Patrol Frigate Procurement Strategies

It’s safe to say the Canadian Patrol Frigate Program is the largest Defence project completed in Canada to date. On delivery in the early 90s, the CPF was the most technically sophisticated weapon system in the CF, requiring over 200 million lines of new software code to be written, making it the largest single software project in North America at that time. We developed a procurement strategy that addressed the real or perceived problems of other projects in that time frame. Our strategy incorporated solutions to control costs, contain risk, and ensure a fair and fulsome competition; it developed and supported Canadian industry, distributing benefits across the country, all of which is relevant for today’s naval programs. Let’s look at some key factors that contributed to the successful delivery of these 12 ships for the RCN and how we got there. 
 

You’ve heard the expression “location, location, location” to describe the criteria for the viable operation of any business... well, in defence procurement, success largely depends on “preparation, preparation, and more preparation” of a viable procurement strategy. And then sticking to it! As the CPF Project Manager, I wish I could take credit for the former, but I can take some credit for the latter. 

The CPF program had its genesis in the mid-1970s, after a number of defence procurements (and naval projects in particular) had been creating a bad odour in Ottawa with the Government, with the bureaucracy, with the media, and with the public (some things never change). Some of this criticism was deserved and some was not.

The era included some high-profile procurement footballs such as: the aborted General Purpose Frigate (the new warship design under Diefenbaker was cancelled under Pearson); the much-delayed and costly mid-life refit of aircraft carrier HMCS Bonaventure; the troublesome CP-140 Aurora long-range patrol aircraft program (which “lurched through a series of blunders that saw cost estimates out by hundreds of millions of dollars and a government minister sued for slander,” noted a Wings magazine article, a contract was finally signed in 1976); and the ill-starred DDH 280 destroyer program (which, according to historian Marc Milner, only survived the chopping block because 75% of the funds had already been spent). 

Mistrust and acrimony characterized the relationship between the Government, the bureaucracy, (particularly the central agencies like the Prime Minister’s Office, the Privy Council Office and the Treasury Board), and DND.
 

In 1971, the Government appointed an outside Commissioner to examine Defence Procurement. The Pennyfather Commission resulted in fundamental changes such as the Treasury Board guidelines for Major Crown Projects and governance and organization of interdepartmental project offices. According to critics in Government, DND would no longer be allowed to go to Government seeking to buy some nails, then later a hammer to make use of the nails, even later to buy lumber to use the nails and hammer, and so on until a house was built, which is how the Government and the Commission viewed the 280 project. I had been the Project Manager for the 280 propulsion systems although I did not work for, nor report to, the DDH 280 overall Project Manager – this was the case with almost all of the ships systems. The overall PM was left orchestrating what was a ‘cost-plus’ contract with the shipyard, and attempting to get the numerous Government Furnished Equipment systems and data packages delivered to the shipbuilder for integration into the ships. As the saying goes, “Failure was not left to chance but was built in”. Delays and costs escalated, and it was some years after delivery before the ships were fully operational. By the time the last of the four Iroquois-class destroyers commissioned in 1973, the credibility of the Navy to build ships and manage large programs was very low.

I became the CPF Project Manager in 1980. Joe Clark was then the Prime Minister and his government had been defeated in the House, so an election was in the offing. The project was dead in the water at the time we were seeking cabinet approval to down-select from the five bidders to two bidders to proceed with a funded project definition phase. Our scheduled Cabinet appearance was cancelled and the submission documents were returned to us.

Captain (later Vice-Admiral) Jock Allan had been parachuted into the floundering 280 project as Project Manager. Many of the reforms that came out of the Pennyfather Commission resulted from his 280 experience, and he was instrumental in later developing the procurement strategy for the CPF.

Successful CPF Strategy
Put simply, a warship is required to do three things: float, move and fight. In previous programs, the Navy essentially took delivery of a warship when it could float and move, then the Navy would test, trial, adjust, modify, and set the combat systems to work, to ensure the ship was capable of fighting – this would take time and money. In the case of the DDH 280, for example, it took four years after the first ship was delivered before she was fully operational. It was a significant achievement of the CPF strategy that the new patrol frigates were essentially operationally-ready on delivery. 

Some of the major features of the CPF strategy included:

Total Package Procurement. The PMO was responsible for delivering fully operational ships to the Navy (with all support, training and data, etc.), such that a “bumpless” transfer into service without further expenditure of capital funds was achieved.

Design to Cost. The ships were to be competitively designed to the approved budget. Trade-off rules allowed flexibility such as tailoring the capability of the ships as opposed to adjusting the number of ships to meet the cost targets.

Total Systems Responsibility. The prime contractor assumed all responsibility for the selection of all systems, design, schedule and costs – with some exceptions such as ammunition and missiles.  This was a radical departure from the DDH 280 program, where the Crown accepted the risk for most systems. As the objective was to present to Cabinet two acceptable options from the funded project definition (design) phase, the contractors were to progressively present their design and system selection for comment/acceptance. We developed a concept called “negative guidance” where we attempted to ensure that the total systems responsibility was not abridged. If a contractor proposed a system or equipment that we felt was flawed, we would point out the problem but not the solution or an alternative.

Risk Reduction Package. In assuming more risk and responsibility than any previous Defence contractor in Canada, the Government wanted to ensure that there was substance to these commitments; hence the requirement for a package of concrete risk reduction measures, such as warranties, guarantees, lines of credit, asset pledges, intellectual property rights, etc. was instituted. For example, from the tragic experience of the Hydrofoil Project, where the under-construction vessel was partially destroyed by fire, we insisted that the ships be insured for all risks until delivery. This resulted in the largest insurance policy ever undertaken by the marine floor of Lloyds of London.

Inflation and Foreign Currency Risk. Those of you old enough may remember double-digit inflation and the volatile currency fluctuations of that period. We managed to persuade the Government to hold the project harmless with respect to inflation and currency exchange. A comprehensive and complex economic model was developed in conjunction with the Treasury Board, which had the job of predicting defence- and labour-specific inflation in each future budget year of the project. The eventual contract was priced in these predicted dollars and adjusted each year in accordance with Statistics Canada benchmarks. This proved to have been a wise decision and saved close to $1 Billion dollars over its lifetime based on the cost that was predicted when the contract was signed.

Industrial Benefits Objectives. When did you last see a media article report that a large Canadian Defence procurement was successfully delivered under budget and ahead of schedule? The CPF project not only had more than 70% direct Canadian content and over 100% Industrial Benefits were realized – incorporating world-class leading-edge technology and with little or no controversy. The CPF project succeeded in meeting those key IB objectives and more. A shipbuilding centre of excellence was established (Saint John Shipbuilding Ltd and Saint John Marine Systems Ltd were both created). A major systems integrator was also established (Paramax was established in Montreal, which at the time undertook the largest software project in North America).

Initially, two subsystem suppliers were to be established, but seven were actually created. Other objectives, such as Small and Medium Enterprise participation, as well as regional distribution across the country, were also achieved.

Debate and Revise
Of course, the project had its share of challenges and critics, but we did subject all of this strategy to rigorous debate and analysis, including “what ifs” and how it would look on the front page of the Globe and Mail. We refined the rationales for our strategy and took it on the road to test it. Industry organizations, professional associations, service clubs, provincial and municipal agencies and so on were visited and briefed on request. We learned a lot about what organizations and people wanted to know.

In 1983, after many delays, setbacks and visits to Cabinet, a winning contractor was selected and a contract for the first six ships was approved. In the meantime I received a note from two long time veteran attendees of Cabinet meetings to say that was the best briefing they had ever heard given to Cabinet. Preparation, preparation, preparation paid off. 

___
RAdm (Ret’d) Ed Healey, CMM is a graduate of Royal Roads, the Royal Naval Engineering College, the Canadian Forces Staff College and National Defence College. He served at sea in a number of RN and RCN ships. He was appointed trials officer for the DDH 280 propulsion plant at NAVSEC Philadelphia, and then served in NDHQ as DMEE3, DMEE, and DMEM. In 1980 he became PM CPF. In 1983 he was promoted to Rear-Admiral and appointed CEM for the Canadian Forces. Retiring from the CF in 1985 he was appointed ADM(Mat). He retired in 1990. In civilian life he was Managing Partner of CFN Consultants and President of the Canadian Defence Industries Association. In 2015, at the annual Battle of the Atlantic gala, he received the coveted Admiral’s Medal for leadership in spear­heading the Canadian Patrol Frigate program from concept to implementation. The medal is awarded annually for outstanding achieve­ments in Canadian maritime activities.