15 November 2007

The current round of U.S. defence procurement reform began in 1947 and has continued unabated ever since. After more than 128 major studies and several thousand lesser ones, and thousands of reform initiatives, the U.S. is no closer to finding the “right” solution than it was 60 years ago. Defence procurement continues to be defined by schedule slippages, cost overruns, and performance shortcomings. That situation is globally endemic. There are no national exceptions. Canada simply has its own version of the defence procurement dilemma that faces every other country – not unlike the health care dilemma that faces every developed nation.

Problematic, however, is the general ­consensus that Canada’s defence procurement system is not meeting the expectations of the any of the key stakeholders – neither the taxpayer; the Canadian public; Parliament; Canadian business; nor the military. Furthermore, allegations of improprieties and shortcomings – from requirements “fixing,” to improper contract awards, to excessive government secrecy and lack of opportunity for Canadian firms – continue to plague the system.

Numerous reforms on the margin over the past decade laid the groundwork for improvement, but few have realized their full potential. Overall, defence procurement performance is seen to be worsening, not improving. Numerous organizations have proffered solutions (often narrowly defined, self-serving solutions to individual parts of the problem), but with the exception of fast tracking a small number of controversial major projects, little has actually changed.

Canada has an opportunity to develop a procurement system that meets stakeholders’ expectations – and thus become a global model.

Best of Breed Solution
Simply put, a Best of Breed solution is two-fold: (1) identify who, world-wide, performs each function within the pro­cure­ment chain the most effectively; and (2) integrate those global best practices into a single new Canadian system. The new system could address every current shortcoming – real or perceived – by including the following transformational initiatives:

– Develop a public, long term investment plan (based on the Australian model). DND would develop and obtain government approval in principle for a 10-year procurement plan that identifies each new project, with estimated costs, for each of the next 10 years. Procure­ments would continue to be formally approved on an individual or omnibus basis, and the plan would be updated annually. All stakeholders would have a common view of the future and could use the information as they see fit. That said, the Government would be obliged to honour the plan, or DND will end up with repeats of the recent submarine fiasco, caused for the most part by the Govern­ment’s original procrastination, inability, and/or unwillingness to make timely, effective project approval decisions, while the submarines simply rotted away.

– Set up a framework to ensure project staff have the necessary qualifications and competencies (combination of U.S., Australia, UK). Currently, Canada has no formal professional or experience requirements for defence project managers or other key project staff. Insist on formal qualifications and experience. Make key project positions subject to open competition. Make provisions for project staff, including military staff, to remain with the project for its duration – this mitigates the current lack of qualified project staff and high turnover rate, and increases the likelihood of successful project delivery.

– Require third party review of key documents (based on U.S. and UK models), including validation of statement of requirements, and Treasury Board submissions. This mitigates allegations of requirements fixing, and unrealistic / unachievable cost estimates and project schedules, such as the initial Joint Support Ship (JSS) cost and schedule projections, each of which bore little relationship to reality, but were accepted by DND, Cabinet, and the Prime Minister. It has taken a decade to realize these were overly optimistic projections – the eventual JSS simply will never fill the capability shortfall identified when the project was initially approved, unless Cabinet (i.e.: the Prime Minister) approves significantly more money for it.

Canada’s recent acquisition, the new C17.

– Create single points of responsibility and accountability (based on France, U.S., Netherlands, UK, et al). No other country in the world has the equivalent of PWGSC responsible for defence procurement, in fact, the U.K. MoD also manages IRBs. One organization within DND/CF would be responsible for requirements determination, the long term investment plan, and initial Government approval of individual projects and procurements. Based on these models, another organization would be created – the Defence Materiel Organization (DMO) – to be responsible for all aspects of procurement and in-­service support, including contracting, defence industrial policy, and management of IRBs. The Director, DMO would report directly to the Minister of National Defence. He/she would assume all current PWGSC contracting responsibility. Industry Canada would retain responsibility for IRB policy, but DMO would manage the program as part of its overall defence procurement responsibility (there are clear precedents for this – Treasury Board, for example, is responsible for procurement policy, but that policy is currently executed by PWGSC). The DMO would have agency status to provide hiring / firing flexibility. The DMO concept creates a very clear accountability and responsibility chain for all defence procurement issues, thereby eliminating the confusing, inefficient, shared and overlapping DND/PWGSC/IC arrangements that exist today, wherein nobody is really accountable.

– Create integrated project teams (IPTs) responsible for entire life cycle materiel management of equipment/ systems. Canada, with its Equipment Program Manager concept, led the defence procurement world in this area, until DND recently established a separate new organization to manage major new projects, thereby moving away from a ­significant global best practice. IPTs enable automobile and other innovative manufacturers to reduce acquisition cycle time, enhance product quality, and reduce cost. Every Canadian defence ally, following Canada’s original lead, is moving their defence procurement organizations in that direction. Getting back on track will ensure a more effective long-term manage­ment of new equipment.

– Impose earned value management (EVM) on all major projects (as per American and Australian examples). Canada helped develop the internationally recognized EVM standard – a very powerful tool for monitoring project ­performance – but did not bother to implement it. As a result, DND cannot, in many cases, objectively determine whether payments can be justified or final project costs estimated. EVM eliminates the current situation of operating in the dark, knowing only that the contractor will not deliver the capability contracted for, and what is delivered will be late – as per the Canadian Forces Supply System Upgrade and its follow-on projects, where after nearly $400 million and more than two decades, much of the original requirement has yet to be met.

– Require an independent annual review of major projects (UK model). The UK Auditor General reports on the cost and schedule of the top 20 to 25 major defence projects on an annual basis, and periodically determines whether ­projects are delivering the performance / capability required. The annual report provides a level of openness, transparency, and accountability that simply does not exist in Canada. It completes the defence procurement performance feedback loop – something Canada currently seems deathly afraid of.

Today’s Opportunity
Canada’s procurement reforms to date were easy – for instance: moving from using detailed specifications to per­formance specifications; moving from military specifications to commercial standards; implementing the Project Manage­ment Institute’s Project Management Body of Knowledge (PMBOK) as its project management standard; buying off-the-shelf vice developing unique Canadian solutions; and tinkering on the margins of professional development. Procurement organizations have been re-engineered, downsized, right sized, optimized, and repeatedly re-organized.

The low hanging fruit has been picked. From here on, defence procurement reform decisions become increasingly more difficult.

There is a clear opportunity for the Prime Minister to take the lead by requiring DND to develop and obtain government approval for its 10-year investment plan and make it public; and by creating a single point of responsibility and accountability for defence procurement, such as a Defence Materiel Organization, independent of PWGSC and Industry Canada. The DMO would create an appropriately qualified professional workforce and hold individuals accountable for their actions while insisting on better project management tools than are used today. Third party review – before, during, and after key procurement actions – would objectively assess and publicly report on the effectiveness of the defence procurement organization and process.

Anything short of these actions will simply ensure that, a decade from now, industry, Parliamentary committees, the media, the public and other stakeholders will still be wondering why defence procurement is even less open and transparent than it is today, and why it’s performance is still so dismal.

On the other hand, we have an opportunity to repeat our health care experience. Take bold decisions. Break new ground. Create a new Best of Breed defence procurement system. Will it be perfect? Definitely not. It will still have warts and wrinkles. But, like our health care system, even with its warts and wrinkles, it will be recognized as the best in the world – and a vast improvement over what we have today.
A former policy advisor to then Secretary of Defense, Dick Cheney, and to President George H.W. Bush, Dr. Grover is a leading authority and international consultant on public sector procurement.
© FrontLine Defence 2007