H+K Canada chairman Brian Mersereau lends his procurement strategy expertise to the Ottawa Citizen as the Defence Watch guest writer. This article was originally published on September 12, 2014.
The Canadian Surface Combatant procurement strategy – time to lift anchor
Not much appears to have changed on the Canadian Surface Combatant (CSC) program since my original piece was posted on Defence Watch in February, where I offered the view the Crown was embarking on a potentially flawed procurement strategy for the Royal Canadian Navy’s new frigates and destroyers.
During the first half of 2014, Canada has continued to consult with industry on this procurement strategy, which positions a Most Capable Design (MCD) strategy against a Most Qualified Team (MQT) approach to determine how the procurement will take shape. The internal debate about whether MCD or MQT approach will determine the forthcoming procurement strategy is alive and well based on discussions in the past few days with little resolution by the Crown. Much to the frustration of many, this debate continues notwithstanding the original intent of NSPS in 2010, which is to encourage competition and conduct a Procurement Definition phase akin to the very successful Canadian Patrol Frigate (CPF) program.
In the meantime, as one would expect, the procurement environment has continued to evolve with Canada announcing its Defence Procurement Strategy (DPS), which contains several elements that must now be incorporated into the CSC procurement strategy
Independent Third Party Review – will it happen?
Firstly, DPS identified a need for an independent third party to review high level requirements before the procurement process was launched. While Canada has yet to formally identify who the third party will be, common sense would indicate that the CSC requirements—from whatever lens one may wish to view it through—should be subject to an objective in-depth review. If the Crown does not do this review for CSC—the largest procurement on the books—one could seriously question whether Canada is really committed to implementing DPS. Such an assessment must be undertaken before deciding between MQT/MCD, as the outcome may dictate the nature of the competition with only a limited cohort available to satisfy the requirements. Canada needs this review to be completely independent, as any review will need to be fully objective so as to not bias the procurement strategy and yield a limited or worse yet a “pretend” competition. If this type of scenario emerges Canada must put itself in a position such that when the final requirements are signed off it has the ability to establish a procurement strategy that will allow Canada to best fulfill the overall needs of NSPS. Selecting the procurement strategy before deciding what the real requirements carries with it no logic chain!
A Possibly Invalid Value Proposition Approach!
Secondly, as outlined in the DPS, CSC will now be subject to a Value Proposition. While some initial discussions have been held between Canada and industry, there is considerable work to undertake on this front if both parties are to maximize the return to Canada. The initial round of NSPS, which incorporated a Value Proposition, selected two shipyards to construct Canada’s fleet of large ships, civilian and military – Seaspan and Irving, respectively. However the majority of the dollars allocated to NSPS will be spent on very sophisticated systems that will deliver the missions required of our military fleet for which the technology will be brought to the table by entities other than the shipyards.
As we have seen throughout much of Europe and Scandinavia, many countries are putting an increased industrial emphasis on the complex systems that are central to buyers being able to acquire the performance and capabilities expected of today’s modern surface fleets. In my opinion, Canada would be well advised to follow such a path when it starts to crystallize its position with respect to defining a Value Proposition. This, like the procurement strategy issue, can only be pursued with some vigour once Canada has decided what its high level requirements are as those defining the Value Proposition need to understand how the CSC supply chain may be impacted by issues such as ITARs or a decision by Canada to acquire select pieces of equipment, such as CEC or missiles, on a government – to – government basis.
One of Canada’s primary objectives for NSPS from the get-go was to build a sustainable marine industry. The marine industry is obviously much more than having just capable shipbuilders – it must include all those in the supply chain as that is increasingly where the high value, knowledge based work is originating. Canada must put itself in a position through truly competitive commercial pressure to both expand the technology we have (look at some of the Canadian systems on our current frigates!) and acquire/invest in new technologies. As other countries have shown the leverage to attain such goals comes from keeping all the interested private sector parties under competitive pressure as long as possible; particularly the major players. If Canada is to fulfill its stated objectives it needs to define its high level requirements, move on to developing its Value Proposition with those requirements in mind and then evolve a procurement strategy which can meet the objectives. The procurement strategy does not come first! Key requirements, be they capability or industrial, need to be defined before one develops the procurement strategy.
Calling for transparency!
There is discussion in industry circles that Canada has indirectly retained a third party to help it make a more informed decision on the CSC procurement strategy of MQT versus MCD. One would hope that if in fact the rumour is true, than industry would be given some insight into how the supplier was selected and the terms of reference established. The selection of the ultimate procurement strategy is critical to those in Canada’s marine sector. Given the announcement of DPS and the marine sector sustainability objectives contained in NSPS, it would seem appropriate that such a decision is taken in a manner transparent to all stakeholders.
Brian Mersereau was Canada’s Chief Negotiator on the Canadian Patrol Frigate Project and is currently the Chairman of H+K Strategies Canada. He is an advisor to marine firms such as DCNS, which hopes to be involved in the CSC project, as well as Chantier Davie.