Procurement process bankrupting CAF
Former head of defence procurement at Canada's Department of National Defence, Alan Williams, made the following remarks at the Standing Committee of National Defence hearing on 16 June 2023:
Bankruptcy. That is the simple, unvarnished result of the impact of Canada’s procurement process on the capital account of the Canadian Armed Forces. The capital costs of Canada’s new fighter jets and Canadian Surface Combatant (CSC) ships will exceed $100 billion dollars over a ten-year period. Unless there is an injection of new monies, these two programs by themselves will result in an annual $5 billion capital shortfall.
The procurement processes for both the F-35 jets and the Canadian Surface Combatant ships have been procurement disasters. With respect to the jets, in 2010, the Conservative government tried to sole-source these jets without any legal authority and spent years misleading the Canadian public as to why it was entitled to do so. The Liberal government, after promising not to purchase the F-35, watered down the Industrial and Technical Benefits policy to allow Lockheed Martin to participate, ruled Boeing’s bid non-compliant and, earlier this year, 12 and a half years later, awarded the contract to Lockheed Martin. The costs have escalated from an initial estimate of $9 billion to acquire the jets and $18 billion to maintain them to a current reported forecast of $19 billion to purchase and over $70 billion to maintain.
With respect to the ships, after violating every basic tenet of sound procurement, the Government is on the cusp of acquiring 15 ships for two-to-three times their true cost. The CSC capital costs have risen from about $26 billion to $85 billion with life-cycle costs now estimated at over $300 billion.
Fortunately, the prescription to significantly reducing the risks of future procurement process debacles is not a mystery. The three most critical deficiencies in the existing defence procurement process are the lack of ministerial accountability, the lack of performance measures and the lack of adequate reporting.
Amongst our close allies, Canada stands alone with its system of “dispersed accountability.” The roles and responsibilities for defence procurement are shared between the Ministers of National Defence and PSPC. Unless and until one minister is placed in charge of defence procurement, it will never be as efficient and effective as it could be. The benefits of creating a single procurement organization go beyond strengthening accountability. First, the process would be streamlined. Second, savings will emerge from the elimination of overhead and duplication of functions.
Third, without one minister accountable for defence procurement, it is difficult, if not impossible, to introduce system-wide performance measures. We need indicators that, at a minimum, measure timeliness and costs. If delays are occurring, where in the process are the bottlenecks? It’s impossible to make improvements, if we don’t have a clear understanding as to where the problems lie.
With respect to costs, two fundamental questions need to be answered. The first is what is the total life-cycle cost of a program? The second is can we afford it? Today, both questions are inadequately addressed.
To best answer these questions, a capital plan needs to be available that displays the full life-cycle costs for each project over a 30-year period, mapped against the projected available funds year by year. Such a plan would have shed much needed light on the current CSC cost crisis and greatly assist this committee in fulfilling its role.
Defence procurement is a business. Let’s begin to run it as such with one minister accountable for results, with full disclosure of life-cycle costs, with appropriate plans and reports that measure performance and with rigorous and timely oversight.
Former Assistant Deputy Minister (Materiel), Department of National Defence (1999-2005)