Leveraging our Military Buy

Speaking Notes for The Honourable Rona Ambrose
Minister of Public Works and Government Services and Minister for the Status of Women

At the CANSEC Annual Conference
Ottawa, Ontario
May 30, 2012

Check against delivery

Thank you, Dave, for that kind introduction.

Thank you all so much for being here this afternoon. And thank you to the Canadian Association of Defence and Security Industries and the sponsors of CANSEC for the opportunity to address you today.

It was a pleasure to speak at this conference last June, and it’s great to see so many familiar faces in this crowd.

It’s wonderful that so many of you are interested in what Public Works and Government Services Canada is doing to change the way my department buys goods and services.

I am sure you will recall last year, I spoke about beginning work on a strategy to leverage our procurement spend to maximize the global competitiveness of our aerospace and defence sectors.

In fact, our last two budgets have highlighted innovation, committing us to developing “a procurement strategy, in consultation with industry, to maximize job creation, support Canadian manufacturing capabilities and innovation, and bolster economic growth in Canada.”

We have been hard at work this past year looking at options and consulting with partners, including hosting productive roundtables with many of you.

Underlining all of this has been our determination to not only support innovation, but also to support Canadian industry.

Our roadmap, the Canada First Defence Strategy, gives us the long-term vision to modernize the Canadian Forces and has set the stage for a renewed relationship with Canada’s industry, knowledge and technology sectors.

Considerable progress has already been achieved in leveraging our procurement strategically to support Canadian industry through the most obvious example—the National Shipbuilding Procurement Strategy.

Recent enhancements to the Industrial and Regional Benefits Policy will also help us leverage our military procurement for Canadian industry and Canadian jobs.

We want to ensure Canada’s aerospace and defence industries are globally competitive.

This past year, my department has been working with our partners on engagement, sharpening the focus of programs and instruments, and continuously improving procurement processes; while aggressively addressing governance and oversight.

Through industry consultation, my department is examining Canada’s defence, security, and sovereignty needs; direct relevance to the CF’s supply chain; and direct relevance to an area in which Canadian firms either have world class expertise or have related potential.

Canada’s aerospace sector is a global technology leader and a major source of high-quality jobs. The Government has made substantial, successful investments to leverage private sector investment in this important, high-tech and growing sector of our economy.

Some of you here are probably aware of examples of recent exemplary procurement processes, like the one for the re-fit of the HMCS Athabascan, the LAV III upgrade project, the RFP to acquire sub calibre training devices for the Canadian Leopard 2A4 tanks, and the contract award for Vehicle Interface Unit (VIU) Amplifiers.

And, as you know, my department is currently consulting with industry on the replacement of our Fixed-Wing Search and Rescue—or FWSAR—fleet of aging CC-115 Buffalo and CC-130 legacy Hercules aircraft.

This is a competitive procurement process for a capability-based solution to deliver a FWSAR fleet, and for the provision of In-Service Support (ISS) for an initial 20-year period.

Draft tendering documentation will be reviewed through a formal industry engagement process, before issuing the Request for Proposal (RFP).

To ensure a fair evaluation of all potential solutions offered by industry, the RFP will compete at the same time: the acquisition and the In-Service Support.

The procurement strategy includes specific measures to ensure that the procurement process is fair, open, and transparent.

During the procurement process, a fairness monitor will oversee the conduct of an extensive multilateral industry engagement process, and the development and wide dissemination of background information to allow the participation of large and small providers and to stimulate the entire Canadian aerospace and military industry.

Consultations with industry have begun. Consultations like those held for the NSPS will be held throughout the procurement process.

Over this year, my department has learned that it is only by working with you—industry—that it can improve.

Public Works is responsible for 55,000 procurement-related transactions worth almost $17 billion per year.

My department one of the largest purchasers of goods and services in Canada and therefore strategically positioned to make an impact on the economy.

For comparison, Bombardier, which ranks number 15 on the FP 500 list, does almost the same amount in sales as Public Works—a little more than $18 billion.

However, private sector companies have a much greater ability to buy what they want, when they want it, and from whomever supplies it.

My department doesn’t have just the bottom line to think about.

As an agent of the Crown, my department must ensure that when it buys goods and services, it does so in a manner that enhances access, competition and fairness.

My department must also try to get the best value for the Crown. It has to comply with international trade agreements. And my department must try to execute federal policy objectives such as greening government operations.

My department must also make a concerted effort to buy from small- and medium-sized businesses from every corner and every coast.

On top of that—my department is risk-averse and rules-based.

However, like you, my department wants to create a better, smarter procurement system. It wants to:

1. engage our suppliers;
2. leverage our buy to create jobs and foster innovation; and
3. provide a more efficient and

effective way of governing our transactions.

Yes, I believe Public Works is transforming. Let me illustrate how my department is doing these three things better today.

My department is engaging its suppliers through programs like the smart procurement initiative.

Through this initiative, my department is asking industry and our clients to review how Public Works buys goods and services in an initial 15 key areas.

This includes items like technology, food and communications services. Once my department has completed this initiative, it will have revised 31 categories of goods and services.

One of the first areas my department is improving is how it procures research and development.

Public Works has engaged suppliers and government departments in developing a proposed R&D procurement strategy, and has posted the R&D procurement strategy for public consultation on the Government Electronic Tendering System, or MERX.

My department is anxious to hear what industry, academia, and government departments have to say.

Their views will be incorporated, as appropriate, in the finalized strategy—which will also be transparently posted on MERX.

The feedback my department receives will help us better respond to the needs of both our clients and our suppliers.

Engaging suppliers matters because my department wants the interface between government and business to be simpler and more streamlined.

My department does business with thousands of small and medium enterprises and it wants to ensure this experience matches their reality.

The Smart Procurement Initiative seeks to simplify the interface between the government and businesses.

The second way my department is changing is how it leverages its buy.

When I arrived at Public Works there were $240 billion in military acquisitions to be made over the next 20 years. And, as I’ve mentioned, each year Public Works procures almost $17 billion in goods and services.

How can my department leverage this buy to benefit the Canadian economy?

I’ve shared with you the work we are doing in our leveraging military procurement policy but we are moving on a number of fronts. In our recent budget, we added a military component to our successful Canadian Innovation Commercialization Program.

The Canadian Innovation Commercialization Program was launched in 2010 and in fact it was the only new program in that budget.

This program has already shown encouraging results.

Tom Jenkins’ research and development panel praised it and encouraged us to expand it.

This program connects small- and medium-sized enterprises with pre-commercialized products with federal departments and agencies that have a need for innovative products and services.

It is the first time the government has acted as a first buyer of Canadian innovation.

By selling to the federal government, businesses can demonstrate the value of their products and services, increase the scale of their operations, and generate future sales to non-federal customers.

This program is not a subsidy. Instead, it fills a business need and provides a first contract with the government and instant legitimacy for those trying to sell products to others.

My department is putting innovation at the core of our procurement and this program.

Finally, the third way my department is changing our business model is through the way it governs its big purchases.

And for this example, I must, of course, turn to the National Shipbuilding Procurement Strategy—or the NSPS.

Those of you who attended CANSEC last year may recall that the NSPS was the topic of my speech, and I’m very pleased with how that Strategy worked.

It has been a huge success—one of several, like the ones aforementioned.

That said, I am a big believer in good governance and for me, the NSPS was the test case to establish a new way of governing complex procurements. In the end, my department believes the NSPS buy will be worth more than $30 billion to the Canadian economy.

So it was important to me to get the process right.

The secret of the NSPS success is much more than a process that took place outside of politics.

There are two key features that made the NSPS different. The first was the decision to use only Canadian shipyards.

Why does that matter for innovation? Because innovation happens on the shop floor.

The second was the way my department governed the process to select the shipyards.

Public Works created an innovative process to ensure a fair result.

A Deputy Ministers’ Governance Committee was created to oversee and validate the process and its results.

Once the Strategy was approved and announced in June 2010 the decisions regarding the NSPS process were made at arm’s length from politics.

The bidders were informed of results first, before I or any other politician was told.

Final scores of all bidders were released publicly.

Multiple layers of oversight, and full transparency and engagement with suppliers at every step of the process, ensured that when people look back at the entire NSPS process, they will discover how it embodies all three principles that are changing the way business is done at Public Works.

First, my department engaged industry stakeholders.

It consulted on the terms of the Umbrella Agreements, it consulted on the proposed schedule, and stakeholders helped to create the scoring systems for the bids.

Second, my department leveraged the buy. It kept the jobs in Canada by choosing Canadian shipyards.

In addition, my department required that the winning yards develop value propositions that will contribute to continuous improvement in areas such as skills and training, infrastructure, capabilities, and long-term supply chain development.

Third, there are a number of attributes that made the NSPS a success, and those lessons learned are being applied to govern major procurements.

My department established a Secretariat that developed a non-political approach to procurement. Bids were scored on their merits, using a system of evaluation that was shaped by the shipyards themselves.

The shipyards were assessed by an internationally recognized third-party expert, and the entire process was overseen by a Fairness Monitor.

Let’s face it—big procurements are usually the most difficult. And they are often unique.

But my department knows it is a key player in the Canadian economy and it is rolling up its sleeves and steering in the right path.

Public Works and Government Services is changing the way it does business—not just by trying to reduce the paper burden, but also by trying to drive innovation and investment in the Canadian economy.

PWGSC will now lead the acquisition of a replacement for the venerable but aging CF-18 fleet, and the same attributes that led to the success of the National Shipbuilding Procurement Strategy will be adopted and adapted for this program.

Our goal is to obtain the right fighter aircraft so that the Royal Canadian Air Force can continue to protect our sovereignty, and to meet our bi-national and international obligations, including our commitments to NORAD and NATO.

The Auditor General was critical of certain aspects of how this acquisition has been managed to date. Our Government agreed with that assessment, and put in place a seven-step action plan to fulfill and exceed the Auditor General’s recommendations.

Our Government is confident that by applying the lessons learned from the NSPS—and indeed other large military acquisitions—we will put this important project back on the right footing.

Key to this is the establishment of a National Fighter Procurement Secretariat, charged with the interdepartmental coordination of all work associated with this procurement, going forward.

The Secretariat will be a Public Works-led body with representation from National Defence, Industry Canada, and support from the Treasury Board Secretariat, the Department of Finance Canada, and the Privy Council Office. It will also, like the shipbuilding secretariat, include independent advisors and third—party validation in a number of aspects of its work.

Terms of Reference are currently being refined and discussed. The document is expected to be finalized and to be made public in short order.

The Terms of Reference will establish clear responsibilities for the Secretariat and departments going forward, in order to ensure the effective implementation of the Government's seven-point action plan.

It provides detail about who will do what, and how: it explains the improved governance and coordination structure, how due diligence will be strengthened, and how the Secretariat will provide transparency through more timely and effective communications.

Its first priority is to secure work space and identify staff, and that work is already underway. The group will be defining and prioritizing the work ahead of them in short order: what needs to be done, and in what sequence, in order to coordinate the implementation of the seven-point action plan.

I appreciate that there may be some concern about what all this effort actually means—that is, “Are we in, or are we out?” Let me be very clear about where our Government is as of today.

We remain partners in the Joint Strike Fighter Memorandum of Understanding. Project teams at National Defence and Public Works diligently continue their work. There is no change to that.

The mechanisms our Government will employ include an action plan that addresses all of the Auditor General’s recommendations; the establishment of a secretariat; improved governance and coordination; strengthened due diligence; and transparency through more timely and effective communications.

My friends, I am confident that with these measures, the Secretariat will meet our commitment to provide our men and women in uniform with the equipment they need, at a price Canadians can afford, while at the same time ensuring that our citizens have faith and confidence in the way our Government gets there.

Thank you.