Industry Engagement: Canada s Military Procurement System Canadian Association of Defence and Security Industries (CADSI)

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1 Industry Engagement: Canada s Military Procurement System Canadian Association of Defence and Security Industries (CADSI) On behalf of: Industry Canada, National Defence, and Public Works and Government Services Canada September/October 2009

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3 TABLE OF CONTENTS Section Page # Purpose 2 Process 3 Background 5 Areas of Engagement 6 Canada s Economic and Industrial Objectives 6 Canadian industrial capability 10 Canada s military procurement process 12 Background Papers 17

4 2 Purpose The departments of Industry Canada, National Defence, and Public Works and Government Services Canada have asked the Canadian Association of Defence and Security Industries (CADSI) to engage the Canadian defence industry in a dialogue on the subject of the Canadian military procurement process. This workbook outlines the process which will be used for the dialogue, provides background information, and identifies the areas to be considered in the dialogue. In addition, at the back of the workbook, there are papers that may be of interest to those involved in the dialogue as further background material. The workbook can also be used by participants in the focus groups and individual interviews to make notes in advance, should they wish.

5 3 Process The process to be followed in carrying out the engagement covers three topic areas Canadian Economic and Industrial Objectives, Canadian Defence Industrial Capability and the Canadian Defence Procurement Process. Within each of these topics areas, stakeholders are encouraged to identify: what works now? What improvements can be made to achieve outcomes for industry, government and the economy? What metrics can be used to define progress and success; and what lessons can be learned from other jurisdictions? The following chart illustrates the process which will be followed. Error! Objects cannot be created from editing field codes. International Research This will consist of a research paper addressing international practices in related areas. In addition, stakeholders are encouraged to provide information on international practices through the other three prongs. Written Submissions All stakeholders are encouraged to submit written submissions on any or all areas of the engagement. These submissions of no more than 4,000 words should be sent electronically by October 7, 2009 to Any stakeholder making a submission is asked to give their contact information i.e. name, phone number, address, affiliation, title and . Group Research A series of eight focus groups will be held across Canada (Vancouver, Calgary, Winnipeg, Toronto, National Capital Region, Montreal, Quebec City and Halifax) and defence industry representatives will be invited to attend. At each focus group, all three areas of engagement will be addressed. This will likely be done by splitting the focus groups into three sub-groups each of which will address one area of engagement. Individual Interviews Individual interviews will be held, either in person or by telephone, with selected industry and opinion leaders.

6 4 Once the data have been gathered and findings identified, the material will be analyzed and a report written. Note that although there may be acknowledgement of the stakeholders who contributed, in an annex to the report, no specific comments will be attributed to specific stakeholders. The report will be submitted to the three departments that commissioned this industry engagement. Release of the report will be at the discretion of the departments.

7 5 Industry Engagement on the Military Procurement System Background The Canada First Defence Strategy (CFDS), (see Annex C) announced in June 2008, provides a detailed roadmap for the modernization of the Canadian Forces, building on the Government s investments in the military since taking office in The Government of Canada, through the CFDS, has committed to spend $240B in non-personnel related defence materials over the next 20 years. This allows the Government to continue to rebuild the Canadian Forces into the state-of-the art military that Canada needs and deserves. It also presents unprecedented opportunities for Canadian industry in its reach for global excellence. Upcoming decisions to be made by the government on defence procurement will define Canada s defence industrial base for the next 30 years. Engaging the defence and security industries now will contribute to meeting the needs of the Canadian Forces and will better position industry to respond to Canada s needs while maximizing economic return on investment in technology, trade and industrial areas of interest to Canada. The government is interested in how to move defence programs forward by aligning domestic industrial objectives with procurement priorities. Accordingly, the three key departments (Industry Canada (IC), National Defence (DND), Public Works and Government Services Canada (PWGSC)) have asked The Canadian Association of Defence and Security Industries (CADSI) to engage Canada s defence industry.

8 6 Areas of Engagement There are several areas of interest that will be considered as part of this engagement process and each could be addressed in terms of: 1. What works now? What does not work now? 2. What improvements can be made to achieve outcomes for industry, government and the economy? 3. What metrics can be used to define progress and success; 4. What lessons can be learned from other jurisdictions? Areas of interest are outlined below with a short discussion and some of the questions that are proposed for consideration: 1. Canada s Economic and Industrial Objectives Discussion: In 2006 the federal government announced Advantage Canada: Building a Strong Economy for Canadians. Advantage Canada a strategic, long-term economic plan designed to improve our country's economic prosperity both today and in the future. It will strengthen our nation, and show a modern, ambitious and dynamic Canada to the world. (See Annex A.) Since then, the government has made a number of statements related to military procurement and Canada s economy including: Section VI of the CFDS: Positioning Canadian Industry For Success The unprecedented commitment of long-term, stable funding over the next 20 years will directly support Advantage Canada, the Government s strategic plan for boosting the economic prosperity, global competitiveness and quality of life of Canadians. Indeed, the Canada First Defence Strategy represents a significant investment in the country s industry, knowledge and technology sectors that will yield sizeable dividends for every region of the country. This clear, long-term plan will give these sectors the opportunity to better position themselves to compete for defence contracts in Canada and in the global marketplace.

9 7 The Canada First Defence Strategy (CFDS) (See Annex C.) is based on an understanding of Canada s National Interests, from a military perspective, which should be leveraged, whenever possible, to support other government policies such as Advantage Canada and trade and economic policies to achieve meaningful industrial objectives. This concept is demonstrated in the chart above. It is generally agreed that to be effective the CFDS needs to be supported by strong defence industry development instruments - such as a defence industry and investment plan - that identifies high level industrial objectives, a defence industrial policy framework, and an implementing strategy that identify Canada s critical industrial capabilities and cross-walks them to economic development instruments such as Industrial and Regional Benefits (IRBs). Within this context, domestic industrial objectives would be identified as requirements are being defined and before the procurement strategy is chosen. As background to this section, at Annex I) are extracts from the related UK and Australian Defence documents. In particular, you may wish to look at: Para A1.9 of the UK paper that says: The DIS (Defence Industrial Strategy) is... one of the many contributions to the wider aim of

10 8 ensuring that capability requirements of the Armed Forces can be met, now and in the future. and Para A1.11 which says:... while the industrial base from which we procure is global, sourcing from the UK in certain areas will be essential for our long-term interests. Questions to be Considered in the Dialogue Regarding Canada s Economic and Industrial Objectives: What is the role of the federal government in creating a stable business climate for the Defence Sector? Are there aspects of CFDS or Advantage Canada that help? What more can be done? Does Canada need a Defence Industry Policy? What are the defining features of such a policy? Should be it associated exclusively to the CFDS or apply to broader defence and industrial strategies? How can the federal government maximize economic return on defence expenditures without compromising military requirements? What are the variables that affect the size of the economic return? What policies and programs could be undertaken by government to ensure Canadian companies have a level playing field in the international marketplace? When and how should domestic industrial objectives be considered in the Procurement Process? Identify examples where the Canadian procurement process has, in your opinion, successfully considered domestic industrial objectives? Are there Industrial policies, strategies and practices in other jurisdictions that Canada should adopt / avoid?

11 9 What do you think would be a good way to measure success of a Defence Industry Policy? How will we know that Canada has a viable and sustainable Defence industrial base? Are there other points you would like to make about Canada s Economic and Industrial Objectives?

12 10 Canadian industrial capability Discussion: Canada s defence industrial base, with its highly skilled workforce with critical skill sets provides essential support to Canada s military in niche areas. But, Canadian companies cannot meet every need of the Canadian Forces. In order to make the most of the resources that are available to industry and government it is important to identify and support those niche areas. Questions to be Considered in the Dialogue Regarding Canadian Industrial Capability How should the government define the Defence industry sector? How should government distinguish between the Defence industrial sector and the security industrial sector? What product and service capabilities within the Defence and Security sectors do you consider to be of high strategic value to Canada? Within each defence environment (Land, Marine and Air) itemize areas of excellence in each of the following areas: Canada has proven world-leading capabilities (including in OEM supply chains) that should be sustained or expanded, Canada should develop world-leading capabilities (including in OEM supply chains), Canada must have capabilities (if only) for national security and sovereignty reasons? In these areas: What is required of government for industry to succeed? Should government source only domestically? If so, how best can this be done?

13 11 Where technology is either not available or is insufficiently mature, how can the performance, cost and schedule risks associated with technology development be reduced? How can government leverage Canadian defence procurement to position the Canadian Industry for global success? What features are required for export success (IP rights and licensing, Export Control process, government assistance, etc.) What improvements to Intellectual Property policies and practices should Canada consider? How can IRB policy be altered to help Canada achieve its economic and industrial objectives? Should Canada adapt its shipbuilding policy to apply to land, air defence and security markets? What do you think would be a good way to measure the success of the Canadian defence and security industrial capability and capacity? Are there other points you would like to make about Canadian industrial capability?

14 12 Canada s military procurement process Discussion: As mentioned above there are three departments key to moving defence programs forward by aligning domestic industrial objectives with procurement priorities. This is unlike the process followed by some nations where the military and the acquisitions staff come under the same umbrella. The roles of the three key departments are: PWGSC is accountable and responsible for designing and building an efficient outcomes driven procurement process to acquire military equipment and for ensuring the individual procurement processes are fair, open and transparent and are in accordance with the related legislative framework. PWGSC is accountable and responsible for aspects of the contracting process and the resulting Contracts, including the contract planning, solicitations, negotiations, award and management, and the provision of specialized advice, assistance and services to DND. PWGSC is responsible for ensuring that all procurement activities carried out are administered in accordance with legislation, Government Contracts Regulations and Treasury Board Directives. DND is responsible for the conduct of all matters relating to national defence and is responsible for the construction and maintenance of all defence establishments and works for the defence of Canada; and the research relating to the defence of Canada and to the development of and improvements in materiel. DND is the lead department to establish the Defence priorities, requirements in accordance with the CFDS and the related approved funding. DND is responsible and accountable for the individual procurement project end results, and for the

15 13 overall management of the procurement projects, as approved by Cabinet and in accordance with any conditions stipulated by Treasury Board. Industry Canada is responsible and accountable for three strategic objectives a fair, efficient and competitive marketplace; an innovative economy; and competitive industry and sustainable communities. As such it is responsible for exploring related program and policy measures related to its mandate, including helping Canadian business to compete and succeed internationally, supporting Canadian industry in leveraging the business opportunities created under the CFDS, and for determining and managing IRB and other socioeconomic policies at the system level to maximize benefits to Canadians. Industry Canada is responsible and accountable for ensuring that IRBs accruing to Canada from the projects and contracts are in accordance with Cabinet direction and for all aspects related to the Project s IRB end results, including the evaluation, monitoring, verification and approval of the IRB obligations of the contractors. Questions to be Considered in the Dialogue Regarding Canada s Military Procurement Process What do you consider to be the main roadblocks for Canadian industry to achieve effective and efficient defence and security procurement? What can be done to reduce these roadblocks to achieve a robust industry that meets the needs of the Canadian Forces and supports the Canadian economy? How can DND improve its specification writing to ensure the appropriate balance between ensuring that specifications are written in a manner that is based on outcomes (the purpose the equipment is trying to serve), rather than output (a specific tool for the task)? What are the benefits and risks of such an outcomesbased process?

16 14 How can the project and contract risk balance be improved? What risks should be borne by business vs. government? How would each benefit from this change? What should the government take into consideration when calculating the full lifecycle cost? How can the government best contract for In-Service-Support for the future? Should government treat lifecycle costs or ISS costs differently depending on factors such as supply chains or environment (land, sea, air)? What can be done to optimize Canadian content and improve Canadian participation in Global Supply Chains? How do you think Canada can encourage universities, colleges, small and medium enterprises and other sectors to become involved in military procurement? What do you think can be done to make this easier and/or more effective? What consideration and requirements related to Canadian R&D should be considered within the procurement process? What can be done to increase Canadian content through the procurement process? What are the current barriers? What are the major risks and benefits to the government (client) and suppliers of increasing Canadian content? What changes should be made to simplify the Government s Terms and Conditions (Ts & Cs) to make the contracting process simpler, less expensive, more success oriented, and more

17 15 consistent with commercial terms and conditions? What are the risks and benefits of moving in this direction? What changes to the structure, process etc. related to the three departments roles, responsibilities and involvement would lead to a more efficient and effective procurement process? What suggestions do you have about the communications between government and private sector (before, during and after an RFP is issued) to support defence options analysis and ensure fairness, and transparency? How can the early engagement of industry be improved beyond the current system of Outlooks, Industry Days and Industry Working Groups? How can government establish a Cadre of Trained and Experienced Human Resources to ensure an effective and efficient procurement process? What kind of standing collaborative body would you see being developed to allow government and industry to work together on a continuous basis to develop industrial policy, align procurement processes and to oversee the application of these to individual projects? What are the practices from other jurisdictions that Canada should avoid, and the ones that it should adopt? What do you think would be a good way to measure success in defence procurement? Are there other changes or improvements to defence procurement policies or practices that would support effective and efficient

18 16 procurement which would contribute to Canada s broader socioeconomic objectives? Are there other points you would like to make that have not been addressed in the process? You are also invited to submit written comments, if you wish. They should be no more that 4,000 words and you should send them electronically by October 7 th 2009 to:

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