The most important criterion for any procurement by the Department of National Defence (DND) is to meet the requirements of the military. Having said that, when spending billions of dollars annually, taxpayers should rightly expect a return from these expenditures in the form of industrial development and job creation in Canada.

There are three ways this can occur: by identifying opportunities for Canadian industry to participate in defence programs not necessarily tied to a unique procurement; by complying with government direction with “Canada only” programs; or by demanding industrial and regional benefits as part of specific defence procurements.

Opportunity-driven Industrial Development
One of the best examples to demonstrate the extent to which Canada’s industrial base can benefit from taking advantage of global opportunities is the Joint Strike Fighter (JSF) program.

This program was conceived in the late 1990s to address the U.S. military’s jet aircraft requirements. In an attempt to contain costs, three critical decisions were taken. First, one basic aircraft would be built to meet the needs of the Air Force, Navy, and Marines. Second, cost-containment was established as a fundamental priority for the program – virtually all contracts would be competed. Third, ­recognizing that building more aircraft lowered the per unit cost, international participation was welcomed.

This U.S. program was structured in three phases. A concept demonstration phase (CDP) from 1997 to 2002 with a value of US$5 billion, a system development and demonstration phase (SDD) from 2002 to 2013, valued at US$41.5 ­billion; and the production, sustainment and follow-on development phase, from 2007 to 2046 valued at an estimated US$250 billion.

Canada contributed US$10 million to be an “informed partner” in the CDP phase.

For the SDD phase, partner nations were offered three levels of participation. Level one, at a cost of approximately US$2 billion, would provide full partnership rights. Only the UK was permitted to join at this level. Level two required an investment of US$1 billion and was entered into by Italy and the Netherlands. Canada entered as a level three participant for an investment of US$100 million from DND, to be paid over ten years, and $50 million from Industry Canada’s Technology Partnership funds.

By any objective measure, the results have been remarkable. As of early 2006, 270 Canadian companies were actively involved with or have expressed interest in JSF opportunities.
 
Some noteworthy statistics:

JSF PARTICIPATION

• 376 competitive opportunities were afforded to Canadian industry;
• Bids were made on 340 (90%) of these opportunities; and
• 144 contracts were won by 65 Canadian companies, universities, and govern­ment facilities (a success rate of 42%).

JSF CONTRACT VALUES

• US$490million from 144 contracts for the period 2002-2012.
• US$1.1billion estimated from the current contracts forward for the period 2013-2023.
• potential estimated value of JSF work to Canada: US$4.8 to $6.8billion.

The JSF case study brings out a number of valuable lessons.
1. Think Strategically.
None of this success would have occurred had DND focused only on its own parochial short-term needs. Working with Industry Canada officials, DND put its own interests aside to primarily support and benefit the long-term strategic needs of Canadian industry.

2. Get in Early.
In 2000, the U.S. launched the process of inviting partners into the SDD phase of the Joint Strike Fighter program. The UK joined in 2001 and on 7 February 2002, Canada followed suit. Other countries came on board months later, letting Canada have the playing field to itself for nearly four months. During this time our relationships with the prime contractors were formed and the proactive work was begun.

3. Empower.
Thinking strategically and getting in early are necessary but insufficient ingredients for success. The third requirement was empowering the team to innovate and “run with the ball as far and as fast as they could.” The objective was to be, and be seen to be, the country that had the highest quality database of information and whose industry was outperforming all others.

“Canadian-only” Programs
At present, the government has directed that procurements involving munitions and shipbuilding be limited to companies in Canada. These policies have been in place for decades and beg the questions: “Why these two areas?” What makes munitions and shipbuilding so unique?

The UK Ministry of Defence recently published Policy Paper No. 5 entitled Defence Industrial Policy, which stated that open and fair competition remains the bedrock of its procurement policy. Nevertheless, it sites examples of capabilities that it would retain within the UK industrial base for national security reasons.

We too should bring our defence industrial policy into the 21st century by undertaking a comprehensive evaluation of our industrial base with a view to reassessing which capabilities, if any, should be retained in Canada.

IRB Policy
The IRB policy was approved by cabinet in 1986 and provides the framework for using federal government procurement (not just defence procurement) to lever long-term industrial and regional benefits. Industry Canada is the lead department, responsible for its oversight and implementation.

Developing an appropriately balanced IRB policy is an art, not a science. The challenge is to advance the interests of Canadian industry without impacting negatively on the ability to meet the military’s needs at the best possible price for the Canadian taxpayer. While it has been 20 years since its approval by cabinet, the IRB policy has not remained stagnant. It has matured and evolved to include such aspects as environmental changes (such as the Agreement on Internal Trade), transparency in requests for proposals, flexibility in direct versus indirect requirements, and a pass/fail evaluation methodology. But the time has come for a more fundamental and comprehensive policy review to be undertaken.

Industry Canada recently released its National Aerospace and Defence Strategic Framework. The section on procurement states that the government commits to developing a framework designed to better leverage industrial development from procurement.

The challenge, of course, is to ensure that such a framework is neither hollow nor vague, but rather one that provides concrete and specific direction. Further­more, any such policy review should include an examination of the cost impact from IRBs. At present, this information does not exist.

Conclusion
With its strong defence industrial base and highly skilled workforce, Canada is in an enviable position to leverage its defence expenditures to ensure continued industrial development and job creation. To do so however, will require new strategic policies relevant to the 21st century. Now is the time for action.

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Alan Williams retired from the federal government as Assistant Deputy Minister (Materiel) at the Department of National Defence. He is now President of The Williams Group, providing expertise in the areas of policy, programs and procurement. He has just written a book entitled “Reinventing Canadian Defence Procurement: A View From the Inside” (www.breakout-ed.net). He is a Senior Research Fellow in the Defence Management Studies School of Public Policy at Queen’s University where he lectures on defence procurement. Mr. Williams can be reached by email.
© FrontLine Defence 2007