Canada's Defence Procurement Strategy: AIAC – Chamber of Commerce Luncheon

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

Canada's Defence Procurement Strategy:
AIAC – Chamber of Commerce Luncheon
Winnipeg, Manitoba
March 17, 2014

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Hello, everyone. I'm very pleased to be here in Winnipeg today. And I want to thank the Winnipeg Chamber of Commerce for hosting this luncheon today, as well as Magellan and the Aerospace Industry Association of Canada for their participation.

Now, before going any further, I have to say that Olympic fever is still high here in Winnipeg for our gold medal-winning women curlers! I know that the team is the pride and joy of Winnipeg, but what you may not know is that Dawn McEwen is also an employee in my department. So, since I'm here, I had great fun this morning at an employee gathering to celebrate her win.

Anyway, I could go on and on about Canada's wonderful athletes, but switching gears to a political gold, last week Prime Minister Stephen Harper announced that Canada and the Republic of Korea have concluded negotiations for a bilateral free trade agreement.

I am sure that many of you are thrilled by a significant boost in trade and investment ties between the two countries, creating jobs and opportunities for Canadians in every region of the country.

Now, let's get to the topic at hand for today, which is also about doing business better—through Canada's new Defence Procurement Strategy.

I have to say that I'm very excited to do so in a city and a province that have such a long and proud military history, where 17 Wing and CFB Winnipeg continue to play such a key strategic role, and where there is a thriving and innovative aerospace industry—the third-largest in Canada, in fact.

I'm proud because, in a nutshell folks, our new Defence Procurement Strategy is about equipping our Canadian Armed Forces and leveraging our defence procurement in a better, more strategic way in order to create jobs and opportunities right across Canada.

And that can only be good news here in Winnipeg and in Manitoba.

Before I get into the nuts and bolts of the new strategy and what the changes mean, I want to tell you a story. 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, 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 actually happen in government!

Ladies and gentlemen, as you may 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.

These investments are why 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 the Minister of National Defence, Rob Nicholson, last month and announce this.

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 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.

Now 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.

Now 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.

Now this means greater transparency and better information for companies upon which to base investment decisions.

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

Now 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.

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 that demonstrate that they're 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 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.

Now 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.

Now 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 that includes a Value Proposition. It will also include a regional component.

Second, all the defence procurements with a contract value of $20 million or more will be assessed for the possible use of Value Proposition.

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

Of course, we'll also continue to rely on the KICs, key industrial capabilities that I think you've come to love and know and we've refined the KICs into more precise market segments.

Let me tell you, we're absolutely committed to working with industry on refining and better defining these as we move forward.

Speaking of working on this, the Jenkins Report identified that there was insufficient data and analysis publicly available on both defence and economics-related issues. He 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 of this new body, which 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 industry.

Here in Manitoba, the aerospace sector has customers around the world and 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.

It means that when it comes to my portfolio's direct responsibilities in the area of defence procurement, the buck stops right here.

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.

Now 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 the Winnipeg Chamber and AIAC for having me here today—and to all of you for coming.

There is much more detail and info on this new strategy and my officials continue to work with industry in answering questions and soliciting feedback from folks just like you. So 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.