Dr. David Perry, President of the Canadian Global Affairs Institute
Colonel Ross Fetterly (Ret’d), PhD, Fellow of the Canadian Global Affairs Institute, former Assistant Deputy Minister (Finance) at the Department of National Defence
Colonel Charles Davies (Ret’d), Fellow of the Conference of Defence Associations Institute
Alan Williams, President of The Williams Group, former Assistant Deputy Minister (Materiel) at the Department of National Defence
Dr. Philippe Lagassé, Associate Professor and Associate Director, PhD Program, Norman Paterson School of International Affairs, Carlton University
You can enjoy this episode seamlessly on Spotify and Youtube or explore it in smaller segments below:
Part One: Defence in a Shifting World: Canada’s Evolving Security Priorities Featuring Philippe Lagassé, Alan Williams, and Ross Fetterly
Part Two: Why Canada’s Defence Policy Update will Likely Under-deliver Featuring Dr. David Perry
Part Three: Balancing Force Structure and Budget: Canada’s Defence Policy and Procurement Featuring Col (Ret’d) Charles Davies
The following analysis summarizes key insights and recommendations from a series of interviews conducted between May and July of 2023 focused on Canada’s Strong, Secure, Engaged (SSE) defence policy, the forthcoming defence policy update, and defence procurement in Canada more broadly. The analysis is divided into three sections: the first provides an overview of the development, implementation, and impact of SSE; the second addresses expectations around the defence policy update, key strategic areas of focus, and critical capabilities necessary to strengthen Canada’s defence posture within the shifting geopolitical landscape; the third section will review the challenges and lessons learned in Canada’s defence procurement system and outline opportunities to address key issues.
- There is not enough focus on implementation to secure authorities, obtain policy approval, and spend money to acquire contracts and move projects forward.
- The present procurement system is not calibrated to the demand being placed on it.
- There is not enough recognition of what is actually required to implement projects.
- Risk aversion limits the scope of potential evolution in procurement by stifling autonomy and innovation.
- Preliminary cost estimates must be approached with more conservative expectations to account for unforeseen but anticipated scenarios that result in cost increases.
- Fully integrate the capability-based planning process to better inform cost estimates for the full life of a project.
- There must be more rigor in tying funds to specific outcomes.
- Provide options of different capability sets and force structures possible according to the available funding and other constraints.
- Measure expectations against the existing system and constraints, not the ideal scenario.
- Information on procurement should be shared with the public in a transparent and forthright manner to avoid the optics of mishandling when programs run into delays.
SECTION 1: STRONG, SECURE, ENGAGED
Key elements and considerations in the development of SSE
SSE was a product of the government’s view of the world at the time of its development, which occurred against the backdrop of early signs of a shifting geopolitical order, though the direction and magnitude of such a shift may not yet have been fully quantifiable. Leading up to SSE’s release, Russia’s increased aggression to its neighbours and China’s increased belligerence had not yet fully grown and were not reflected as significant considerations in the formulation of Canada’s defence policy. Following SSE’s release in 2017, shifts in the geopolitical order have become steadily more pronounced with far-reaching consequences for international security. Closer to home, at the time of SSE’s release, Canada saw a U.S. presidency adopt a much more transactional approach to diplomacy and vocalize frustration regarding Canada’s defence spending more forcefully.
Since the release of SSE, there have been a number of strategic shock events that have forced countries, including Canada, to reconsider their approach to foreign policy. Russia’s invasion of Ukraine and China’s detention of Michael Spavor and Michael Kovrig—though these events were manifestly different in nature and scale—made clear where the trend lines were pointing in terms of geopolitical competition. The reality of Russia’s and China’s belligerence rendered the flexibility of SSE a far more ambitious policy than what the government had originally envisaged at the time of its development.
Funding and implementation under SSE
A point of contention with SSE, or perhaps the communication around it, has been the fact that it was a self-described “fully funded” policy. Though SSE may have been a better costed and more calibrated funding decision than previous policies, the emphasis on SSE being fully funded was overstated and perhaps contributed to a misunderstanding around what the defence policy is and what SSE set out to accomplish.
SSE was meant to provide the government’s assessment of Canada’s national defence needs and outline plans to keep the CAF capabilities needed to fulfill those needs current and capable. This included providing cost estimates for the investments required and allocating the funds to make those investments, which provided DND and other departments direction in executing procurement programs.
As one expert put it, the fact that cost estimates can increase over time has suggested to some that SSE was underfunded from the beginning and therefore a deficient policy. However, cost estimates are point-in-time estimates based on certain assumptions and those assumptions change as work proceeds and unknown variables become known. As basic commodity and labour prices change, cost estimates also change, usually upwards. Governments must then decide whether to restrict what they are asking the project to deliver to the budget or commit to the level of capability needed and make funding available. To expect the ultimate cost of an evolving project to be fully known from the get-go is not a realistic expectation.
Experts agreed that there had not been rigorous work done about implementation under SSE, which impedes the ability to plan projects against the available budget and know with some degree of certainty when projects would move forward. When project budgets become out of sync with the corresponding project phase, it results in additional issues that drive up costs.
The consumer economy inflation and unprecedented supply chain disruptions as a result of Russia’s war in Ukraine have revealed fault lines in the international defence industrial base and exacerbated pre-existing challenges in procurement.
While the implementation of SSE leaves much to be desired, without the policy DND would face even greater obstacles in moving programs forward. It is common for policy direction to become stale after a few years, which is why the policy update is important—it provides DND with the direction to adjust to new circumstances.
Impact of SSE on Procurement
While SSE at the time of its inception represented a major recapitalization of the CAF, its aspirations for improving defence procurement have remained largely unfulfilled. Following the release of SSE in 2017 there was no visible sign of improvement being made to the departmental machinery of government responsible for moving large procurement projects forward. Instead, SSE largely followed in the vein of previous policies that made minor alterations to specific force structure as opposed to any real evolution.
Though SSE was assessed independently with respect to costing and deemed a fundamentally sound policy document, it was ultimately far too ambitious for the funding available, the timeframe desired, and the existing will to follow through with implementation. Though there was an expected three-to-fourfold increase in spending within a few years of its release, there have been funding shortfalls in several areas.
In line with previous attempts by successive governments to improve defence procurement, SSE articulated a number of aspirational goals. However, those goals were not accompanied by concrete actions to achieve results within the envisioned timeframe, which has resulted in incremental and peripheral developments that have been insufficient in fulfilling the aspirations of SSE.
SECTION 2: DEFENCE POLICY UPDATE
Concerns and predictions
There is some variability among experts regarding the specifics of what the DPU will include with convergence on key areas, whether it will happen, and if so, how significant the update will be in terms of direction and magnitude. It was widely expected that the DPU would be released ahead of the NATO Summit in Vilnius as a signal to allies that Canada remains dedicated to meeting its defence and security commitments. Limited information provided by the government regarding a timeframe for its release has further contributed to low expectations for the DPU overall.
Irrespective of a release date, most experts cited Russia’s war in Ukraine, China’s increasing belligerence, and continuing pressure from NATO allies on defence spending as significant pressure points and areas that require deeper consideration for any defence policy update to be meaningful. One expert remarked that the DPU will likely outline how the government plans to replace equipment donated to Ukraine.
Experts expressed the concern that Canada cannot continue to depend on the United States to fill gaps in its security and defence, nor can Canada continue the pattern of affirming commitments to NATO allies and other partners without taking concrete actions to follow through. Despite increasingly turbulent circumstances developing internationally, experts were not optimistic that Canada has demonstrated material progress in reaching the 2% GDP defence spending target in a timely manner to match new security realities.
The interrelated challenges of funding shortfalls and lack of focus on implementation are principal concerns highlighted by all experts.
Canada’s present funding framework for capital investment allows funding to be reprofiled from one year to the next with relative ease. As one expert noted, however, this system benefited from historically low-interest rates and costs of financing. With the Bank of Canada having increased their rates to 5% for the first time in a generation, the impact of lost purchasing power and the reprofiling of funds indefinitely will deeply impact procurement, and it does not appear that the government or DND have truly recognized what the present inflationary environment means for procurement.
Strategic areas of focus
Key strategic areas of focus that warrant immediate attention and reinvigorated commitment centre on Canada’s two main defence alliances, NORAD and NATO. Experts agreed that NORAD modernization is paramount to bolster Canada’s domestic defence posture and fulfill its role in the defence of North America. Experts also emphasized the need for Canada to respond to increasing pressure from NATO members to fulfill its stated commitment to meet the NATO defence spending target of 2% GDP, which Canada reaffirmed at the Vilnius Summit. Failing that, experts argued that it would signal Canada is not prepared to be a serious ally in a more contested world.
There was significant convergence among experts that the ongoing war in Ukraine will be—and has indeed already become—central in informing strategy tailored to address contemporary threats. The integration of new high-technology capabilities (e.g., drones) and approaches to conducting threat assessments are two such areas of strategic importance.
The past 18 months have demonstrated that Canada has underinvested in its ability to mobilize the defence industrial base, which points to its limited capacity to sustain its own capabilities as well as support allies in conflict for as long as necessary. While Canada has provided some capabilities and financial support to Ukraine, there has been little effort in developing a strategy to be able to provide support on a systemic basis, despite the war showing no signs of slowing down in the near term.
One expert noted that for several decades Canada’s procurement strategy, like many other countries, centred around sustaining low-intensity conflict such as peacekeeping and counterinsurgency. However, the war in Ukraine has brought to light the need to be able to sustain a much higher level of intensity such as seen with conventional warfare. Strategic sustainment of high-intensity conflicts requires deeper reserves of capabilities, ammunition, and spare parts inventory which Canada presently does not have.
There was divergence among experts regarding what timelines should be prioritized to get capabilities to an operational level. While all experts noted that it is necessary to plan over the long term, the point was also raised that Canada has a tendency to focus on committing to long-term goals at the expense of implementing short-term requirements that have already obtained all the necessary approvals. One expert stated it is not likely that new projects introduced in the DPU would realistically become operational within 15 years. Historically, large projects have been on the order of 20 years before they become operational, and this is without factoring in the present personnel shortages in the CAF. In light of that, and an important lesson from the war in Ukraine, is the necessity of focusing on what is feasible within shorter timeframes (i.e., 5 years) in order to be able to respond to rapidly changing circumstances and replenish depleted stocks.
Prioritizing critical capabilities for CAF readiness
Most experts cited the acquisition of a new submarine fleet as the most urgently needed capability for Canada’s security and defence. At the time of SSE’s release in 2017 it was already felt that the replacement of the second-hand Victoria-class submarines was overdue. SSE made mention of mid-life updates for the Victoria-class rather than charting a plan to replace the aging fleet, which has received criticism. Recent developments point to more progress being made, though experts expressed reservations about the timelines and feasibility of the project given the government’s tendency to set overly optimistic goals that result in delays.
Experts cited the Aurora replacement as another critical capability to prioritize, which is in progress. Alongside the Canadian Surface Combatant and F-35 programs currently in implementation, these programs constitute the gradual rebuilding of components critical to the ability of the CAF to conduct surveillance and defend Canada’s maritime and air approaches.
Canada’s Army acquisition capital program was identified by experts as a priority that requires increased focus. Because the Army acquisition capital program is comprised of a greater number of set-piece projects relative to the fewer, larger centre pieces of either the Navy or Air Force, the complexity of its procurement process can build up quickly. Consequently, gaps and delays in programs can arise and pile up if the appropriate attention and resources are not afforded. Land communications and C4ISR, as well as ground-based air defence and utility vehicles were given as examples of such projects.
Infrastructure reinvestment was specified as a priority that has not received sufficient focus. Taking into account the increasingly contested domains in the Arctic and Indo-Pacific, infrastructure reinvestment will be an important priority underpinning what capabilities are possible in those domains. One expert noted that while there is understandable focus on equipment, capabilities and people, postponing reinvestment in infrastructure for too long results in major liabilities down the road.
SECTION 3: CANADA’S DEFENCE PROCUREMENT
Chronic challenges to procurement
While there are a number of factors across Canada’s defence procurement system that present obstacles to a more agile system, two overarching trends emerge: 1) The strategic imbalance between the force structure desired and the defence budget available; and 2) The lack of calibrated implementation in tying specific funds to specific outputs to keep projects moving.
The strategic imbalance between the force structure desired and the defence budget available has amounted to chronic aging-out of key systems due to resources being spread too thin across too many initiatives. Thinned resources result in delays in planned spending which in turn pushes projects into the future and increases the overall costs. Personnel shortages in DND and CAF further impacts the ability of the defence establishment to staff capital equipment programs.
Experts noted that while there has been increased focus on agile procurement, particularly for hi-tech systems, it remains a challenge, and implementation writ large remains a weakness. One contributing factor to Canada’s underwhelming track record on implementation is the evident preference to secure approval for new projects over a rigorous commitment to deliver on projects already approved and in progress.
One expert suggested that a major reason why Canada is behind the technology curve is that the proportion of the defence budget spent on recapitalization of major equipment is below the recommended NATO floor of spending 20% on major equipment.
Experts agreed that a major challenge for Canada is keeping capabilities current, which necessitates the ability to adequately calibrate long-term plans and ensure investment and funding is available for the entire lifespan of the system, including its operation and maintenance, which accounts for a larger proportion of the full cost than procurement alone. It was noted that several of Canada’s systems have been allowed to age beyond what is desirable, which creates issues for effectiveness and interoperability and results in significant competition within DND to determine which obsolescent system to prioritize replacement for.
On the political side, one expert suggested that Canada’s political establishment is aware of the fact that Canadians by and large are not appraised of defence and security issues, and as such it is not an area in which to garner votes. However, the expert made the point that it is not justifiable for the government to neglect its duty to lead on defence. Regardless of whether Canadians are interested in the details of defence they deserve a military fit for purpose, and military members deserve an agile organization capable of providing them with the tools they need to do their job. A closely related issue raised by another expert is the low tolerance of risk with respect to the expenditure of public funds, which presents a major challenge in moving towards faster procurement.
Lessons learned and opportunities
Key lessons that have come out of SSE and the changing geopolitical environment over the past six years point to the critical importance of modernization, meeting commitments to allies, and balancing short- and long-term priorities. Implicit in those initiatives is the necessity of transforming Canada’s procurement system and establishing rigorous standards to improve implementation. Peripheral adjustments to processes and weak adherence to execution of programs are insufficient for Canada’s defence and security needs.
The most important lesson from Ukraine is the need to increase depth of capabilities and stocks in order to be able to support allies and partners in sustained conflict. In conjunction with that, there must be increased focus on what capabilities can be developed and operational in the short term in order to be able to provide support in a timely manner.
With respect to Canada’s long-term defence and security needs and the corresponding programs required, it is imperative to map out plans on the order of 30-35 years and incorporate the funding and investment needed to support the entire lifespan of the policy, including acquisition costs, lifecycle maintenance, and operational costs. If there is not sufficient financial provision for a project in the policy, then a decision must be made on whether to lower the expectations of the capability or provide more funding. In any case, policy must be balanced with resourcing. Regardless of policy direction, programs will not move forward without sound costing approaches and the ability to spend money quickly as needed.
Greater acceptance of risk and tolerance of error is crucial in getting procurement to move faster—if the goal remains to avoid mistakes rather than pursue innovation, significant improvement will remain out of reach.
Within defence and in government more broadly, transparent systems are robust systems. The more information DND provides to the public domain the less scope there is for issues and delays to take on outsized importance—if details of procurement become more routine and less shrouded then they are less vulnerable to the optics of controversy. Additionally, providing parliamentary committees with more access to information on the procurement system overall can foster cross-party cooperation on this portfolio.