The Minister of Public Works, supported by the Ministers of National Defence, Industry, and International Trade, is in the process of introducing the new Defence Procurement Strategy (DPS), which will usher in the most wide-ranging reform to Canada’s defence and Industrial Benefit policies and processes that this generation has seen.
Execution of these reforms is being led by Public Works and is supported by Defence and DND and International Trade, while Industry Canada is developing tactics to implement all aspects of the revised Industrial Benefits policies and processes.
Last year’s reports by Tom Jenkins and David Emerson have helped drive these changes, as the government’s stated guiding principles of the DPS are to improve industry engagement—specifically in the early stages of the procurement process—and to allow for greater consideration of industrial outcomes in bid evaluations.
These primary policy and process changes seek to increase industry engagement by significantly changing the Industrial and Regional Benefits practice with the introduction of Industrial and Technology Benefits (ITBs). ITBs now override IRB policy, transforming the offset aspect of procurement from simply a pass/fail requirement to one that is rated with Value Propositions that leverage High Value Work in Canada. The revised policy will see a mix of mandatory and rated requirements, which will be determined on a case-by-case basis. The bottom line is that ITBs will be assigned a weight in bid evaluations alongside requirements and costs.
Impacting Procurement and Business: Industrial Technology Benefits + Value Propositions + Key Industrial Capabilities (KICs)
1. The IRB policy that has been in place since 1986 will be transformed into the new ITB policy. ITB will be more focused on technology and commercialization, and although there will be a mix of mandatory and rated requirements, they will be a weighted item in bid evaluations.
2. The proposed approach will require potential bidders on defence projects to outline Value Propositions—namely, undertakings to bring High Value Work to Canada—that will be rated for quality and strategic value and assigned a weight in the bid evaluation alongside requirements and cost.
3. Prime contractors will be required to focus on the industrial and technological benefits that could be brought to Canada from the outset of the procurement process. They will also be required to encourage High Value proposals.
4. The proposed new regime will involve fundamental differences in how information about procurements and their associated industry benefits is shared with industry. Industry will be significantly more engaged in analysis of Canadian defence industrial capabilities and in the procurement decision-making process.
5. Value Proposition commitments will be reported publicly, unlike the current IRB process where information is not disclosed.
6. Key Industrial Capabilities (KICs) will form the basis of the government’s ongoing analysis of the defence industry’s domestic strengths. Industry Canada is currently leading this analysis, but a private/public Defence Analytics Institute will be created (at the University of Calgary) to assume responsibility for this task. This analysis of KICs will be essential to developing the leveraging strategy for proposed procurements.
7. Value propositions have not yet been tightly designed. The High Value Work in Canada annex for Fixed Wing SAR has been referenced as an example of how a Value Proposition may work. This annex will require that ISS work and IP be placed in Canada. This is a rated requirement written by National Defence ILS specialists and Industry Canada. Value Propositions will likely focus on direct work available to Canadian companies on procurement policies.
8. ITBs will retain the requirements for 100% Canadian content value, causality, and incrementality. Though there will be ongoing focus on small business and regions, investments in technology and commercialization will be the new focus of the policy.
9. The default weighting in bid evaluations for Value Propositions/ITBs will be 10%. This will serve as a base, as actual value will be determined on a case-by-case basis.
10. All procurements over $20 million will be reviewed to determine if they can serve KICs and have Value Propositions. It should also be noted that “single point of accountability” will no longer be the default position for contracts. It can be overridden to better support Canadian industry.
Process and Governance
There are a number of process and governance changes that will be ushered in by the DPS. Though there is currently limited clarity on these changes, the following are anticipated:
1. A new governance regime for military procurement should take the form of a Secretariat of DND, PWGSC, IC, DFATD, and TB. Initially a committee of Ministers with a mirror committee of Deputy Ministers and a further committee of Assistant Deputy Ministers will drive the establishment of the new regime. The Secretariat appears to be modeled on the National Shipbuilding Procurement Strategy (NSPS) and the National Fighter Procurement Secretariat (NFPS).
2. An independent third party Defence Analytics Institute will be established. Reporting to Industry Canada, the institute will help inform aspects of the military procurement process and the development of KICs, and will conduct research on the Canadian defence industrial base, global markets, and technological trends.
3. Third party reviews of DND’s high-level mandatory requirements for large projects will be introduced. These reviews will be conducted under the auspices of an internal review panel reporting to the Deputy Minister of DND.
The launch of the DPS took place February 5th at a breakfast hosted by the Economic Club of Canada. The Ministers of PWGSC and DND provided an initial overview of the strategy.
In the first months following the launch, the government is expected to focus industry engagement on the policy and governance aspects of the DPS; the government is also expected to hold a series of consultations on these points, which will provide better definition of the KICs.
A list of immediately planned procurements that will be impacted by the strategy is to be published shortly after the launch.
A new Defence Acquisition Guide (DAG) will be published in the coming months, most likely by summer 2014. This document will identify lists of procurement projects expected over a five, ten, fifteen, and twenty-year time frame.
The industry engagement process, schedule, and format have not been announced. Close attention needs to be paid to these consultations.
The DPS will not only introduce changes in industrial policy and processes, but it will also have an impact on the roles and leadership of the departments.
PWGSC has exercised leadership on the development of the DPS, on process, consultations, and governance. The department is expected to continue exercising that leadership on implementation.
Industry Canada has placed renewed emphasis on its stewardship role with respect to industrial policy and procurement. In doing so, we have seen the policy refocus on national outcomes and support of the government’s innovation objectives. Industry Canada should be seen to take a more active role in the procurement process.
Interestingly, the Regional Development Agencies (RDAs) and the objective of regional participation have seen their role diminish with the introduction of the DPS. This often happens when focus shifts from transactions to national policy outcomes. Over the course of DPS implementation, regional issues may resurface and we may see further adjustments to the process.
One department that has been relatively silent during the development of the DPS has been National Defence. One can only wonder what the rank and file and leadership think of an initiative that will in all likelihood result in increasing the costs of procurement being implemented in a time of budget restraint.