We knew Defence Department procurement was a mess. Now we know how much of a mess
By John Ivison, National Post
15 Jan 2015
When auditor general Michael Ferguson looked at the F35 purchase three years ago, he found “significant weaknesses in the decision-making process” at the Department of National Defence.
Now we know how significant. A new study by the Macdonald Laurier Institute and the Conference of Defence Associations Institute suggests that nearly one-quarter of the money Parliament allocates for defence procurement in any given year remains unspent.
Since 2007-08, exceptional delays in the defence capital program means an average of 23% of available money — $7.2 billion — was not spent as intended. Dave Perry, the report’s author, said the problem is “historically unprecedented” — the historical average, dating back to 1973, is 2%.
The problem with not spending the money is that changes in costing procedures mean that purchasing power is eroded by inflation, which runs at around 7% for military gear. Mr. Perry estimates that buying power is being reduced by 20-25% over the project life of multi-billion-dollar procurement projects. He pointed to a recent report by the Parliamentary Budget Officer that suggested delays in the Arctic Offshore Patrol Ship procurement could result in one fewer ship per year of delay.
Mr. Perry’s report, entitled “Putting the ‘Armed’ Back into the Canadian Armed Forces,” delves into the institutional malaise that caused the F35 fiasco.
He pointed out that Canada is not alone in facing procurement challenges. But past policy decisions have created a dysfunctional system that has failed to replace the aging Sea King helicopters 30 years after they were first scheduled for the scrapyard.
Canada separates procurement by the Department of National Defence from the contracting authorities (the Department of Public Works and Treasury Board). Critics, mainly within National Defence, complain about unnecessary duplication of effort and a civilian bureaucracy unsympathetic to operational requirements.
But proponents point out it means there is nominally a challenge to Defence’s inevitable desire to have the biggest, shiniest new toys, even if it failed in the F35 case.
Mr. Perry said National Defence’s procurement arm has been under intense pressure for more than a decade. The number of Major Crown Projects (those exceeding $100-million) grew threefold between 2000 and 2011. There are now 13 projects worth more than a billion dollars. At the same time, reporting requirements have increased by 50% in the past four years. To add to the mix, the procurement “holiday” during the 1990s left a workforce with limited experience in complex procurements, while cuts mean the number of staff in the Material division shrunk from 2,600 per $1 billion in capital spending in 2003-04, to 1,800 in 2009-10.
That helps explain some of the cost and timing overruns. But the F35 saga was far more malign than a few mistakes by some overworked, under-trained bureaucrats.
The auditor general said Defence officials misled Parliament. It was apparent that a number of senior players decided they wanted the F35 and government contracting rules, Treasury Board guidelines and the oversight of Parliament were an irritation to be ignored.
The prime minister responded to the auditor’s report by saying the government would ensure more rigorous supervision of National Defence — a pledge that led, in part, to the Defence Procurement Strategy.
National Defence was effectively demoted after the auditor general said it could not be trusted to do the job. That lack of trust continues to permeate the system, according to Mr. Perry. The other players in the system — Public Works, Treasury Board, Industry, the Privy Council Office — assume the military’s requirements are “gold plated,” that is more expensive than is strictly necessary, and “wired” with requirements that are tailored to fit a specific ship, plane or truck.
The report suggests the Defence Procurement Strategy has introduced some much-needed reforms. It offers a pan-government approach, where all the relevant ministers sit on a working group. The fighter plane secretariat inside Public Works is acknowledged to have increased the rigour and confidence in the process to replace the CF18s. A challenge function inside National Defence has been initiated to improve the quality of requirement proposals coming from the military.
However, many inside the Defence department see the new set-up as “brutal” and “nitpicking,” pointing out it further slows the process.
The Defence Procurement Strategy was initiated to improve the domestic economic benefits of defence purchases and to rein in the Defence department. The focus on reducing the delays in major projects appears to have fallen down the agenda.
Mr. Perry said there is a need to “temper” expectations about how much change the DPS will usher in. He warns unless the military prioritizes its investments — the Canada First Defence Strategy insists the military needs to deal with a “full range of threats” on land, sea and air — and increases its acquisition workforce, progress in reducing delays will be slow.
Retired vice admiral Ron Buck wrote recently that Canada’s defence strategy is “neither affordable nor viable in today’s fiscal reality.”
It becomes still less affordable when inflation is eroding billions of dollars allocated by Parliament that are sitting unspent.
We are approaching the third anniversary of Mr. Ferguson’s damning report on the F35s, but we appear no closer to a political decision.
“The government reset the file and the departments submitted a soup to nuts redo of the process last spring. Yet there’s still no decision,” said Mr. Perry. “There is plenty of blame to go around on the part of the bureaucracy. But the government also has to make some hard choices.”
