Editor’s Corner article

Govt Tackles Procurement Challenge
CHRIS MacLEAN  |  Dec 10, 2015

Based on Prime Minister Justin Trudeau’s clear mandates to his new Cabinet ministers, the government is clearly ready to think outside the box when it comes to Defence Procurement. The first evidence of this came on the day of the signing ceremony, when we all heard that PWGSC has been renamed as the PSPC – Public Services and Procurement Canada.

We were told that the F-35 deal would be set aside in favour of a competitive process – which means DND now has to come up with an actual Statement of Requirements (which was apparently deemed irrelevant by the previous government). Unofficially, I suspect the new government just wants to make sure the process is, in fact, transparent. Officially, this change was explained as a way to direct more funds to get the crucial National Shipbuilding Procurement Strategy moving forward at something better than a snail’s pace.

The NSPS, Canada’s most ambitious procurement in recent history, hopes to recreate and stabilize a national shipbuilding sector that can fulfill the federal needs. It seemed likely that the new government, particularly PSPC Minister, Judy Foote, would want to thoroughly examine the process and progress to date, and recent events have shown that to be true.

Minister Foote may have been surprised to realize just how much control a commercial entity has over the Canadian Surface Combatant program (the crown jewel of the NSPS). Irving Shipbuilding appears to be in almost complete control of the selection process for hull design and combat systems. This is not normal for a program of such magnitude and may not sit well with the Liberals. Notwithstanding ITBs and Value Proposition requirements, it is questionable whether NSPS will achieve the job creation goals originally envisaged, particularly when the company is not taking the time to be briefed by small to medium sized Canadian supplier companies (more on that in our next edition).

As written earlier this year (FrontLine 2015, issue #2), “an up-to-date warship must be a highly integrated system of systems – with no individual function disconnected from another.” Experienced warship providers agree that the Systems Integrator should be in charge, however, the current construct for CSC has put Irving Shipbuilding in the driver’s seat. This was surprising since, despite the fact that the company has a long history in Atlantic Canada, it has never built a modern warship (Halifax class frigates were built in St-John, NB; and AOPS are basic patrol vessels with no significant combat system on board), and depends on Lockheed Martin Canada to do the complex Halifax Class Modernization. As the Prime Contractor though, Irving gets to prepare the RFP documents for the WD and CSI streams and share critical intellectual property with its American partners. According to the current construct, Irving will be awarded the design contract and then choose a much more experienced WD and CSI winner. What will that choice be based on? Few observers believe it will be based only on what is best for Canada. Conflict of interest or opportunity for collusion?

Should a commercial company be given the authority to choose the WD or CSI winners? Earlier this year (FrontLine 2015, issue #1), former ADM(Mat) Alan Williams soundly admonished the previous government for abdicating its responsibility by handing off such nationally important decision-making to a commercial entity, which by definition must make decisions based on what is profitable or beneficial to itself. Anyone who thinks Irving executives will choose an option that does not first benefit Irving, is deluding themselves.

Despite the fact that the Government has even less experience at shipbuilding, at least we know that its number one responsibility is to the Canadian people and is three-fold… in this case, it means getting the best product for the navy, at the best price it can, while improving economic prosperity where possible. In that order.

In particular, one may wonder if the acquisition process as it is presently defined – with separate CSI and WD streams and Primed by the steel cutter / welder experts – will lead to developing a whole new warship (with escalating risks, costs, delays) and becoming an integration nightmare.

Canada’s experience/expertise in warship design, combat system development or integration dissipated decades ago. Undeniable logic dictates that a project of this complexity should be undertaken by an experienced warship integrator (that includes WD, plus CSI, plus Platform System Integrator) to avoid disaster in the form of delays and cost.

Australia’s air warfare destroyer (AWD) project – which is years late and billions in cost overruns – is a good example of what happens when a government consortium replaces an experienced warship integrator. “With an alliance contract, where you don’t have somebody clearly in charge, you can rapidly find yourself in a situation where things go wrong and people are looking at one another, passing blame, not taking responsibility, and decisions aren’t made,” said Australian Strategic Policy Institute’s Mark Thompson.

Furthermore the cost of Australia’s three AWD (similar to the air defence variant requirements of the CSC) has ballooned to about $9 B. Can Canada afford this?

The USN has also had its share of integration problems. In March 2015, issues arising from integration of the complex technologies installed in the new Zumwalt Class destroyers were serious enough to delay delivery of the first two ships. “The schedule delay is due primarily to the challenges encountered with completing installation, integration and testing of the highly unique, leading edge technology designed into this first-of-class warship,” admitted Commander Thurraya Kent, spokeswoman for the Navy’s acquisition directorate. Shipbuilder General Dynamics Bath Iron Works was working feverishly to sort out the problems.

Canada has taken a shipbuilder with limited experience with the complexities of modern warships, and placed it in a position of authority to determine which companies it prefers to work with. This is completely backward to the normal build process of any large and complex project. It’s like putting the construction foreman in charge of choosing which cyber security engineers he/she would prefer to work with when building the new CSIS facility.

Will the Liberal government push back from the bullying tactics that have been displayed, and reconsider if the best option for Canada wouldn’t be to change to the most capable design procurement strategy? It’s not too late to turn this ship around.

After covering defence procurement for almost 12 years, the only “progress” I have seen has been that of adding new steps to the already cumbersome process. Fairness remained elusive, streamlining is apparently futile, and transparency, well, that went right out the window. I commend Ms Foote on the innovative thought processes with which she and Prime Minister Trudeau, are attempting to change the landscape. I just hope this zest to create a positive change doesn’t get beaten or bullied out of them too quickly.

© FrontLine Defence 2015