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Report: Canada Should Toughen Rules for Foreign Firms

Feb. 16, 2013 - 02:18PM   |  
By DAVID PUGLIESE   |   Comments
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VICTORIA, British Columbia — Canadian defense industry representatives are firmly behind a new report calling for tougher rules for foreign firms that want to win Canadian military contracts. But those industry officials question whether the government will act on the recommendations.

The Feb. 12 report from the Canadian government’s procurement adviser recommended that foreign defense companies be required to provide domestic companies with quality offset work in a number of key areas, such as cybersecurity, training systems and soldier protection.

The 88-page report, “Canada First: Leveraging Defence Procurement Through Key Industrial Capabilities,” is aimed at addressing growing frustration among Canadian defense firms who complain they have seen little quality work from the billions of dollars of military contracts awarded in the past several years by Canada’s ruling Conservative Party. Those include the purchases of tanks, helicopters and transport aircraft.

The report from special procurement adviser Tom Jenkins noted that the Canadian government intends to invest 240 billion Canadian dollars ($232 billion) on new defense equipment in the next 20 years.

It recommended developing, at least initially, key industrial capabilities in six areas: Arctic and maritime security, soldier protection, command and support, cybersecurity, training systems and in-service support. Foreign firms that wish to bid on Canadian defense contracts would be required to provide offsets in those areas and would receive better consideration for their bids if they provided Canadian companies with work on international programs.

In addition, the Jenkins report recommended that purchases from domestic firms be given priority when it comes to the acquisition of services and equipment for the Canadian Forces in the six capabilities. It suggested other capabilities besides the six could be added later.

In-service support contracts for equipment platforms should also be directed to Canadian firms, it added.

Jenkins said there is an urgency to act on the recommendations since a large number of key equipment programs will be under contract within the next several years. Those include the purchase of new search-and-rescue aircraft, armored vehicles, trucks, supply ships, a new fighter jet fleet and patrol ships for the Arctic.

The country’s defense industry association supported the recommendations and echoed the call for urgent action. “The upcoming spring budget will be a critical opportunity to learn how the government intends to address the advice it has now received,” said Tim Page, president of the Canadian Association of Defence and Security Industries (CADSI).

The federal government budget is expected sometime in late March.

But the lackluster response from Public Works Minister Rona Ambrose suggests that little will be done, said various defense industry representatives. Ambrose, whose department oversees procurement, said the government is committed to supporting Canadian jobs and industry by maximizing military procurement but she stopped short of promising to do anything. “Our government will carefully review and consider this report as we continue to improve military procurement,” she said.

Ambrose later told the House of Commons that the government looks “forward to seeing how we can implement some of [Jenkins’] recommendations.”

Defense analyst Martin Shadwick said the recommendation to shore up domestic industries using defense contracts should appeal to politicians. “You would think that it would be a slam-dunk as it would be politically astute, and politicians do like to cut ribbons and open factories.”

But Shadwick, a strategic studies professor at York University in Toronto, said concerns from domestic firms about a lack of quality offsets have been building for several years and little has been done by the government. At the same time, there is growing realization that military procurement in Canada is facing major problems, with a number of projects having either been derailed or significantly delayed, he added.

“You have these two major issues running in parallel,” Shadwick explained. “You’ll have a perfect storm brewing if the government decides to do nothing.”

CADSI’s Page pointed out that the recommendations in the Jenkins report are similar to those offered to the government in November in a report on boosting the country’s aerospace industry. That report, produced by former Conservative Cabinet minister David Emerson, pointed out that government needs to play tough with foreign defense firms and push for more offset work for domestic companies if it wants to shore up the country’s military industrial base.

In addition, a 2009 CADSI report made similar recommendations, but the government did not act on those either.

Page said the recommendations in Jenkins’ report are implementable and based on a good understanding of Canada’s procurement environment.

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