How not to do defence procurement: The replacement of the Sea King maritime helicopter has been a needlessly costly, decades-long and confused saga.  Photo: LS/Mat1 Ogle Henry, DND/MDN RP07-2017-0074-001

Colonel Charles Davies (Retired), CDA Institute Research Fellow, is a regular contributor and frequent commentator on defence management, defence procurement as well as national security and defence policy issues.

 

 

Two recent reports from the Standing Senate Committee on National Security and Defence: Military Underfunded: The Walk Must Match the Talk (April, 2017); and Reinvesting in the Canadian Armed Forces: A Plan for the Future (May, 2017) call for major reform of the Canadian government’s approach to managing the nation’s defence institutions and capabilities. Most commentators have so far focused on the Committee’s spending proposals, in particular its call to increase defence spending to the NATO-agreed target of 2% of GDP and its list of equipment priorities, and indeed these are eye-catching and important recommendations.

Much less attention has been paid to the fundamental institutional reforms the Senators have proposed, and this is a mistake. Their recommendations to entirely reshape how defence procurement is managed within the government, to mandate a four-year cycle to regularly update Canada’s defence policy, and to reform how Parliament and the government of the day approach defence policy would – if implemented – substantially improve the nation’s management of its defence capabilities regardless of the level of funding allocated by any given government. They are important and far-reaching foundational changes that deserve our full attention.

To focus, for the moment, on the first of these proposed institutional reforms: making National Defence solely responsible for defence procurement and eliminating the current complex collaboration framework among multiple departments and ministers would be a significant and positive change. It would bring Canada into closer alignment with most other Western democracies and eliminate the blurred accountabilities inherent in the current business model. It would also, over time, drive out the systemic inefficiencies that David Perry has comprehensively shown are so wasteful of the limited funds allocated to defence. As I have argued elsewhere, bad machinery will tend to push an organization more frequently towards bad decisions than good, and will certainly make reaching and executing all decisions more difficult, time-consuming, and expensive. We see this phenomenon in spades in Canada.

The Senate Committee’s recommendation therefore has strong merit as a starting point, and in fact has been put forward previously by others such as former DND Assistant Deputy Minister (Materiel) Alan Williams. However, it is slightly off the mark.

There is no doubt that creating a single entity responsible for defence procurement would improve efficiency. However, it would not necessarily consistently deliver the best outcomes for Canada, because defence procurement is not a stand-alone activity. It is but one piece of an integrated whole.

International best practices in this area are captured in an ISO Standard and reflected in the NATO Policy on Systems Life Cycle Management, which is based on that standard. These call for an integrated whole-life approach to management of complex systems, from initial design to ultimate disposal. The objective is to optimize defence capabilities over the full life of the system while minimizing total life cycle cost. This means, among other things, that procurement plans and decisions should not be focused on the near-term objective of completing the acquisition on time and on budget – as critical as those factors are. It is entirely possible for a “good” procurement like this to deliver a “bad” outcome when downstream costs or performance issues are considered. Consequently, procurement needs to nestwithin a whole-life view of the equipment from conception and development through acquisition, in-service use and support, and ultimate disposal.

It is for this reason that countries such as France, the UK, and Australia (among others) do not have stand-alone defence procurement organizations. They have defence materiel organizations that are responsible not only for procurement, but also the other phases of equipment life-cycle management. While the different activities involved do require differing kinds of expertise and structures within such organizations, at the top levels senior management has the authority and incentive to focus everyone on keeping total life cycle costs down. Given the complexities, scope, and political sensitivity of the associated activities, it is common for governments to appoint a separate minister accountable to Parliament for overseeing the defence materiel organization within the wider defence portfolio.

This model does not solve all the difficulties, and it can take many years to create the organizations and bring them to optimum performance. However, this has become the de facto gold standard among Western democracies because it works better than other models. Contrary to the assertions of some Canadian critics, it also delivers better results across the spectrum from optimizing defence industrial preparedness and economic outcomes through getting the best “bang” for the defence “buck.” Further, it makes it much easier to identify and fix problems in the system, hold people accountable, and incentivize continuous improvement. These are all outcomes Canadians and their governments want to see.

The Standing Senate Committee on National Security and Defence has it right in pointing a finger at this key issue, and has opened the door to an important wider national debate on how Canada’s defence capabilities and institutions should be managed. Canadians need to look beyond the headline-grabbing elements of their two reports and towards the key foundational reforms they propose. These are the things that will, if implemented, deliver the most enduring outcomes, and these are the things we all need to focus on. Implementing a defence materiel organization model would be a good place to start.

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