Defence Procurement Strategy

Speaking Notes for The Honourable Diane Finley, PC, MP
Minister of Public Works and Government Services

Announcing the Defence Procurement Strategy
Aerospace and Defence Industries Association of Nova Scotia (ADIANS)
Halifax, Nova Scotia
February 7, 2014

Check against delivery

Thank you for that kind introduction. And hello everyone.

It’s always a pleasure to be in Halifax because I get to witness firsthand, the positive impact that federal military procurements are having in the Maritime region.

Yesterday I was at Irving Shipyards to announce that the Government of Canada has authorized another $53.5 million dollars of work under the Definition Contract for the Arctic Offshore Patrol Ships.

This is tangible evidence that the National Shipbuilding Procurement Strategy is progressing well, that we’re creating jobs here and across the country—and most importantly, that we are on track to cut steel on the AOPS in 2015.

The Harper Government made a deliberate choice under NSPS to invest in Canada. And in Economic Action Plan 2013, we committed to also leverage all of our other defence purchases in a better, more strategic way in order to create jobs, economic growth and long term prosperity here in Canada.

And that was a big commitment. Because 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 make the single, largest investment in Canada’s troops. In fact, under the Canada First Defense Strategy our Government will invest $490 billion dollars in the Canadian Armed Forces—$240 billion of which is in equipment alone. That is an unprecedented investment.

And its why Tom Jenkins said in the criticially important report which he undertook for the Government on the leveraging of military procurement, that we have a “once in a century” opportunity to promote long-term growth in defence-related industries while at the same time maintaining fairness, transparency and competition in our procurements in order to ensure value for money for Canadian taxpayers.

So, as a result of advice from industry and experts, I along with my colleague and friend the Honourable Rob Nicholson, Minister of National Defence, announced this week that we will make significant changes to the government’s approach to defence procurements.

And, we know a change was needed. It is no secret that we have faced challenges when it comes to major defence procurements.

And we have heard a lot of feedback from industry. What we heard was that our 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. Believe me, we heard you. But these are not easy problems to solve. Countries around the world struggle with similar challenges. But you are right to expect better. And all Canadians expect better. And we know we can do better under our new strategy.

So, let’s look at how Canada’s Defence Procurement Strategy will change the way we’ll do defence procurement in Canada.

The new Defence Procurement Strategy has three key objectives: delivering the right equipment to the men and women of the Canadian Armed Forces and Canadian Coast Guard in a timely and cost effective manner; leveraging our purchase of defence equipment to create jobs here in Canada; and streamlining our procurement processes.

I want to be clear, our main goal will always be to get our men and women in uniform the equipment they need on time and on budget. So when we were reviewing our procurement processes, we did so for an eye for how we could improve and streamline our processes and to eliminate delays associated with failed or re-stared procurements.

We believe we can avoid a lot of problems by engaging with industry earlier. So instead of waiting until the procurement phase of a purchase, we’ll start talking with you at the moment we identify an equipment requirement. This engagement will establish a two way conversation between industry and government to better understand needs and available solutions. We believe that when we better consult with the experts—you all in this room—that we can limit the risk of problems that often emerge late in the procurement process.

As my colleague, Rob Nicholson stated on Wednesday “only the private sector has the commercial knowhow, the technological expertise and the innovative ability to rapidly deliver the kind of cutting edge solutions needed to support the 21st century operational requirements” of the Canadian Armed Forces.

And that is why the Department of National Defence will begin in June of this year, to publish a Defence Acquisitions Guide which will list military equipment procurement intentions of DND for projects over $100 million and selected smaller ones over 5 to 20 years. By providing industry with our long term intentions on defence projects, industry will know what is coming down the road. And that will allow you to make informed decisions on R&D investments, when you can plan to compete or even partner with other companies.

And finally, National Defence is putting into place an independent, third party review of high level military requirements for all projects valued at more than $100 million as well as other select projects. To that end, a new review panel will be created to provide independent advice on requirements and to continue to promote a transparent and fair process.

Our new Defence Procurement Strategy is also about leveraging our defence procurement spend to create jobs and economic benefits right here in Canada.

As you know, traditionally procurement bid proposals have been evaluated based on the rating and weighting of technical compliance and price only. And the benefit to Canada, formerly assessed through Industrial Regional Benefits, was assessed on a pass/fail basis.

Under the new strategy, one of the biggest changes is that we will add a rated and weighted component to the bid that will represent a benefit to Canada through the use of a value proposition. That is, companies who demonstrate that they are willing to invest in Canada through the transfer of intellectual property, the creation of high paying jobs, innovation-related activities and the development and growth of international business and exports will have a competitive advantage in bid evaluations.

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. But 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.

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.

And we want to ensure that those benefits to Canada are not just promised, but realized. So in another break from the past: we will make companies publicly accountable for what they propose so we have transparency in regard to investments that are being made.

As of 2011, Canada had 23 billion dollars in IRB obligations, a quarter of which remain to be fulfilled by companies. The new public reporting requirement will help ensure that benefits are actually delivered as promised.

Let’s look at how this will work.

First, all defence and Coast Guard procurements over $100M will require a comprehensive industrial and technological benefits plan which includes a value proposition. It will also include a regional component.

Second, all defence procurements with a contract value at $20M or above will be assessed for the possible use of a value proposition.

Third, the leveraging potential for defence procurements under $20M will be achieved through application of the revised Canadian Content Policy.

Now of course we’ll also continue to rely on KICs—those key industrial capabilities 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 refining these as we move forward, to ensure best application with our value props.

Now speaking of working with you on this, the Jenkins Report identified that there was insufficient data and analysis publicly available on both defence and economics-related issues in Canada. He recommended that the Government establish an independent 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. And it puts more of power in the hands of industry to help shape and define key industrial capabilities as we move forward.

And we think that is a good thing.

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. Interest both in what it is, what it will do—and what we do with the results.

Our work isn’t just about gardening and harvesting in our own backyard. We are also making sure 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 put in place a more robust export promotion and economic diplomacy strategy through the Global Market Action Plan. He will be supporting the presence of Canadian companies and organizations at international defence trade shows and delegations. We know that this is vital to your industry as exports represent 50% of the economic activity for defence and security companies in Canada.

You told us that it was time to “up our game” if we wanted to become more competitive. We listened.

That leads me to the final goal of the Defence Procurement Strategy. And that is streamlining the procurement process. And at the heart of it is our governance on how the Government conducts procurement.

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 defense 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 remains 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 doing.

That means ensuring early and meaningful engagement with folks like you in industry.

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’re more involved in things staying on track—and knowing when they’re not so we can move quickly to get them back on track.

The new Defence Procurement Strategy is designed to get our men and women in uniform the equipment they need in a timely manner. But we can, at the same time, create high paying, highly skilled jobs here in Canada and promote a healthy and thriving domestic defence industry. This makes good economic sense but it also strengthens Canada’s sovereignty and national security. So today’s announcement is really a win-win-win.

But folks, the reality is that we can’t cover off all of the detail of the new strategy 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 to ask more questions, get more detail—and continue to be involved in this implementation, every step of the way.

We’ll post the times and locations on buyandsell.gc.ca. So stay tuned!

Our new Defence Procurement Strategy is about doing more for Canada. More for our Forces. More for Canadian jobs. More for prosperity. Because we really can have it all.

Thanks very much, everyone.