Canada's Defence Procurement Strategy: CanSecWest 2014 Conference

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

Canada's Defence Procurement Strategy:
CanSecWest 2014 Conference
Vancouver, British Columbia
March 13, 2014

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Hello, everyone. I’m really very pleased to be here in Vancouver, taking part in CanSecWest’s 2014 Conference. Thank you for having me—and thanks to all those who have sponsored to make the event happen.

As you may know, as well as being the Minister for Public Works and Government Services, I am also responsible for Shared Services Canada.

This branch of my portfolio was created to fundamentally transform how the government manages its IT infrastructure.

So as the Minister for both IT management and the overall procurement process, let’s just say that I’ve gotten to understand an awful lot about your industry, from multiple perspectives.

Because when it comes to defence, we aren’t just talking tanks and planes. Protecting Canada’s cyber sovereignty and IT infrastructure is also a matter of national security.

Now, the topic of my address is about how the Harper Government is improving defence procurement in Canada. But first, I’ll tell you a little story, to give those changes some context.

There once was a store owner. His store was the only one in town for years and years—and he thrived. Until one day, when competition came to town and built right next door to him. Even worse, they erected a huge sign that read “BEST DEALS ON THE BLOCK.”

The shopkeeper panicked. He’d never experienced this before. And it only got worse when a few weeks later, another store opened up on the other side of him, with a huge sign that read: “LOWEST PRICES IN TOWN.”

At this point, the store owner was frantic. He figured he had lost his business for good. Until he had an idea. And one morning, he put up his own sign. It read: “MAIN ENTRANCE.”

Now ladies and gentlemen, the purpose in telling this story is ultimately how critical it is to do things differently, creatively—and find solutions.

And yes, I can attest that it can happen in government!

As you know, in Economic Action Plan 2013, our Government committed to leverage our defence procurement in a better, more strategic way in order to create jobs, economic growth and long-term prosperity right across Canada.

Tom Jenkins said last year in his report on leveraging military procurement that we face 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 to ensure value for money for Canadian taxpayers.

So as a result of advice from industry and experts, Canada’s new Defence Procurement Strategy was created and I was pleased to stand alongside my friend and colleague, the Minister of National Defence, Rob Nicholson, and announce this last month.

We knew that change was needed and it’s no secret that we faced challenges when it comes to major defence procurements, and we’ve received a lot of feedback from industry.

What we heard was that our requirements were too complex and, too often, they appear to be set out to achieve pre-determined outcomes, and also that industry is not engaged early enough.

Because of these things, the process is costly, it’s complicated and we take way too long to make decisions.

Now these aren’t easy problems to solve, but also they’re not unique to Canada. Other countries have struggled with similar challenges.

To address these, Canada’s new Defence Procurement Strategy has three key objectives:

• First, delivering the right equipment to our men and women of the Canadian Armed Forces and Canadian Coast Guard in a timely and cost-effective manner;
• Second, leveraging our purchase of defence equipment to create jobs here in Canada and;
• Third, streamlining our procurement process.

I want to be very clear, though. Our main goal will always be to get our men and women in uniform the equipment that they need—on time and on budget.

We believe that we can avoid a lot of problems by engaging industry earlier. So instead of waiting until the procurement phase of a purchase, we’ll start talking with potential suppliers the moment that we identify an equipment requirement.

This engagement will establish a two-way conversation between industry and government to better understand needs and available solutions.

In addition, to give industry a heads-up on future requirements over the next 5 to 20 years, the Department of National Defence will begin in June of this year to publish an annual Defence Acquisitions Guide. This means greater transparency and better information for companies upon which to base investment decisions.

One of the biggest changes under the new strategy 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.

As you may know, traditionally, procurement bid proposals have been evaluated based on ‘rating and weighting’ of technical compliance and price only, and the benefits to Canada, formally known as Industrial and Regional Benefits—or IRBs—were assessed simply on a pass-fail basis.

Now companies must demonstrate that they’re willing to invest in Canada through the transfer of intellectual property, the creation of high-paying jobs, innovation 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 and be weighted at about 10 per cent, but the actual percentage will be determined on a case-by-case basis.

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.

For example, my department recently issued an RFP on behalf of the Canadian Coast Guard, for the procurement of medium lift helicopters, under the Canadian Coast Guard helicopter fleet renewal procurement.

Less than a month after the new Defence Procurement Strategy was announced, this procurement became the first to be applied to it.

The Government will engage industry—early on—to inform both the development of the Value Proposition and how it will be weighted and rated, for this first project under the DPS.

In the context of the government spending millions—sometimes even billions—of taxpayer dollars for defence equipment, Canadians have every right to know that we’re getting what our troops need at the best value through a process that is good for Canadian workers, businesses and taxpayers.

And we want to ensure that those benefits to Canada are not just promised, but actually delivered.

So in another break from the past, we will make companies publicly accountable for what they propose and deliver.

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

Of course, we’ll also continue to rely on KICs, the key industrial capabilities that I think you’ve likely come to know very well. We’ve refined the KICs into more precise market segments.

One of the interim KICs associated with our Defence Procurement Strategy that was identified in the Jenkins report will be of specific interest to you at this conference—and that is cybersecurity.

As Tom said in his report, cyberspace is an increasingly vital enabler of modern social, economic and defence functions. And frankly, it has also—in turn—become a domain of potential conflict just as real as land, sea, air and space.

From our perspective when talking procurement, the key capabilities relevant to cyber-security include: the hardware and software techniques and systems needed by civil and military authorities to safeguard our access to, and use of cyberspace; and, in the event of conflict, to disrupt an adversary’s ability to operate in cyberspace.

As well, in 2013 the Jenkins Report talked about there being insufficient data and analysis publicly available on both defence and economics-related issues. It recommends that the government establish an independent institute to meet these requirements.

Many of our industry stakeholders also have said that this capability would be critical to help guide and inform our leveraging objectives for military procurement.

And it would also allow industry to help us appropriately shape and define the key industrial capabilities as we move forward. And we think that’s a good thing. 

That is why the Ministers of Industry and National Defence and I have already taken steps to set up an interim Defence Analytics Institute.

I recently announced the interim board members, and it will be a joint effort between industry, selected academics and government.

This interim institute will carry out the important work of determining the mandate and the scope of activities of the permanent DAI, which the government will put on permanent footing by 2015.

Ladies and gentlemen, our work isn’t just about gardening and harvesting in our own backyard. We’re also making sure that we do a better job of promoting Canada’s expertise in today’s global marketplace.

Through the Defence Procurement Strategy, the Minister of International Trade, the Honourable Ed Fast, will put in place a more robust export promotion and economic diplomacy strategy through the Global Market Action Plan.

They’ll be supporting the presence of Canadian companies and organizations at international defence trade shows—and we know that this vital to you folks as exports represent 50 per cent of the economic activity for defence and security companies in Canada.

Industry told us that it was time to ‘up our game’ if we wanted to be more competitive and we listened.

And that leads me to the final goal of the Defence Procurement Strategy—which is streamlining our procurement processes—and at the heart of it is our governance over how the government conducts procurement.

Folks, we’ve pledged that we’re going to be managing things differently and better, and at the root of that pledge is accountability.

I’ve established a working group of ministers, similar to what’s in place for the National Shipbuilding Procurement Strategy, and each minister will remain responsible for his or her own responsibilities, but we’ll exercise them together in a much more coordinated way.

Supported by a similar committee of deputy ministers, it will provide oversight on the procurement process and ensure that the key elements of the new Defence Procurement Strategy are applied effectively and just as we committed to doing.

That means ensuring early and meaningful engagement with industry and, to be clear, this does not in any way change the open, fair, transparent approach that needs to happen with procurement. In other words, keep the politicians out of it.

Nor does it mean creating 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’ll be more involved in things staying on track—and knowing when they’re not, so that 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 that they need in a timely manner. At the same time, it is about, creating high-paying, highly skilled jobs here in Canada and promoting a thriving domestic defence industry.

This makes good economic sense, but it also strengthens Canada’s sovereignty and national security. So this strategy really is a win-win-win.

In closing, I want to once again thank CanSec West—and all of the sponsors—for having me here today and for hosting such a great conference.

There is much more detail and info on this new strategy and my officials continue to work with industry—all of you—in answering questions and soliciting feedback. I encourage you to find out more and participate.

After all ladies and gentlemen, our new Defence Procurement Strategy is about doing more for Canada, more for our Forces, more for Canadian companies and Canadian jobs, and more for prosperity.

Thank you very much.