Supporting Industry to Better Leverage Defence Procurement

Deputy Minister Panel, Western Innovation Forum, April 16, 2015

Presentation Outline

Defence Procurement Strategy Objectives
Defence Acquisition Guide and Enhanced Challenge Function
Industrial and Technological Benefits Policy & Value Proposition
Delivering on the Defence Procurement Strategy Internationally
Moving Forward

1. Defence Procurement Strategy Objectives

Launched in February 2014, the Defence Procurement Strategy has three key objectives:

Deliver the right equipment to the Canadian Armed Forces and the Canadian Coast Guard in a timely manner
- Key Initiatives:
  - Early and Continuous Engagement
  - Defence Acquisition Guide
  - Enhanced Challenge Function
Leverage purchases of defence equipment to create jobs and economic growth in Canada
- Key Initiatives:
  - Industrial and Technological Benefits & Value Propositions
  - Defence Analytics Institute
  - Export Strategy
Streamline defence procurement processes
- Key Initiatives:
  - New Governance Regime: Working Group of Ministers and Deputy Minister Governance Committee
  - New Procurement Defence Strategy Secretariat
  - Review National Defence Delegated Authority

2. Defence Acquisition Guide and Enhanced Challenge Functions

National Defence: Implementation of the Defence Procurement Strategy

Deliver the right equipment for the Canadian Armed Forces in a timely manner

Increased National Defence Contracting Authority: to streamline the procurement process
Defence Acquisition Guide: to provide greater transparency into the military's future needs
Enhanced Challenge Function: to improve National Defence validation of military requirements

Increased Contracting Authority

Objective: Streamline defence procurement process by lowering transaction costs for lower value / lower risk projects.

Where are we:
- Moving to increase Defence authorities to independently contract up to $400K; phasing up to $1M (with Treasury Board approval) and then to $5M once functioning well.
- Expected to have significant impact on speed and predictability of a large number of procurement transactions.

Defence Acquisition Guide

Objective: Provide industry with greater insight into Canadian Armed Forces' future needs

Where are we:
- Inaugural edition published in June 2014
- Guide will be updated annually, substantially revised every three years.
- National Defence welcomes feedback from industry on the Guide and has received detailed comments from both CADSI and AIAC.

Enhanced Challenge Function

Objective: Strengthen National Defence challenge functions for military requirements

Where are we:
- Strengthened existing internal project review boards, notably the Defence Capability Board. An Investment and Resource Management Committee chaired by the Deputy Minister provides oversight on financial issues and resource allocations.
- Work underway to establish the Independent Review Panel for Defence Acquisition, chaired by Keith Coulter, to coordinate third party reviews of high-level mandatory project requirements

3. Industrial and Technological Benefits Policy & Value Proposition

Minister of Industry officially announced the Policy on December 19, 2014 with the release of the Value Proposition Guide.

The Policy:

Supports the long-term sustainability and growth of Canada's defence sector.
Motivates prime contractors to invest in Canadian suppliers, including small and medium-sized enterprises, in all regions of the country.

Value Proposition is the key new element of the ITB Policy which will apply to far more procurements than under the former IRB Policy.

Value Proposition

Winning bidders are now selected on the basis of price, technical merit and their Value Proposition – a key differentiator.
The Value Proposition includes bidder's commitments to undertake work and invest in Canada and will generally account for 10 percent of the overall score.
Companies awarded procurement contracts must undertake business activity in Canada equal to the value of the contract.
Value Proposition
- Commitments activities proposed at bid time
- Rated and weighted during bid evaluation
Outstanding Obligation
- Activities identified after contract award
- Brings identified activities up to 100 percent of contract value

Value Proposition Framework: Evaluation Criteria

Defence Sector
- Work in Canada specific to the procurement
- May include work in Canada's defence sector
Canadian Supplier Development
- Work undertaken by suppliers in Canada
- Work undertaken by SME suppliers in Canada
R&D
- R&D undertaken in Canada
- R&D in Canadian post-secondary institutions
Exports
- Strategy to export the procured product from Canada
- May include incremental exports in any sector

4. Delivering on the Defence Procurement Strategy Internationally

Canada's Defence Industrial Base

Canada has a global presence in the aerospace, defence, and marine industries.
Comprehensive baseline data of the Canadian defence sector is being augmented through:
- Launching the second Canadian Defence, Aerospace and Marine Sectors Survey in 2015; and
- Access to global defence sector research databases
The Defence Analysis Institute (DAI) would support the government's evidence-based approach to procurement decision-making through:
- Analysis on the development of key industrial capabilities;
- State of the Canadian defence industrial base; and
- Information on global export opportunities, including technological and market trends and issues.

For example… a procurement in practice

Industry engagement confirms there is existing, world-class Canadian capability and sizable export market opportunities.
Canada decides on procurement strategy:
- scope of work
- intellectual property
- structure/bundling of contracts
Value Proposition:
- weighted at more than 10%
- significant points for:
  - work performed in Canada in view of existing world-class capability;
  - future investment in R&D to ensure Canada stays at the leading edge;
  - supplier development to encourage broader investment in Canada's supply chain; and
  - commitments to export from Canada, to generate benefits to Canada over the long term.

Exports Key to Defence and Security Sector's Sustainability

Defence and Security is important driver for Canadian economy
Exports account around 50% of industry revenues
Key to sector's long-term sustainability

Creating a Winning International Environment for Canadian Companies

Trade Policy Agenda
Bilateral Instruments
Trade Promotion

Delivering on the DPS in International Markets

Whole of Government approach
Procurements support international business wins
Investment attraction

5. Moving Forward

Continuing engagement on Defence Procurement Strategy initiatives and specific procurements
Releasing 2015 edition of Defence Acquisition Guide
Continuing to enhance Canadian presence at key trade events
Streamlining of processes and implementing DND's increased contracting authority
Supporting continued progress of ongoing procurement projects