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Commentary: Can Canadian Procurement Be 'Fixed'?

Jun. 2, 2014 - 03:02PM   |  
By SVEN TOMMI REBIEN   |   Comments
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Earlier this year, defense and public works officials presented a new defense procurement strategy, the Canadian government’s plan to reform, or as some would have it “fix,” Canada’s often-criticized defense procurement system.

This is a more than timely and desperately needed reform agenda, as numerous procurement issues require focused attention.

Although the reforms are in line with proposed remedies from the 2013 Jenkins Report, such as streamlining procurement through the creation of a Defence Procurement Secretariat and leveraging acquisitions to generate economic and industrial benefits for Canada, we should doubt their ability to fix the procurement system.

Defense procurement is a complex and bureaucratic enterprise not only in Canada but in all advanced economies and does not lend itself easily to fine-tuning. Not only is the military to be provided with the best equipment, the costs should be as low as possible and the process and delivery as efficient, reliable and quick as can be.

Add job creation, industrial competitiveness and economic growth into the equation and you do not have to be a defense economist to realize that these objectives cannot be achieved all at once. One will always have to be compromised for the sake of another.

Let’s look at defense export promotion. Aside from diplomatic benefits and possibly simplifying the logistics of joint operations among partners, a common argument in favor of increasing defense exports is to reduce production costs through economies of scale. Generation of economic benefits through industrial growth and employment are also cited, an appealing scenario.

However, the cold reality is that the international arms market is fierce, highly political and ridden with corrupt bidding practices — not an area in which the best equipment for the best price has the highest chances of winning.

Canada is hardly in a position to outcompete other arms-producing nations, given that most of its defense companies are suppliers — not prime producers — and that it does not have the reputation of a top-tier arms-producing country such as the UK or France. And if the exception proves the rule, as with the $10 billion deal for General Dynamics Land Systems Canada to deliver light armored vehicles to Saudi Arabia, very lucrative export contracts come with a political price: providing weapons to governments with questionable human rights track-records.

To increase the appeal of Canadian equipment to foreign buyers, the government has to first buy most of the equipment itself since few, if any, foreign buyers will acquire equipment that the manufacturing country’s armed forces has not used. However, purchasing from the front line of production is costly; the economies of scale are more modest than desired as the volume of products bought by the home government usually outweighs the exports. This also pertains to the argument for benefits from cost sharing through joint development.

The ambition to deliver the right equipment to the Canadian armed forces and to export it is further questionable because equipment tailored for one military hardly ever sells on the international market. In fact, the importing customer, most likely a foreign government, necessarily has specific, often unpredictable requirements to which the equipment will have to be adapted.

Therefore, if exportability of equipment weighs more heavily in procurement decisions, not to mention job creation and economic growth, industry’s ability to fully meet detailed operational requirements outlined by the Defence Ministry in a cost-effective manner will be compromised.

Will the focus on increasing exports at least create jobs in Canada? Probably. Yet, given the conditions outlined above, the increasingly close partnership with industry also raises the risk of evolving into industrial and employment subsidy programs, rather than fueling real and sustainable economic growth. While this could be a great opportunity to create jobs and business opportunities for veterans, it does not seem to be a consideration on Industry Canada’s agenda.

Consequently, if buzzwords such as economic growth, jobs creation and best equipment for the armed forces are being thrown around, we might be witnessing a “conspiracy of optimism.” This is the bias among stakeholders to have unrealistic expectations as to the costs, performance and wider benefits of particular projects. This is typical of major public projects, including defense procurement.

Considering the myriad of political objectives announced by Defence Minister Rob Nicholson and Public Works and Government Services Minister Diane Finley, we should remain skeptical as to whether the government has indeed found the recipe for squaring the circle of defense procurement. ■

Rebien is a defense industry and public procurement associate with Blue Force Global Special Services Group, a British Columbia-based strategic consultancy.

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