NDDN Committee Report

One of the issues that has been raised with regard to this process is whether or not the contracting functions of PWGSC should be integrated directly into the Department of National Defence.  On the surface, there would seem to be both positive and negative aspects to such an action.  As noted by the Honorable Michael Fortier, Minister of Public Works and Government Services, “…Canada is one of only a few countries where this separation exists…in both the United States and the United kingdom…the military does its own procurement.” He went on to note that this separation has existed for nearly 70 years and that it is a crucial aspect of ensuring that the process is not only fair but also that it is seen to be fair.  By keeping the needs identification and contracting functions separate, the approach allows for appropriate civilian oversight throughout the procurement process. ^[3] However, a single agency handling defence procurement could also lead to a simpler process with a clearer line of ministerial responsibility.

It should also be noted that Canada is not the only country to have long dealt with the issue of defence procurement reform.  The United States, Australia the United Kingdom and others have engaged in reform exercises.  As here, these countries also have those who want to entirely reform their system.  In this regard your Committee finds itself agreeing with Mr. Pierre Lagueux, former Deputy Minister of Materiel, when he urged caution about such ventures.  According to Legeaux, the system is not entirely broken and we do not need to create a radically new organization.  Mr. Lagueux then disagreed with a recommendation put forth by Mr. Alan Williams, also a former Deputy Minister of Materiel.  Williams argued on behalf of the creation of what he termed “Defence Procurement Canada” (DPC), an organization that would combine the procurement resources from DND and the contracting resources of PWGSC.  This new structure would become the sole organization accountable for defence procurement.  DPC would report to the Minister of National Defence who would be accountable for all elements in the procurement cycle, “…from the preparation of the statement of requirements, through the request for proposals, through the evaluation, and through the contract signing and administration.” 

Rather than engage in grand institutional restructuring, Mr. Lagueux presented the Committee with a series of very practical common sense solutions that we commend to the Government for consideration.  These are:

• No acquisition should start without a clearly understood and accepted statement of the capability deficiency that is to be rectified, and limited by a clear understanding of what it is not intended to do. “Statement of Requirement creep” is a major contribution to added time and complexity to procurement.
• There must be early industry involvement in identifying possible solutions to the capability deficiency.  Indeed the solution to the capability deficiency may in the end, not even be equipment procurement.
• The process should employ well trained, knowledgeable, and experienced cross-departmental integrated project teams, as soon as the requirement has been well defined.
• Procurement strategies must not just identify risk, but strategies that inherently minimize risk need to be adopted.
• Contracting processes that support greater use of performance specifications as opposed to overly detailed specifications should be encouraged.  However, there will still often be occasions where there is a need for detailed technical specifications.
• In awarding contracts, potential suppliers past performance should be a considered factor.
• Procurement strategies will vary from project to project, but the rationale for selecting a particular strategy must be consistent and understood, and recognize industry as a partner in the process with legitimate expectations and costs.  They are too often viewed as the adversary.
• Most importantly, underpinning the whole of Defence procurement, there should be a government stated Defence Industrial Base Strategy, such as the UK and Australia has each recently published.
• There should be greater use of positive contractor incentives – not just penalties.
• DND must have a realistically stable future funding line; before being allowed to proceed, each project should present a realistic cash flow profile; and projects should be gated under specific cash/timeline targets, subject to cancellation for failure to meet the agreed gates.

Elements of these principles were also found in the testimony of other witnesses.  We find them to be based on sound argument. Bureaucracies are cumbersome institutions not easily turned to completely new ways of doing things.  Their strength lies in predictability and practiced methods established over long periods of time.  It is because of this that bureaucratic institutions are able to deliver the goods and services we ask of them, and to do so in a consistent and dependable manner.  Reform is certainly possible, and often times necessary.  There are five core objectives that a defence acquisition strategy must satisfy.  These are:

• The strategy must ensure that the Armed Forces receive the equipment that meets their approved and defined operational requirements.
• It must do so in a timely manner.
• Value for money must be, and be seen to be obtained.
• Risk must be managed equitable with industry.
• The strategy must facilitate government’s ability to use defence procurements as a lever to achieve other worthwhile wider objectives (industrial benefits, technology transfer, regional development, and so on).^[4]

We firmly believe that these objectives can be achieved by DND’s acquisition system if the foregoing ten points come to inform the reform process.  The Committee therefore recommends that:

1. These ten points also be used by the Government as fundamental guiding principles in the reform of the defence procurement system.

Currently, pressures on the procurement system come predominantly from the CF’s operational mandates -- primarily Afghanistan.  The exigencies facing our troops in Afghanistan dictate that they be provided with needed equipment as quickly as possible.  At times, this will mandate a degree of flexibility in the procurement process not otherwise necessitated.  However, we must be careful to ensure that exceptions do not become the rule.  That is, there may be times when sole source contracting is used as an expedient because a lengthier competitive process could jeopardize the well being of our troops.

Here it is important to remind ourselves of the cautionary note offered by the Auditor General (AG) when appearing before our Committee.  She argued that while DND is “…looking to introduce new platforms into service very quickly – much faster than they have been able to in the past…government regulations require that a fair and open bidding process be followed and that there is transparency in the selection of successful contractors.  Following regulations takes time, and Defence cannot skip steps or cut corners to speed up delivery.  Senior management from all the departments that are involved in defence acquisitions must be accountable for ensuring the fidelity of the process and for demonstrating that all steps were taken to obtain the best value.” ^[5]

An open and competitive process is what should be striven for whenever possible.  Exceptions should not be matters of convenience but should rather be governed by clear regulations and principles.  Therefore the Committee recommends that:

2. The Department of National Defence investigates ways of making sole source contracting more transparent and accountable, with the aims of substantially reducing procurement wait times for major capital projects necessary for Canada’s national security.

From the foregoing it is apparent that our Committee has a generally favorable view of the procurement process.  However, there remain issues that we believe still need to be addressed.  In the final analysis what we want to ensure is that the procurement process is transparent, fair and efficient.  For us to be able to judge whether or not these norms are in effect we need to have a clear understanding of why certain equipment is being purchased, for both the short and long term.  We fully understand the need for quick decisions made in respect of equipment purchased for our troops fighting in Afghanistan.  Their safety and combat effectiveness must not be compromised.  Here, needed equipment must be provided in the quickest way possible.  We understand that at times it is simply necessary to bruise the preferred principles of competitive bidding with sole sourcing.

At the same time, there is the matter of long term strategic planning.  Here, equipment purchases are based on assessments of future requirements and should therefore be readily subject to Parliamentary Committee oversight and competitive bidding.  The oversight function is the most important role performed by Parliamentary Committees.  At the same time, while we insist that we be accorded the right and tools to effectively carry out this function, our Committee, over the years and successive Parliaments, has never pretended that it was in a position to prescribe the types of equipment required by the Canadian Forces (CF).  We have always believed this to be a matter for professionals.

While granting the above, we have also consistently argued that our Committee – we as Parliamentarians – need to be an integral part of the decision making process.  The determination of capabilities is directly linked to policy.  Policy tells us where we should or might be headed.  Capabilities are the requisite components for getting us there.  Yet, despite billions of dollars spent on equipment we are still awaiting the Defence Capability Plan.  In the absence of such basic planning documents it is difficult for our Committee to assess the credibility of current policy and equipment purchasesd.

We fully appreciate the unpredictable nature of recent times and that capability planning can therefore not be an easy matter.  However, as a Committee we believe it is important for us to know both the status and content of the document.  We therefore recommend that:

3. Out of concerns for transparency and accountability, the National Defence Capability Plan be made public and tabled with the Standing Committee on National Defence by the end of the current fiscal year.
4. Further to the basic elements of the procurement process that the Defence Capability Plan be considered a foundation of that process.

As already noted, the Committee believes that the procurement process must be transparent and accountable.  Again, it is we as Parliamentarians, through the medium of our Committee work that helps make the principle of accountability a reality.  Furthermore, we also have an important policy role, as well exercised through our Committee work.

Thus, when major capital defence projects are being considered we believe it imperative that the Standing Committee on National Defence be part of that process.  Its role in this regard needs to be made more meaningful.  We therefore recommend that:

5. All major crown projects valued at more than $100 million proposed by the Department of National Defence be reported to the Standing Committee on National Defence for examination before the contract is awarded.

It is important to note that we are not looking for a veto over proposed crown projects.  Nor are we in any way suggesting that we are the ones who best know what equipment it is that the CF require in order to sustain their capabilities.  While fully recognizing the principles of company confidentially and privacy, we do believe that the Committee could be given wider access to relevant documentation than it currently enjoys.  We are simply arguing that, as an integral and important part of the policy process, our Committee be given the opportunity to voice its opinion before rather than after the fact.  It is therefore important that once major projects are being considered and before contracts are awarded that the Committee be able to make its views known.

This is the third time our Committee is putting forth this recommendation.  We first proposed it in June 2000 in our Procurement Study and again in April 2005 in our study Procurement of Canada’s Victoria Class Submarines.  In both instances we found the arguments made in support of rejecting the recommendation evasive.