisions of the Copyright Act from the Canada International Council website, when he says, "Canada is making a huge mistake—it is turning defence contracting into an exercise in domestic job creation [because] you end up getting more than you want and less than you need:"

http://opencanada.org/features/blogs/roundtable/more-than-we-want-less-than-we-need/

More Than We Want, Less Than We need

Steve Saideman

August 1, 2013

There is a temptation to think that the interests of the Canadian defence contractors and the preferences of the Canadian Forces always converge, but this is not always the case.  The Conservative government has become a big fan of defence “industrial” policy, where the defence procurement decisions are driven in part by what is best for Canadian firms and job creation at home.  The Canadian Forces are not entirely thrilled with this.  Why?  Basic economics and simple math.  The economics is all about competition and economies of scale, leading to higher production costs.  The basic math is this: if the Canadian Forces have to buy more expensive kit, then they will have to buy less or cut spending elsewhere.  This is all exacerbated by the Harper government’s austerity campaign.  Let me explain.

Whenever governments limit choices of where equipment can be produced, they are, by definition, reducing competition.  The defence sector already has enough problems with getting sufficient competition to lead to higher quality/less expensive equipment, but if you tilt the competition towards domestic producers, there will be less pressure to reduce costs.  To be clear, if Canadian producers were already producing the least expensive, high quality material, there would be no need for the government to favor domestic producers.  They would win in the competition.  But because they would otherwise lose, favoring them means buying more expensive stuff.

A key challenge facing the Canadian defence industry is economies of scale—most of their competitors in the world serve larger markets.  As they produce and sell greater numbers of planes, ships, radar systems, whatever, the costs of the initial research and development per unit go down. Defence systems tend to have very expensive startup costs, so economies of scale are particularly important in this sector. Canada has a small military, so it will always be a limited market for Canadian producers.  Sure, some Canadian companies do well in international competition, which means that they can compete well at home. But many do not, and have not.

The best/worst example of this is ship-building.  The effort to re-capitalize the Royal Canadian Navy by building ships in Vancouver and Halifax is mighty good for those shipyards, but is awful from a budgetary standpoint.  There are other countries that could have sold Canada more capable, less expensive ships than what the Canadian shipyards will eventually produce.  Sure, the ship-building competition within Canada was lauded at the time for being fairly systematic, but it was gamed—the competition was only among Canadian shipyards.  Sure, the RCN learned not to buy used ships from the British due to the sub fiasco, but there are companies beyond Canadian shores that could provide excellent ships sooner and for less.

Why?  Because Canada is making a huge mistake—it is turning defence contracting into an exercise in domestic job creation.  Ask the Americans what happens when procurement is guided by job creation pressures.  You end up getting more than you want and less than you need.  Congress often forces the U.S. military to buy equipment it does not want, because such programs employ Americans.  This makes it very, very hard to kill under-performing programs.  The advantage Canada has over the U.S. is party discipline, which means that prime ministers are not beholden to individual members of parliament as they shape defence procurement policy.  But once you really emphasize the job creation part of defence procurement, the more politicized subsequent decisions will be.  What makes sense for the Harper government in the short-term, winning in 2015, is going to be very damaging to Canadian politics and to defence contracting in the long run.  The procurement system is already broken—turning it into industrial policy will only make things worse.

All defence procurement decisions are, of course, political.  All government decisions are political.  But playing favorites in defence procurement now will give today’s winners more incentive to pressure tomorrow’s politicians, and today’s losers will have to up their game in trying to exert influence the next time.

Coming back to the present day, this is the worst time to be engaging in industrial policy.  If there was flexibility in the budget, if the Canadian government was spending more money rather than cutting back, then the government could afford the luxury of buying Canadian.  But we live in a time of austerity (well, government-induced austerity), so the government wants to cut military spending.  Which means now is the time when the military can least afford procurement as industrial policy.

Thus, while we often think of the military-industrial complex as a single entity pushing in the same direction, it is very clear why the Canadian Forces and Canadian defence contractors do not see eye to eye on spending defence dollars in Canada to subsidize some companies and win some votes.

But our government, a Conservative government that, despite this wrong choice, is, in my opinion, still the best choice for Canada, has set us on this course and we all - military people and POTs (Plain Old Taxpayers) alike - will pay too much for too little as a result.

It's a stupid policy - the US experience proves that beyond a shadow of a doubt - but it is popular with the ignorant masses, 25+/-% of which vote Conservative (as do similar percentages vote Liberal, NDP and, in less numbers, PQ and Green).

 

[Edward Campbell]

Brian Gable gets it about right in this opinion piece which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/commentary/xxxxx/article14052163/#dashboard/follows/

The defence procurement system, which is, essentially, unchanged since about 1969, when the Department of Defence Supply was disbanded and its responsibilities were assumed by the Department of Supply and Services, is broken. Given the complexity of many (most?) large scale systems it seems to me that we need to look at alternatives where engineers, logisticians and contract specialists (mostly accountants and lawyers) translate validated military operational requirements, expressed in performance terms, into real hardware. My personal preference would be an "arms length" crown corporation - sort of a mirror of the Canadian Commercial Corporation, but I'm not sure it would be politically acceptable. (The UK tried something like it in the 1990s with the short-lived "Procurement Executive," but as soon as politicians realized that they didn't have enough control over "job creation" (which is an economic fallacy but a political dream) they pulled the function back into government.)

 

[Edward Campbell]

James Cudmore, an occasional participant here on Army.ca, reports that "the Conservative government intends to reform Canada's troubled system of military procurement" in this article which is reproduced under the Fair Dealing provisions of the Copyright Act from CBC News:

http://www.cbc.ca/m/touch/politics/story/1.1871009

Military's procurement paralysis may see big changes
Years of delays and missteps forcing Conservatives to alter way it buys military equipment

James Cudmore CBC News

Posted: Sep 27, 2013

CBC News has learned the Conservative government intends to reform Canada's troubled system of military procurement and could announce its plans as early as next month's speech from the throne.

Those plans could see the formation of a new agency under a single minister to manage all military procurement, or a secretariat of bureaucrats from each of the departments currently involved in sourcing Canada's military equipment.

The decision to change the procurement process follows years of criticism of the government's handling of several massive military purchases worth tens of billions of dollars.

It's also been stung by the still-severe troubles with the nearly three-decade-old program to replace Canada's aging Sea King ship-borne helicopters.

The litany of bad news and criticism of procurement, alongside the apparent public perception of boondoggle and breakdown, seem now to have pushed the government into action.

Keith Beardsley, a veteran Conservative and former deputy chief of staff to Prime Minister Stephen Harper, says the government is feeling political pressure on the file.

Support for the military is a key Conservative political value and an essential part of its appeal to some supporters. But the current messy, sluggish nature of procurement has blocked the government from credibly claiming success on re-equipping the forces and at the same time being effective managers.

"It is a management issue," Beardsley says, "because you have to deliver. Your reputation is based on how do you manage the economy, how you manage taxpayer dollars and you are constantly being attacked, pushed back by, 'what's wrong with this program, what's wrong with this particular item, this helicopter, this fighter aircraft,' whatever the case might be."

The hullabaloo over the F-35 fighter jet proved to be politically damaging to the Conservatives, although not lethal, and the government struggled to find a way out of that crisis. In the end, it damaged the government's reputation as a careful steward of taxpayers' dollars.

Earlier this month CBC News reported that, after waiting five years for the delivery of new helicopters to replace Canada's 50-year-old Sea Kings, the government has decided to look at other options.

Those options include the possibility of cancelling its multibillion-dollar contract with manufacturer Sikorsky in favour of perhaps pursuing a sole-source or "directed" purchase of one of its competitors: the AW 101, a descendant of the EH 101 helicopter once sought by Canada and cancelled in 1993 by then prime minister Jean Chrétien.

Although there's plenty of blame to go around, the Conservative government has managed the program since 2006.

That's a problem, says Beardsley.

"The [Conservative voter] base begins to wonder, and Canadians in general begin to wonder, what's your competence level if you can't get something simple? They see buying a piece of equipment like you go buy a car," Beardsley says.

And procurement problems don't just plague the air force. An Army program to buy new trucks officially stalled because of a dispute between departments over costs.

It's this program, unencumbered by regional or electoral politics, that perhaps best represents how bad things have become.

3 minutes to deadline

The program to buy new trucks was announced by former Conservative defence minister Gordon O'Connor in 2006. The government's deadline for proposals for 1,500 combat-ready logistics trucks was July 11, 2012.

But just three minutes before the deadline, Public Works killed the process.

The military had provided a cost estimate of about $800 million. But as the proposals started to come in, it appeared the price was going to be hundreds of millions more.

The military manager of procurement at the time was Associate Deputy Minister (Material) Dan Ross.

Ross, now retired, told the CBC News every department involved in the weekly procurement meetings was briefed on those higher costs.

Nevertheless, he said, bureaucrats at Public Works insisted the program be cancelled, lest a minister be "surprised" by the higher price tag.

"It'll be at least three years before those trucks are delivered," Ross said.

Single agency or secretariat?

CBC News has learned officials presented ministers with two distinct options for reform.

The first is to wipe out the current bureaucratic muddle in favour of a new defence procurement agency, with a single minister accountable for the whole process.

Currently, procurement is managed by three ministers — Defence, Public Works and Industry — with oversight from three more so-called central agencies: the department of Finance, the Treasury Board and the prime minister's own Privy Council Office.

This option is popular among many of Canada's allies and is the preferred option inside the defence department.

The second and seemingly most likely option involves creating a permanent committee of senior bureaucrats from each of the procurement departments to work together to swiftly manage major purchases and programs.

This model was first used to manage a thoroughly stalled process to build new ships for the Navy and Coast Guard. It removed ministers from decision-making.

There is a third option: muscle through and try to get something significant finished before the next election, expected in 2015.

The "single agency" model is also preferred by two former military procurement managers.

Alan Williams, the associate deputy minister (material) at the Department of National Defence until 2005, included the idea in his book, Reinventing Canadian Defence Procurement.

His successor, Dan Ross, is also a supporter of the idea.

"You have to take some of the cooks out of the kitchen," Ross says. "You need to do the business professionally with one minister, one deputy minister, one organization that is built to do the job."

Ross also suggests a committee of eminent Canadians be appointed to help review the military's requirements for big ticket items, like the F-35 fighter jet program, for instance, before the government starts its procurement. The committee would be able to transparently assess whether the military is cooking its requirements to favour a certain item or outcome, as it was accused of doing with the F-35.

Good GREAT news if it's true.

Almost anything can be better than current lash-up.

 

[Edward Campbell]

Another cri de coeur, this time reproduced under the Fair Dealing provisions of the Copyright Act from Canadian Business:

http://www.canadianbusiness.com/blogs-and-comment/by-putting-jobs-ahead-of-military-needs-were-sinking-our-own-battleships/

Canada is botching defence by putting jobs ahead of military needs: James Cowan
We’re not very skilled in shipbuilding

Dec 13, 2013

James Cowan

National defence is among the most basic responsibilities of any country’s government. You can haggle about every other area of federal spending, but a government that can’t properly maintain its military is failing at a fundamental level. It is a carpenter that can’t hammer a nail. That is what makes Canada’s long history of botched military procurement so maddening.

It hasn’t been one defence minister, or one prime minister, or one party that has bumbled the purchase of jets, ships and trucks. This has been a decades-long problem that has wasted billions of dollars of taxpayers’ money and resulted in a military that is often ill-equipped for the task at hand. Prime Minister Stephen Harper’s government cannot be solely blamed for the woeful state of Canada’s military equipment; they can, however, be held to account for ignoring very sensible proposals to fix the problem.

The Conservatives’ ambitious plan to buy dozens of new navy and coast guard vessels may now be scuttled by rising costs. The price tag for a new icebreaker has doubled to $1.3 billion from $720 million; more than a billion has been added to an estimate for new combat ships—and officials warn the new $26.2 billion figure is just for “planning purposes.” But any planning on this project is disconcertingly fuzzy. For example, exactly how many combat ships are we buying for all these indeterminate billions? It was supposed to be 21, but Public Works now places the number at “up to 15.”And these ships are just one part of the troubled plan. Construction delays will mean an 18-month gap when the Canadian military will have zero functioning supply ships. Holdups at the Vancouver shipyard where the vessels are being constructed will also mean the aging icebreaker Louis St. Laurent—built in 1969—will have to remain in service until 2022, after undergoing $55 million in retrofits.

Never mind the fighter-jet program that quadrupled in cost, the squabbles with Sikorsky over delayed helicopters that might not work and the contract for new military trucks that was abandoned three minutes before its deadline.

Taken together, these cases clearly demonstrated the need for a new strategy, one that begins with rethinking the rationale behind these contracts. There’s a telling paragraph in the government’s status update on the combat ships. Industry analysts, it notes, estimate “the decision to build the ships here in Canada will generate approximately 15,000 jobs and $2.4 billion in annual economic benefits over the next 30 years.” This is the problem: the government’s military strategy is also an economic development strategy. It’s just not a particularly good one.

Many of the project delays associated with the shipbuilding strategy are rooted in the fact that no Canadian company has built a large military vessel in two decades. And despite winning the multi-billion-dollar contract for combat ships, plus receiving $304 million in financial support from the Nova Scotia government, Irving Shipbuilding still faces layoffs this year as it retrofits its facilities for the naval project.

Meanwhile, internal documents obtained by the Canadian Press suggest the ships would have been completed faster and at 10% lower cost if they were built overseas. The British Royal Navy recently paid $750 million for four supply ships built in South Korea, compared with the $3 billion that we are paying for two, according to J. L. Granatstein, a senior fellow at the Canadian Defence & Foreign Affairs Institute. If Canada is unprepared to allow open season on its military contracts, then it should at least do is accept bids from any shipyard in a country that enjoys a free trade agreement with us, as suggested by Ian Brodie, Harper’s former chief of staff.

Any change will require a shift not only in public policy, but public opinion as well. As it stands, governments find themselves in a double bind: voters punish them for bloated military contracts, but also for shopping these deals to foreign companies. Canadians need to recognize that using military procurement as economic stimulus is a disservice to everyone.

James Cowan is deputy editor of Canadian Business

James Cowan is right about a number of things:

    1. National defence is, indeed, one of the (quite few actually) core responsibilities of government;

    2. Defence procurement is a mess, it's worse than a mess it's a national disgrace; and

    3. The defence procurement mess is structural, it's almost part of our national political DNA. It's not even the fault of politicians. They, the politicians are, simply, doing what voters demand, and Canadian voters are incredibly
        ill informed; they ~ an overwhelming majority of them ~ are driven by greed and envy, not by any rational consideration of their own self interest.

The solution is obvious, even if it may be politically impossible.

 

[Edward Campbell]

Given the Russian economy is about the size of Italy's, we should be wondering how they can afford this and if this buying spree is sustainable.

We should also wonder why with the size of our economy we cant afford to procure a few basic things like combat boots and trucks in a reasonable amount of time (much less ships and aircraft).

Canada can afford, right now, new ships ~ enough new ships, new equipment ~ personal, light and heavy for the Army, and new aircraft ~ fighters and helicopters and SAR and, and, and ... but we have a procurement system that is inefficient, ineffective, politicized, bureaucratized and, generally, designed to fail.

A creaky, costly, ineffective defence procurement system actually suits a few politicians, in all parties, and it also suits many senior bureaucrats, including a few in DND and including a few there who wear uniforms.

Only one defence minister in the past 30 years has understood how and why the system fails and how to work around it, and he (Gordon O'Connor) only managed to work around it (subvert it, actually) because there was a war on.

 

[Old Sweat]

Canada can afford, right now, new ships ~ enough new ships, new equipment ~ personal, light and heavy for the Army, and new aircraft ~ fighters and helicopters and SAR and, and, and ... but we have a procurement system that is inefficient, ineffective, politicized, bureaucratized and, generally, designed to fail.

A creaky, costly, ineffective defence procurement system actually suits a few politicians, in all parties, and it also suits many senior bureaucrats, including a few in DND and including a few there who wear uniforms.

Only one defence minister in the past 30 years has understood how and why the system fails and how to work around it, and he (Gordon O'Connor) only managed to work around it (subvert it, actually) because there was a war on.

My theory which I have held since the seventies, and it is mainly a smart .ss assessment, is that our procurement system is designed to maintain a large, busy work staff with its high priced and complex levels of supervision even when there is no money to buy anything.

 

[George Wallace]

My theory which I have held since the seventies, and it is mainly a smart .ss assessment, is that our procurement system is designed to maintain a large, busy work staff with its high priced and complex levels of supervision even when there is no money to buy anything.

Sounds about right.  I think that can be applied to all Government Departments, Federal, Provincial and Municipal (to some extent, depending on size of Municipality) and many Charities.

 

[Edward Campbell]

My theory which I have held since the seventies, and it is mainly a smart .ss assessment, is that our procurement system is designed to maintain a large, busy work staff with its high priced and complex levels of supervision even when there is no money to buy anything.

I got a close up look, in the 1980s, when the project management bull shit, and that's what most of it was, was on the rise. We added even more processes, many of them pointless, to an already creaking, Rube Goldberg type of system. Project Management was an import from the USAF ~ and guess what? Some of it is useful for HUGE, complex, budget killing aerospace projects, but it isn't even useful for ship building because there are, already, simpler engineering systems for ship design and construction that have been around for years centuries and ditto for weapons and electronics (well, not centuries, exactly, for the electrons, but decades, anyway). I can only imagine how much worse it got in the 1990s and in this century ~ because it sure as hell never got better, and bureaucratic systems are never stagnant ... the bureaucrats might be, but not their management systems, they keep evolving, rarely for the better.

Everyone should go back and read Wellington's despatches from the Peninsula.


Edit: typo