Defence Procurement | The Elephant in the Room
The recent announcement by the Government that it will be embarking on a new Defence Policy Review should be supported and welcomed by all Canadians. Canada must be better prepared to address the dramatically evolving threats to our peace and prosperity.
However, any new policy initiatives will be nothing more than a “paper tiger” if Canada does not have the capability to deliver on these policies by providing our military with the necessary equipment in a timely and cost-effective manner. Sadly, this has been the reality for past decades, is the reality today and will be the reality for the foreseeable future unless and until the Government addresses the “elephant in the room”. Namely its refusal to hold one minister accountable for defence procurement.
For over a decade, I have been a fervent advocate for the need to establish one point of accountability for defence procurement. Quite simply, the excessive overlap and duplication between the roles of the Minister of National Defence (DND) and the Minister of Public Services and Procurement Canada (PSPC) guarantees delays in deliveries, cost inefficiencies and muddied accountability. When two ministers are in charge, no one is in charge. Unless and until one minister is placed in charge of defence procurement, the process will never be as efficient and effective as it could be.
How did we get to the point where we have multiple ministers in charge? A brief review of the history of defence procurement is relevant.
The decision to establish a federal department with authority for procurement was a government response to the angry reaction by the Canadian public to profiteering during World War I, and subsequently to the infamous “Bren Gun” scandal of 1938. As a result of the scandal, the government quickly reacted and in 1939 created the Defence Purchasing Board with exclusive powers to enter into contracts to purchase munitions and the power to control profits.
In 1951, following a number of organizational changes, the Department of Defence Production was created. Under the Defence Production Act, it was responsible for procuring the goods and services required by the Department of National Defence and ensuring that the necessary production capacity and materials would be available to support the defence-production program.
In 1960, the Royal Commission on Government Organization was established to examine the structure and methods of operations of the departments and agencies of the government and to recommend changes to “promote efficiency, economy and improved service in the dispatch of public business.” It was headed by J.G. Grant Glassco and was referred to as the Glassco Commission.
In October 1962, the Glassco Commission released its report. Its impact on the government organizations and structures as a whole and on the purchasing and supply community in particular was profound. It observed that real benefits could be achieved by removing support services from individual departments and consolidating them in one common service organization. It found that the purchasing function in departments and agencies was so dispersed and fragmented that it was too often left in the hands of individuals with inadequate knowledge and skills. Further, that while some departments had specialized requirements, the vast majority of purchases comprised types of goods needed by most departments.
On April 1, 1969, Parliament passed the Government Organization Act. This Act established the Department of Supply and Services by merging the Department of Defence Production (except for the International Programs Branch), the Shipbuilding Branch from the Department of Transport and a range of other services and programs consolidated from various organizations.
The Department of Public Works and Government Services Act came into force on July 12, 1996, giving legislative sanction to the amalgamation of the former department of Public Works and the former Department of Supply and Services. The department was intended to operate as a common service agency for the Government of Canada in support of departmental programs and, importantly, enhance the integrity and efficiency in the contracting process. In the fall of 2016, PWGSC was renamed Public Services and Procurement Canada (PSPC).
In summary, with respect to procurement, PSPC evolved with the objective to save the taxpayer money by taking advantages of economies of scale and to ensure integrity in the process by providing oversight. The question today is whether these objectives remain valid with respect to defence procurement.
First, the PSPC mandate to provide common services has little, if any, impact on the procurement of defence-specific goods and services. The acquisition of military goods and services is not a common service, but rather a DND-specific service. No other department is going to acquire these kinds of weapons systems and as such no efficiencies through economies of scale are realized by PSPC. in fact, costs are unnecessarily driven higher.
Second, while PSPC oversight historically helped to ensure integrity in the process, today there are other mechanisms that serve the same purpose. Of particular note is the role of the Canadian International Trade Tribunal, the court system, the Auditor General of Canada, the media, and the advent of social media help guard against any manipulation of the system. There is no doubt that anyone working on a DND procurement file is aware of the dangers in operating with anything less than full openness, integrity, and fairness. It is noteworthy that PSPC itself has acknowledged that it is incapable of ensuring the integrity of the defence procurement process. On September 14, 2007, it issued policy notification 86 (PN-86), asserting that it would no longer be accountable for the information provided by departments. This change is reflected in section 1.10.5 (e) of the PSPC Supply Manual which now states, “Clients are responsible for ensuring that all information relating to their requirements, which is provided to PWGSC, is complete and accurate”. The technical statement of requirements (SOR) defined by DND is obviously the primary means to wire or fix a procurement (witness the F-35 SOR debacle). Rather than finding ways to validate the openness and fairness of the SOR, PSPC decided to abdicate its role and admit defeat in ensuring integrity over the entire process.
The fact is, even ministers do not understand their individual roles and responsibilities.
On 12 February 2006 in an interview with Craig Oliver from CTV, the new minister of national defence, Gordon O’Connor said
I have three functions that I see in procurement. First, I have to make certain that the requirement is a fair requirement, that the people who make this requirement do not have some particular product in mind. That’s my first requirement. My second requirement is to make sure that the process itself is fair, open, transparent. And that if they’re conducting a competition, it is a true competition. And if those two conditions are met, I will sign the contract.
The reality is that the latter two requirements are not his responsibilities, but rather those of the minister of PSPC.
Ironically, instead of clarifying and strengthening accountability, over the past few years we have witnessed a continuing erosion and confusion surrounding accountability. Under the Defence Procurement Strategy (DPS) a new Permanent Working Group of Ministers was established, supported in turn by a new Permanent Deputy Ministers Governance Committee. Through this maze of committees, it is even more difficult to pinpoint the minister accountable for defence procurement.
In December 2019, I was encouraged that the government was finally going to act on this recommendation. The mandate letters at that time for the Ministers of National Defence and Public Service and Procurement Canada included a directive to bring forward options for the creation of a new single entity, Defence Procurement Canada. Sadly, my hopes were dashed when the December 2021 mandate letters to these two ministers no longer referenced this matter.
It is time for the hypocrisy to end. Governments should no longer be entitled to proclaim their unqualified support for the military while consciously neglecting to take this one step – providing one point of accountability – mandatory to ensuring the timely provision of goods and services to the men and women serving this country. Governments should not be entitled to lament the complexity of the procurement process and yet refrain from taking steps to dramatically and significantly simplify the process.
The concept of clear accountability was also a recommendation in the Canadian Association of Defence and Security Industries’ (CADSI) December 2009 report. In this report, CADSI recommended that, “overall accountability for the combined responsibilities of defence equipment and the defence industrial base should reside at the Cabinet level in one Minister.” Unfortunately, CADSI never seriously lobbied the Government on this matter. Too bad. Representing over 900 companies, an aggressive campaign on behalf of all its members could have made a difference.
Addressing this governance issue will not solve all the procurement problems, but it is a necessary first step. Amongst our close allies, Canada stands alone with its system of dispersed accountability. In the United States, the Secretary of Defense is accountable for military procurement. In the United Kingdom, this responsibility falls to the UK Secretary of State for Defence. In Australia, defence procurement is under the authority of its Defence Materiel Organisation, accountable to the Minister of Defence.
The concept of clear accountability should be readily understandable to most people. After all, it is a basic tenet of any well-run private or public organization. The requisite legislative and organizational changes can be implemented within one year. As mentioned above, it also has the support of Canadian industry. Why then, has there been so much opposition to its implementation?
Changing the status quo takes effort. It is always easier to leave things as they are. Possibly, bureaucrats and the Minister of PSPC find it more stimulating and rewarding to be part of billion-dollar programs and announcements than to focus on the purchasing of the more mundane goods and services such as furniture, travel and temporary help. They may be hesitant to support the concept of a single defence procurement organization under one minister and risk losing this role. However, as outlined in “Reinventing Canadian Procurement: A View From The Inside”, there are a number of potential governance models, each with a different minister in charge. One model outlined has the organization reporting to the Minister of PSPC. As for the resources, the intent is not to eliminate but to merge the PSPC resources with those within DND in order to create a more effective and accountable organization.
For the government in power, it has two main reasons to maintain the status quo. First, it is not worth the effort to effect change. Creating a new organization will likely not translate into more votes at the ballot box. When Canadians are polled, defence spending never ranks very high in their list of priorities. For governments, doing what is right takes a back seat to what is politically expedient. Second, it is a convenient crutch. When questioned about delays in defence procurement programs, it is very convenient for the government to blame the delays on an overly complex system. Never mind the fact that the process it blames is also the process it oversees.
The benefits in creating a single procurement organization go beyond strengthening accountability. First, the process would be streamlined. At the present time, the process only moves as fast as the slower of the two organizations permit. As ministers, deputy ministers or even assistant deputy ministers change, the process stops for new briefings. With two departments involved, twice as many potential interruptions occur. Also, decisions need to go up two organizational structures that can have different cultures and different approval processes. The result is that many months can be lost due to briefings and approvals through multiple organizations.
Second, savings will emerge from the elimination of overhead and duplication of functions through the merging of PSPC and DND resources. Fifteen years ago, I calculated possible reduced staffing of between 48 and 120 person-years. This translated into annual savings of between $4.8 million and $12 million annually and represented a reduction from the applicable base of between 1.7 percent and 4.4 percent. Clearly these figures need to be updated but savings would accrue.
From a human resource standpoint, of perhaps greater impact than the savings, would be the ability to address the acute staff shortages. In January 2015, a report authored by Dave Perry on behalf of the CDA Institute and the Macdonald-Laurier Institute highlights the significant purchasing staff cutbacks at DND over the past 25 years and the negative impact this had in completing acquisition projects. The paper entitled “Putting the ‘Armed’ Back Into The Canadian Armed Forces,” indicates that the number of staff dedicated to buying military equipment dwindled from 9000 in the early 1990’s, to less than 50% or 4355 in 2009. Removing the overhead and duplication and reallocating these resources would help address this impediment to equipping the military in a timely manner.
Third, until one minister is vested with overall accountability for defence procurement, it will be difficult if not impossible to introduce system-wide performance measures. With respect to performance measures, famed management guru Peter Drucker once stated, “Any government, whether that of a company or of a nation, degenerates into mediocrity and malperformance if it is not clearly accountable for results”. Without performance measures open to public scrutiny, performance suffers. We need indicators that, at a minimum, measure cost and timeliness. If costs are rising, why are they rising? If delays are occurring, where in the process are the bottlenecks? It’s impossible to make improvements, if we don’t have a clear understanding as to where the problems lie.
In a $400-billion-dollar annual federal budget, defence procurement remains the outlier, the sole line item of expenditures for which no one is being held accountable. Does this make sense to anyone?
Mr. Williams is a former Assistant Deputy Minister of materiel at DND. He is now President of The Williams Group, providing expertise in the areas of policy, programs and procurement. He has authored two books, “Reinventing Canadian Defence Procurement: A View From the Inside” and “Canada, Democracy and the F-35”. He can be reached at firstname.lastname@example.org