Vanguard Magazine

26 APRIL/MAY 2024 www.vanguardcanada.com D E F E N C E P R O C U R E M E N T emphasis on results and deliverables, and less on the optics of spending. Efforts to make procurement more ef- ficient should also lead to radical shifts in Canadian purchasing rules and require- ments. While Public Services and Pro- curement Canada (PSPC) is mandated to ensure procurement is fair and competi- tive, history has shown that its traditional approach does not work on complex war- ships, comprised of sophisticated weap- ons, sensors, and power generation sys- tems, that demand total system of systems integration. Rather, history has shown that a great deal of time and expense can be saved by purchasing Military-Off-The Shelf (MOTS) systems that are identified by the end-user. This process breaks with established government practice since many of these systems may not be the lowest-priced solution, though their im- mediate availability and established supply chains offer lower risk, guaranteed price, and deliver solutions quickly – often lead- ing to lower costs in the long run. Improving defence procurement also means prioritizing speed. In March 2024, former National Security Adviser Richard Fadden made the point that public ser- vants should be encouraged to recom- mend that certain procurement projects be exempt from some or all the procure- ment red tape that typically governs gov- ernment purchasing. 1 This suggestion best addresses the conundrum of the cur- rent offset policy of Industrial, Technical Benefits (ITB) which should, at a mini- mum, be critically reviewed and radically downscaled. ITBs were designed to lever- age defence and security procurement to create jobs and economic growth, in very specific areas called Key Industrial Capa- bilities (KICs). Notably, they were not designed to procure the best equipment and services in a timely manner. The In- dustrial and Technological Benefits (ITB) policy mandates that companies receiving defence contracts must conduct business in Canada equivalent to the value of their contracts. This requirement plays a crucial role in bid assessment, alongside technical evaluation and costing. However, because Canada has a limited military industrial complex – as the national demand is in- sufficient to support this industry – that means high-tech military equipment, prominent in warship design and con- struction, is necessarily procured from outside Canada. The offset policy, administered by In- novation, Science & Economic Develop- ment Canada (ISEDC), is further compli- cated by Canadian Content Value (CCV) calculations that are part of the policy, whereby a smaller Canadian-owned and operated company can only offer a maxi- mum of 100% in CCV. While larger cor- porations, particularly those from abroad, can leverage cash investments (with mul- tipliers) to significantly boost their offset contributions in bids, merely bidding 100% of the contract value is inadequate for competitiveness. The ITB portion often constitutes 20% of the overall bid assessment and frequently serves as the decisive factor in winning bids. Bids re- flecting offset commitments as high as 500% of contract value are not unheard of, which essentially requires the engage- ment of corporations with substantial fi- nancial resources, not the Canadian Small Medium Enterprises (SME) the policy was supposed to champion. 2 The travesty for Canadian companies supposedly supported by this policy is that, from the ISEDC perspective, this is a win for Canada as they are "achieving" multiples of the contact value in invest- ments. The fact that this policy delays the procurement process and significantly in- flates the cost of the goods and services being procured - as industry must recover costs - is simply not a concern for ISEDC. This sad state of affairs demands immedi- ate corrective action. Figure 1 Rebuilding the Royal Canadian Navy will require not only significant resources, but a new approach to procurement. One of the most damaging structural flaws in Canada's approach to defence has been to tie (and even subordinate) vital questions of security to more politically saleable matters of industrial development and employment.

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