Defence Procurement Strategy
Speaking Notes for The Honourable Diane Finley, PC, MP
Minister of Public Works and Government Services
Announcing the Defence Procurement Strategy
Economic Club of Canada
February 5, 2014
Check against delivery
Thanks Rob – and thank you Tim for that kind introduction earlier and to CADSI for sponsoring this morning’s event.
And hello everyone. What a fantastic turnout today for an early breakfast in Ottawa in February.
So far this morning you’ve heard from my colleague and friend, the Honourable Rob Nicholson, Minister of National Defence. He has shared with you his thoughts on the important work that National Defence is doing jointly with PWGSC in launching Canada’s new Defence Procurement Strategy.
As Minister Nicholson explained, this new Defence Procurement Strategy is a fundamental change in how we do defence and major Coast Guard procurements. It ensures a whole-of-government approach.
What I’d like to do now is take a few minutes and share with you PWGSC’s perspective on this important new initiative and talk about what it means for Canadian industry.
Folks, it’s no secret that businesses in Canada—from small to large—have been telling us that defence procurement needs to be fixed. That we need to do better. That we need to make better use of the advantages that we have right here in Canada.
So I’m here today to tell you that we are doing something about that.
I’m pleased to say that, today, our Government has worked together and we are fulfilling a promise made in Economic Action Plan 2013. A promise that was originally championed by my predecessor, the Honourable Rona Ambrose—and supported by my Cabinet colleagues, all of whom recognize the opportunities in front of us as a country.
And I wouldn’t be standing here today if it weren’t for our industry partners. And that includes special thanks to Tim Page and CADSI, as well as Jim Quick and AIAC.
And of course, thanks also go to Tom Jenkins and his panel members—Ray Castelli, Christyn Cianfarani, Retired General David Fraser and Peter Nicholson.
In Tom’s report, he made a convincing case for how Canada could work in a more whole-of-government manner in procurement, how we can be more transparent in building our requirements and setting timelines, and how we can better prioritize by building a strong analytical capacity in Canada’s defence industry.
It’s thanks to all of you that today, ladies and gentlemen, the Harper Government is announcing Canada’s new Defence Procurement Strategy.
After a decade of darkness for the men and women of our Canadian Armed Forces under the previous government, it is our government that made the decision to say yes to making the single, largest investment in Canada’s troops.
On the equipment side, we are investing $240 billion for the Canadian Armed Forces under the Canada First Defence Strategy. We have the “once-in-a-century” opportunity to get it right when it comes to changing how we buy defence equipment.
This includes changes in how we structure our procurement processes, and in how we ultimately deliver the right equipment to our men and women in uniform.
In Canada, we have some of the best industrial defence capability in the world. And our companies can compete with the greatest companies in the world. But we also know that there have been issues in the area of defence procurement.
We’re not just going to wish these problems away. Canadians have every reason to expect more from their government.
What we found was that requirements are too complex. Too often they appear to be set to achieve pre-determined outcomes. And industry is not engaged early enough. Because of this, the process is costly and complicated, and we take too long to make decisions.
I see a lot of nodding heads out there. So I know that you’ll also agree when I point out that this isn’t just a “made in Canada” problem. Other countries are struggling with similar challenges, too.
Think back to what CADSI once said in a report: “urgent attention and immediate action is required to create a public policy environment and procurement practices and processes that will deliver programs more efficiently and with vastly improved outcomes for the Canadian economy and Canadian workers.”
So thank you to everyone—including many in this room today—whose direct input into this initiative has helped both diagnose the problems as well as develop a working, lasting solution to address the way that defence procurement is done in Canada—and how it will be done differently in the future.
The Defence Procurement Strategy underlines the goals that our Government has had from the start: jobs, growth and economic prosperity. That’s what we pledged to Canadians. And that’s what we’ve been delivering.
How will we do it? By leading by example, like you said we needed to do.
Let’s look at how Canada’s Defence Procurement Strategy will change the way that companies will work with us.
One of the biggest changes is that we will ask bidding companies to present Value Propositions as a fundamental part of their bid. Each Value Proposition will demonstrate how a successful bid will benefit Canada.
This will now be a key consideration: a weighted and rated element of the defence procurement process, along with the technical and pricing elements that were there before.
In doing this, this new instrument will be used to achieve improved economic outcomes for Canada from defence and major Coast Guard procurements.
This is an important shift. Because in the context of government spending millions—sometimes even billions—of taxpayer dollars for defence equipment, Canadians have every right to know that we are getting what our troops need, at the best value, through a process that’s good for Canadian workers, businesses and taxpayers.
Another key change is that we will be making a significant shift on the Industrial and Regional Benefits Policy, which up until now was scored on a pass-fail basis. This policy will be transformed and strengthened by focusing on value propositions as a weighted, rated and required element of major bid proposals.
Going forward, these benefits and the IRB policy will be known as Industrial and Technological Benefits. This will better reflect the real competitive advantages of companies and Canada: creating high-value jobs, investing in innovation, IP transfer, or supporting international business, just as examples.
And in another break from the past, we will make companies publicly accountable for what they propose so that we have transparency with regard to investments that are being made.
As of 2011, Canada had $23 billion in IRB obligations, a quarter of which have yet to be fulfilled by companies. The new public reporting requirement will help ensure that benefits are actually realized, as promised.
Let’s look at how this will work.
First, all defence and Coast Guard procurements over $100 million will require a comprehensive industrial and technological benefits plan, which is expected to include a regional component.
Second, all defence procurements with a contract value at $20 million or above will be assessed for the use of a value proposition.
Third, the leveraging potential for defence procurements under $20 million will be achieved through the application of the revised Canadian Content Policy.
Value propositions, when applied, will account for, or be weighted at, approximately 10 per cent. The actual percentage will be determined on a procurement-by-procurement basis.
Now, I’m fully aware that some of you in this room may say that 10 per cent isn’t enough. To that, I’ll say that I used the word “approximately” intentionally. We know that 10 per cent can make a difference and affect the outcome of a bid, especially when it is an element that is weighted and rated.
Yes, we’re all mindful that common sense needs to prevail in each case. So that’s why the percentage is approximate and will be flexible.
The larger point here is that the capability of our men and women in uniform will remain paramount. When there are multiple suppliers who can meet that need, we should not—and frankly, will not—be afraid to ensure that the successful supplier provides real economic benefits for Canada.
Now of course we’ll also continue to rely on KICs—those key industrial capabilities that you’ve come to know well. We’ve refined the KICs into more precise market segments. But let me tell you that we are absolutely committed to working with you on further defining and refining these as we move forward, to ensure the best application with our value props.
Our work isn’t just about gardening and harvesting in our own backyard. We are also making sure that we do a better job of promoting our expertise in today’s global marketplace.
Through the Defence Procurement Strategy, the Minister of International Trade will be supporting the presence of Canadian companies and organizations at international defence trade shows and delegations. Other countries already do this and are potentially taking business away from Canada as a result.
You told us that it was time to “up our game” if we wanted to become more competitive. We listened.
Many of you might be questioning what this means in terms of current or future procurements. Wondering if we’ll be looking back to fix things, and potentially complicate matters—or if this just applies to new procurement.
I’ll answer in an analogy: there’s a reason that a car has a bigger windshield than a rear view mirror. Canada’s Defence Procurement Strategy is about how we go forward.
At this point, the procurements currently on the radar include the Marginal Terrain Vehicle and Headquarter Shelter System projects for DND and the Medium Lift Helicopter project for the Canadian Coast Guard.
And, of course, looking further down the road from 5 to 20 years out, DND will begin publishing its Defence Acquisitions Guide, as Minister Nicholson mentioned.
What it means for you is more transparency and better information that will help you plan further ahead so that you can make better and more informed investment decisions.
On that point about information, let’s pause for a moment. Now, as you know, Albert Einstein insisted that information isn’t knowledge. “The only source of knowledge,” he said, “is experience.” The point here is that information is only made relevant by what we do with it.
In 2013, the Jenkins Report talked about there being insufficient publicly available data and analysis on both defence and economics-related issues. It recommended that the government establish an institute to meet those requirements.
Many of our industry stakeholders also said that this capability would be critical to help guide and inform our leveraging objectives for defence procurement. We agree. It’s time that we made better use of the incredible amounts of data we have on this industry and started to find deeper insights and trends, turning that data into information.
With that, I am pleased to say that our Government is supporting the launch of an independent Defence Analytics Institute to lead this work.
We’ll be communicating more details over the coming weeks and months as steps progress on the implementation of the Defence Procurement Strategy, specifically, as I’m sure there will be a great deal of interest in what it is, what it will do and what we do with the results.
That leads me to governance because it’s an integral part of achieving our goals. Folks, I am pledging to you today that we are going to be managing things differently, and better.
At the root of that pledge is accountability. It means that when it comes to my portfolio’s direct responsibilities in the area of defence procurement, the buck stops right here.
I will immediately be establishing a working group of ministers, similar to what is in place for the National Shipbuilding Procurement Strategy. Each minister will remain accountable for his or her own responsibilities, but we will exercise them together in a much more coordinated way.
Supported by a similar committee of deputy ministers, we will provide oversight on the procurement process and ensure that the key elements of the new Defence Procurement Strategy are being applied effectively and as we committed to do.
That means ensuring early and meaningful engagement with you in industry, streamlined decision-making, use of independent advice at appropriate or needed steps in the procurement process, and improving the economic outcomes of our spending.
To be clear, this does not in any way change the open, fair, transparent approach that needs to happen with procurements (in other words keep the politicians out of it).
Nor does it mean establishing an entirely new department with a whole new level of bureaucracy that would simply inherit all of the existing problems and give them a new name. What it means is that we will be more involved in things staying on track—and knowing when they’re not.
Ladies and gentlemen, so far today I’ve talked at length about the much-welcomed new changes you can expect as part of Canada’s Defence Procurement Strategy. But just as important, let’s look at what won’t change. To the critics who say that this strategy will come at too great a cost to Canada, I have three points:
First, there is no premium to choosing a “made in Canada” solution. Let’s remember that the Auditor General’s report on shipbuilding excluded a reference to any premium to build in Canada because he found no evidence of it.
Second, the entire purpose of Canada’s new Defence Procurement Strategy is to become more open and transparent and make all involved more accountable. For example, ministers will have full information on costs, capabilities and economic benefits so that informed decisions on trade-offs between them can be made.
Third, this is not a “buy in Canada, under all circumstances, even if it doesn’t make sense” strategy. Of course we want to support Canadian companies—and the workers at those companies, and in turn their families.
But it comes back to common sense. The new Defence Procurement Strategy is designed to help make Canadian companies more competitive, here and abroad, in what is truly a global, managed—and I would venture to say even highly controlled—market. Nearly every other western nation already has a strategy such as this in place.
Our new Defence Procurement Strategy is about doing more for Canada. More for our Forces. More for Canadian jobs. And more for prosperity. Because this is the right thing to do.
Folks, the reality is that we can’t cover off all of the detail here in one morning. That’s why my officials will be hitting the road and holding information sessions across the country on this new strategy. It will be a chance for you to ask more questions, get more detail and continue to be involved in its implementation, every step of the way. Information on times and locations will be available on buyandsell.gc.ca.
We are committed to getting better at giving our dedicated men and women in uniform the equipment that they need—while also benefiting Canadian taxpayers and their families.
Thanks very much, everyone.
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