Fixing Defence Procurement: Dig Deeper to Find the Real Problem

Charles Davies

 

In a recent CDA Institute Forum article, a former Assistant Deputy Minister of DND’s Materiel Group, Alan Williams, made the case for fixing defence procurement by assigning responsibility for the function to a single accountable government minister.  Conversely, in 2019 one of his predecessors offered a different solution in testimony before the Senate Finance Committee, arguing for a restoration of the collaborative model that existed prior to the major defence budget cuts of the early 1990s, which gutted the Materiel Group and cost it most of its civilian procurement expertise, where the responsibilities and accountability between DND and PSPC were well understood and respected by the officials of each department.

I understand both perspectives, but must respectfully conclude that neither measure actually targets the root of the problem.

What is the Real Problem?

Defence procurement is not a stand-alone activity, and the headline-grabbing high-profile major equipment acquisitions don’t represent the full scope of its reach.  Rather, it is a mission-critical enabling process that needs to be reliably executed and very well integrated into the conduct of the defence institution’s business, in particular the life cycle management of military equipment and the day-to-day operations of DND and the CAF.

The acquisition and life-cycle management of complex systems is a particularly challenging function for all militaries, and NATO has published a comprehensive set of policies and end-to-end business processes for member states and partner nations to follow in doing so.  These are based on international best practices published by the International Standards Organization (specifically ISO Standard 15288) and the figure below provides a very high-level summary.

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Procurement happens in most or all of these phases in the life cycle of major defence equipment, from contracting for studies and analyses at the front end to decommissioning, demilitarization and disposal of equipment upon retirement.  Acquisition of the equipment itself is only one step along the way, and it cannot be disconnected from the prior and following activities without risking driving up the whole-life cost of ownership.  A system delivered on time, on budget and at the lowest cost does not necessarily have the lowest lifetime cost of ownership; another with a higher purchase cost may have lower operating and/or support costs and thus a lower overall ownership cost.  

For all these reasons, neither a separate defence procurement organization nor fixing the DND-PSPC boundary problems would address the core problem.  As long as key parts of the procurement function are institutionally separated from DND equipment life cycle management and the conduct of CAF operations there will continue to be dysfunction.

Further, focusing primarily on the DND-PSPC relationship does not address another major source of process friction and delay in defence procurement: the involvement of Industry, Science and Economic Development Canada (ISEDC).  That department is front-and-centre in the government’s Defence Procurement Strategy in the key area of industrial value propositions for major procurements, and manages the government’s Industrial and Technological Benefits (ITB) Policy.  At least one major defence acquisition was held up for several years by interdepartmental negotiations to resolve issues of concern only to ISEDC.

So what is the Fix?

We need to shift from a focus on “defence procurement” to one on “defence materiel.”  What is needed is a “form follows function” solution of a unified defence materiel organization that includes full accountability for not only defence procurement but also the life-cycle management of defence materiel and related support to CAF operations.  This organization should report to a single accountable minister, similar to the model adopted by Australia, the UK and most NATO allies.

This unified management structure does not by itself overcome the many technical, operational and other complexities associated with acquiring and operating advanced defence systems.  These are inherent in the technologies involved and the operational needs of military forces.  Nor does it short-circuit the government’s ability to apply political filters to decisions, achieve wider national objectives like ensuring effective governance of procurement or obtain wider economic benefits from defence spending.  Most nations with unified materiel organizations also do all these things.  

The idea is also not new in Canada.  Shared Services Canada has such a model for managing government IT and communications systems, including the procurement function.  There is also no compelling policy impediment; a 2005 Government-Wide Review of Procurement led by the then Parliamentary Secretary to the Minister of Public Works and Government Services concluded that “corporate management of procurement does not require the centralization of transactions.”  Similarly, achievement of ITB or other industry policy objectives does not depend upon direct involvement by ISEDC.  A unified defence materiel organization would be no less obligated to comply with all government policy requirements in conducting its business.

What the unified model does is save considerable time (and time is money in defence procurement) and enable better and more timely decision-making by government.  It does so in three ways: 

  • Improving quality and consistency in the analysis of issues by bringing work currently scattered across three departments into one rationalized structure and, equally importantly, making it part of its core business;  
  • Where the various policy objectives or other factors come into conflict (which is not uncommon), by replacing the current ad-hoc case-by-case interdepartmental negotiated resolution of issues with a unified management framework within which balanced but timely decisions can be made, the reasons documented and decision-makers held accountable; and
  • Enabling the establishment of an effective system-level performance management framework to support continuous improvement, which is currently impossible because of the fragmentation of processes, authorities and accountabilities. 

Canada is actually well placed to implement a unified solution.  DND’s Materiel Group is already structured around the NATO life-cycle management model, less the functions resident in PSPC and ISEDC.  PSPC has segregated its Defence and Marine procurement functions into a branch separate from general government purchasing, and bringing it together with the Materiel Group would not be difficult.  Transferring the relevant ISEDC activities would involve a different solution but the resources involved are modest and the challenges few.  Business process and organizational optimization by the integrated leadership team can follow over time.

The legal and policy mechanisms for effecting this change are also in place.  What is required is a transfer of the powers of the Defence Production Act from the PSPC minister to either the Minister of National Defence or (preferably, given the scope of responsibilities and the fact that the materiel organization would be larger than many government departments) an Associate Minister of National Defence for Materiel.  This could be done initially by an Order-in-Council under the Public Service Rearrangement and Transfer of Duties Act pending an eventual amendment to the Defence Production Act.  That act already assigns the responsible minister authority over defence industrial planning and preparedness, so the functions currently exercised in defence procurement by ISEDC are largely covered.  Beyond this legal change, a few modest adjustments would also be required within the Treasury Board policy suite.

Conclusion

In Canada, fixing defence procurement has been the subject of interminable debate for a very long time, with successive governments coming into office promising improvements but never able to deliver substantive results.  To be fair, this is partly because of the inherent complexity of the function and the technologies, operational needs, political dynamics and other factors involved.  Indeed, all nations have to deal with these challenges and none has a perfect success record.  

However, Canada uniquely adds to these inherent difficulties by applying a collaborative interdepartmental business model to the function, and this adds substantial complexity, delay and cost to what is already a tough job.  Solutions focused only on the procurement function cannot be successful because the key to achieving real improvement is to look at the activity in its wider operational and equipment life-cycle context.  Only an integrated defence materiel organization that has full procurement and contracting responsibilities embedded within it will eliminate the underlying problems associated with fragmented authority and accountability.  The good news is that all of the organizational, legal and other pieces for this kind of solution are already in place – what’s needed is to bring them together under unified leadership.

 

Colonel Charles Davies (Retired) served for four years as the strategic planning director for DND’s Materiel Group and three years as the senior director responsible for DND/CAF materiel acquisition and support policies, business processes and standards.  He is also a former chair of NATO’s Life Cycle Management Group.