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Canada To Require More Offsets

Feb. 8, 2014 - 02:47PM   |  
By DAVID PUGLIESE   |   Comments
Dassault Aviation, which builds the Rafale fighter, would provide full transfer of aircraft technologies to the Canadian government, with no restrictions. (AFP/Getty Images)
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VICTORIA, BRITISH COLUMBIA — Canada is getting serious about offsets.

Defense contractors who want some of the CAN $240 billion ($225 billion) projected to be spent on the Canadian Forces over the next two decades must craft bids that benefit domestic industry — for example, by creating highly skilled jobs, said Public Works Minister Diane Finley.

“The new Defence Procurement Strategy is designed to help make Canadian companies more competitive, here and abroad, in what is truly a global, managed — and I would venture to say even highly controlled — market,” Finley said. “Nearly every other Western nation already has a strategy such as this in place.”

Finley called the DPS “a fundamental change in how we do defense and major Coast Guard procurements.”

Finley and Defence Minister Rob Nicholson outlined the new rules Feb. 5 in Ottawa.

The ruling Conservative Party government hopes the new strategy will mollify domestic defense firms who complain they have received little quality work from Canadian military contracts announced in the past several years. Worth billions of dollars, the purchases include tanks, helicopters and transport aircraft.

Like other nations, Canada has sought offsets in the past, said defense analyst Martin Shadwick. But the government has not pushed as hard as it might recently because it required a large amount of equipment to fill urgent needs in Afghanistan and elsewhere, said Shadwick, a defense analyst at York University in Toronto.

“I would expect companies are going to have to respond by highlighting what they can do for the Canadian economy and outlining significant industrial benefits and jobs,” he said.

A number of firms appeared to be positioning themselves in advance of Finley’s announcement.

Lockheed Martin Canada recently highlighted its 40 years in the country, emphasizing the jobs it has created. Lockheed is also set to launch an advertising campaign highlighting the jobs that would be created if Canada were to purchase its F-35 fighter jet.

Lockheed Martin Canada president Charles Bouchard said the moves by the company are not related to Finley’s announcement. But he and other Lockheed Martin officials did note the company has a long track record of providing Canada with industrial benefits.

Boeing, which is vying to sell Canada the Super Hornet, is now promising offsets for Canadian industry worth 100 percent of the purchase contract value.

Dassault Aviation, pitching its own Rafale fighter, is also highlighting industrial benefits. Yves Robins, a vice-president at Dassault Aviation, said the company would provide full transfer of aircraft technologies to the Canadian government, with no restrictions. That would mean Canadian firms could be in line for upgrading the aircraft as well as providing long-term maintenance and mid-life modernization.

That is the type of proposal that would earn points with the Canadian government under the new scheme. Finley said the procurement strategy would change how industrial benefits are weighed in relation to selecting a winning bidder. Until now, a company was scored on a pass or fail basis and was given no extra consideration if they were able to provide large numbers of high-tech jobs.

That process will be changed and the level of industrial benefits will contribute to the rating of a bid proposal, Finley noted.

In addition, the government will hold companies publicly accountable for the offsets they promise. Finley said various companies have yet to fulfill CAN $5 billion in offsets, known in Canada as industrial regional benefits.

The government’s initiatives closely follow a report from its procurement adviser issued last year, recommending that foreign defense companies be required to provide domestic companies with quality offset work in key areas such as cyber security, training systems and soldier protection.

That 88-page report, “Canada First: Leveraging Defence Procurement Through Key Industrial Capabilities,” recommended developing, at least initially, key industrial capabilities in six areas: Arctic and maritime security, soldier protection, command and support, cyber security, training systems and in-service support.

Foreign firms who wanted 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.

Finley, however, cautioned that the new strategy does not mean “buy in Canada, under all circumstances, even if it doesn’t make sense.”

In addition, she said, the Department of International Trade will support the presence of Canadian companies and organizations at international defense trade shows and delegations. Other countries that already do this are potentially taking business away from Canada, she said.

The government also plans to provide more information to industry about military procurements, including informing companies early on about projects and publishing an annual acquisition guide to outline its priority programs.

A Defense Procurement Secretariat to be established within Public Works would provide expertise needed to oversee purchases of military equipment. The secretariat would use the principles of early and frequent engagement, independent advice and efficient decision-making to streamline defence procurement processes, according to Finley.

An independent, third-party Defence Analytics Institute to provide expert analysis to support the objectives of the strategy will be established.

Tim Page, president of the Canadian Association of Defence and Security Industries, called the move a “critical and positive milestone” that will enhance both security and economic interests.

He said he doesn’t believe the emphasis on ensuring Canadian industrial benefits will compromise equipment capabilities for the Canadian Forces or raise project costs.

“Greater predictability and improved process and governance frameworks will reduce risk, better manage project costs and result in a greater likelihood of successful procurement outcomes,” Page noted.

The association represents more than 1,000 defense and security companies in Canada. ■


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