Award of non-competitive contracts over the last 10 years for procurement of defence equipment and services

September 14, 2015

On September 10, 2015 – a segment was aired on Radio-Canada's show entitled Enquête related to contracts awarded to General Dynamics Canada and a perceived trend toward non-competitive contracting for defence equipment and services.

The Government of Canada is committed to a robust procurement process in line with the Contracting Policy of Canada.

A competitive process is always the first consideration as competition and innovation are good drivers for ensuring best value to Canada and the Government of Canada remains committed to creating jobs and economic growth.

The Government of Canada appropriately applies exceptions to competitive bidding in compliance with various trade agreements and contracting regulations.

If a competitive process is not possible, then we proceed with exceptions, as per the Contracting Policy of Canada:

There is a pressing emergency where delay would be injurious to the public interest
For example, the government procured goods and services to fulfill emergency requirements in support of Canada's involvement in the Afghanistan war.

Only one person is capable of performing the work
For example, where the contract is to maintain or upgrade existing equipment and the Original Equipment Manufacturer owns the Intellectual Property needed to do the work. This is the case with the Army's tactical communications equipment or the Royal Canadian Navy's Close-In Weapons Systems for its frigates.

The nature of the work would not be in the public interest to solicit bids
For example, where there are national security considerations or where there is a need to conserve a strategic source of supply that is deemed essential to sustain a critical industrial capacity for future government requirements, such as for the companies that manufacture Canada's military ammunition, explosives and small arms under the Munitions Supply Program.

Low dollar value
For example, contracts for goods under $25,000 do not need to be competed. For more information, see the Contracting Policy of Canada.

Given the nature of defence and the duties performed by the Canadian Armed Forces, it is not surprising that defence procurement often requires exercising exceptions under the Government contracting process.

In addition, non-competitive contracts often include at the outset various options that can be exercised during the life of the contract. While these are technically referred to as amendments, they are most often pre-determined options exercised under an existing contract, and do not constitute new contracts or changes to the original contract. In other words they are not “extras” but rather designed to extract maximum value without committing Canada at the outset.

About the Light Armoured Vehicles

The Government of Canada has a long standing relationship of over 35 years with General Dynamics Canada or General Dynamics Land Systems – Canada (GDLS-C) for Light Armoured Vehicles (LAV's).

The procurement of Canada's Light Armoured Vehicles is a success story for Canada. The LAV platform is a tried and tested defence platform that has been in use by the Canadian Armed Forces since the 1980s.

Commencing with the first procurement of the 6x6 Armoured Vehicle General Purpose (AVGP) back in 1977, when the company operated as General Motors of Canada Diesel Division, GDLS-C has provided the Canadian Armed Forces' complete fleet of wheeled armoured vehicles.

The decision to award non-competitive contracts to General Dynamics Land Systems-Canada was made because they are the only company capable of performing the work as the company holds the intellectual property rights for the fleet of light armoured vehicles.

Best known for their use in operations in Afghanistan, Canada's Light Armoured Vehicles continue to be modernized and adapted to better support the current and future operational needs of the Canadian Armed Forces, while providing value to Canadians.

Recent modernization activities have included:

• 2008: Optimized Weapon System Support Phase 2 (OWSS)
• 2009: LAV Operational Requirements Integration Task (LORIT)
• 2010: LAV III Upgrade Definition
• 2011: LAV III Upgrade Implementation
• 2012: LAV Reconnaissance and Surveillance System (LRSS) Upgrade Definition
• 2015: LRSS Implementation

Throughout, General Dynamics Canada has been encouraged to make their sub-contracts competitive in nature, providing greater opportunities for Canadian companies and the company has met its Industrial Regional Benefits (IRB) commitments to date.

In addition the most recent LAV III contract is helping sustain employment across Canada, including 2,300 employees of GDLS-C.

About the National Shipbuilding Procurement Strategy

As a result of an open and transparent competitive process, and after a thorough and rigorous assessment of proposals, the National Shipbuilding Procurement Strategy (NSPS) Secretariat has selected two qualified shipyards for the construction of large vessels (Irving Shipbuilding Inc. and Seaspan's Vancouver Shipyards). This represents the largest procurement sourcing arrangement in Canadian history. Its objective is to rebuild the fleets of the Royal Canadian Navy (RCN) and the Canadian Coast Guard (CCG).

NSPS includes, among others, two work packages valued in 2011 at $33 billion for the construction of large ships (combat and non-combat vessels).

After the two shipyards had been selected, an independent fairness monitor reported that “…decisions were made objectively, free from personal favouritism and political influence, and encompass the elements of openness, competitiveness, transparency and compliance.”

Moreover, in his fall 2013 report, Michael Ferguson, Auditor General of Canada, said, “It's still early, but so far the National Shipbuilding Procurement Strategy has resulted in the transparent and efficient selection of two yards to build ships for the Navy and the Coast Guard.”

Lastly, to sustain a competitive market for maintenance and repair, in-service support contracts for National Defence were separated from naval vessel construction contracts and will be awarded later after a competitive process. The Department views this approach as a way to maintain competition among the various industries.

In addition, the strategic sourcing agreement may reduce the possibility of negotiating future contracts because the sector is not very competitive. One of the controls that were established is that PWGSC and the shipyards have agreed to adopt open book accounting. Accordingly, the government will be able to review all financial information to ensure that the costs and profits reported by the shipyards are reasonable.

In conclusion, the Government of Canada procures competitively except when it is Canada's best interest and always in compliance with various trade agreement and contracting regulations.