Procurement
November 18, 2014

ADM MAT adapts to new procurement strategy

When the government introduced the Defence Procurement Strategy in February, it laid out three priorities: delivering the right equipment in a timely manner; leveraging the purchase of defence equipment to create jobs and economic growth; and streamlining the acquisition process. All three will have an impact on the Material Group at National Defence. John Turner, Assistant Deputy Minister Material, spoke with associate editor Chris Thatcher about the strategy and its effect.

 

How has your role changed as a result of the DPS?

I would say our role hasn’t significantly changed, it just occurs earlier in the overall process. Specifically in the past, the options analysis to best address the requirement was the purview of the project sponsor – one of the three services or the Vice Chief of the Defence Staff or special forces – and we would really engage in strength at the project definition phase following Treasury Board project approval for initial expenditure authority. Now we are going to get engaged earlier, as are Public Works and Industry Canada, because of process changes around third-party review of the requirements. We will also be engaged with Public Works and Industry Canada around the value proposition in terms of its importance relative to other evaluation criteria. And industry engagement is going to happen far earlier; i.e., before a service finalizes its requirements, we will engage with the service and industry to make sure we have the right scope for requirements – that we’re not asking for something that isn’t deliverable, isn’t feasible or doesn’t exist or that we do so with eyes wide open.

When Minister Finley unveiled the DPS, she specifically referenced the length and complexity of some the statements of requirements and promised to simplify them. Do you have a new role in how those statements are now brought forward?

It’s an interesting issue. The actual high-level mandatory requirements tend not to be that precise, rather it’s the specifications below to address the requirements to deliver on the capability. Have things been over-specified in the past? Possibly. But if we don’t have a certain level of specification, we are putting the Crown at risk: it is hard to go back to the supplier and say, “your piece of kit isn’t delivering on the requirement,” if you haven’t required some hard specifications. There is, however, always a balancing act.

When I came into this office, I had heard that over-specification was an issue, so as I would go around to various projects I would ask about the requirements specifications. Fixed-wing search and rescue provides a good example. One of the requirements is a ramp: in simple terms, you need a ramp at the back so the SAR techs can jump out, and so you can get equipment on and off. But you need to ensure the ramp is wide enough and high enough that you can actually get SAR equipment on and off; and the plane needs to be able to fly at a certain speed with the ramp open, etc, etc. I think there are 8-10 specifications just around the ramp – all of them valid. So when you start adding up all the specifications of all the various bits of an aeroplane, you end up with a lengthy set. This is one of the issues the independent review panel is going to be looking at – the linkage between requirements and specifications, and making sure we’ve got the right balance between the two.

Does your challenge function change as a result of this? Do you begin earlier?

Yes, we would begin earlier. But I think we have always exercised a challenge function. Furthermore, I’m not sure we would do anything differently than we are doing now, other than provide/coordinate our challenge function through the new third-party review.

What kind of expertise are you going to be expected to contribute to understanding industrial technological benefits and value propositions (VP)? It strikes me that you have a lot of S&T expertise in DRDC and the warfare centres, for example, that could help in how a VP is weighted and rated.

First and foremost, Industry Canada has the lead in terms of identifying key industrial capabilities and they have done some good work in further refining the six key industrial capabilities in the Jenkins report to 14 or so key market segments. From a value proposition perspective, there are certain segments within those 14 that may be a higher priority for DND, and that could influence the evaluation process. We are still working through the details of how that would work, but you are right, DRDC could undoubtedly bring some valuable expertise to the table.

What is your role within the governance structure?

We have governance at all levels, right up to the ministers. The governance is based on what we put in place for the National Shipbuilding Procurement Strategy, which was used to good effect, and the maritime helicopter project. In my view, the new governance will allow us to get to the source of the issues earlier and address them in a whole-of-government fashion. It has already streamlined decision-making on some complex files with lots of issues at play.

We will contribute to the governance at all levels, but under the DPS, project governance, when it applies at the Minister, Deputy Minister and Assistant Deputy Minister levels, will be led by Public Works and they have responsibility for making sure that the process works, that we are doing it in a joined up fashion, and that individual accountabilities of the three ministers and departments are respected. So far, based on NSPS and MHP, we have some good examples of a governance structure that is working well.

Given that your priority is procuring the right equipment, is there a concern that another department has the lead on this?

No, I think it is very clear to all three ministers that the overarching objective remains getting the right equipment in a timely manner to the Canadian Forces and that the setting of requirements is the sole accountability of the Minister of National Defence. That is the messaging I have repeated and heard at all levels throughout the governance.

What has been the reaction, especially from industry, to the first iteration of the Defence Acquisition Guide (DAG)?

The DAG is produced by the VCDS and it encompasses the projects that will deliver on the requirements to satisfy the policy objectives of the Canada First Defence Strategy. So it is not a procurement plan, it is what the government and DND currently plan to invest in to deliver on the policy. If the policy changes, the DAG could change. It provides a level of predictability about what we are going to do, but not 100 percent certainty.

We’ve had something like 20,000 hits on the DAG website since it was posted. The feedback I have heard from industry is that while they would probably like more information, they appreciate the point of contact with whom they can follow up directly. They also now have a level of assurance that, if a requirement is not in the DAG, it is probably on a wish list as opposed to something that has been approved by internal governance processes. The other thing I have heard that they very much like is the timelines. We have mapped everything out to five year timeframes. In the past there would be industry engagement and people would show up with bid proposal teams to hear what was going on and discover that the project was something we weren’t really looking at until 2020 or beyond.

I also think it levels the playing field a bit. For the bigger companies that have well established business development teams, there’s probably nothing in the DAG they didn’t already know. But some of the smaller to medium sized enterprises that don’t have a lot of BD resources can see what is coming up and focus their efforts on projects that might be of interest to them.

What will a Defence Analytics Institute mean for you?

I think it is going to help identify and refine the strengths or capabilities within the Canadian defence industrial base. When companies come forward with value propositions, it will help focus the market segments to which the Crown would attach the greatest value. It will also help us as we sit with our Industry Canada and Public Works colleagues to know how a particular value proposition is going to benefit the industrial base and potentially benefit DND in an area where we would want to encourage investment. I think one of its tasks will also be to evaluate the DPS down the road to see if it is actually delivering on its three key objectives.

What kind of leverage does an increase in delegated authority give ADM (Mat)? Given that many SMEs are seeking ways to get new technology into DND outside of major capital procurement projects, could this help?

We’re still going to have to go through competitive processes as the default process regardless of what the delegation of authority is, but I do think the increase is going to be very significant for DND. We’re looking for an increase from $25,000 up to $5 million for goods and services. Since a $5 million delegated authority would represent about 90 percent of the current number of transactions that we do with Public Works, if it were now done in house, we should be able to process transactions and contracts in a much more streamlined manner. Not that PW isn’t doing a good job – they are – it’s just that every time you put an additional pair of hands on a file it slows things down. From a DND perspective, a $5 million delegated authority would still tend to comprise procurements that are lower risk and less risk. So in theory, there is huge potential to streamline those procurements and free up resources at PW and DND to focus on the higher dollar value and more complex projects.

Does that pose any challenges with respect to project management competencies?

I think the challenge for us is making sure that we have done the training and put the tools in place so that we respect the government’s contracting regulations to the T. That can be a bit of a challenge in an organization that is spread out across the country and we will have to figure out what we need to do to ensure we have competencies in place before we actually start executing the increased delegation of authorities to make sure we don’t get it wrong. It sounds like a simple thing but there is actually quite a bit of work involved and we think it is probably going to take about a year before we start executing the increased delegation of authority.

You have taken steps to improve and align competency development for project managers. It’s one thing to have competent people but given the number of projects outlined in the DAG, do you have enough of them?

We actually ask for the project management people in our project approval submissions to Treasury Board. When we go in to Treasury Board we say, this project is going to take four to five years to deliver and it is going to require 50 people in the project management office. So we then have the authority to hire the people we need. There is a strain on the people that we matrix because they have certain skill sets that can be used by multiple projects, but to date projects and people are managing.

It’s not directly tied to the DPS but you also have a sustainment initiative underway that does impact acquisition. What is ADM MAT’s objective with this?

This is an interesting initiative. It is one of 22 that are part of the broader Defence Renewal initiative and is one of four that Materiel Group is responsible for. We are drawing on lessons from the private sector and from our allies on what is the optimal way to maintain fleets. We are asking ourselves if we are over-maintaining fleets at the moment. Do we put some fleets in for routine maintenance every six months when, in fact, we could be doing the maintenance every nine months? And what’s the savings and potential operational impacts associated with that?

We’re also trying to move more to performance-based logistics, putting in place contracts that are more metrics based. For example, do we need to have 100 percent of all spares 100 percent of the time? Could we live with 80 percent if the supplier could provide the additional spares within 24 hours? What is the impact then on inventory management and the cost of inventory management? Can we get away with less warehouse space? These are all things we are hoping to explore as we seek to spend money more efficiently and ideally reduce costs throughout the supply chain.

Is it also an effort to look more holistically across fleets within a service?

We are looking at things we can do between fleets as well as within fleets. For example, we are interested in simulators that can service multiple fleets. Likewise from a logistics and maintenance perspective, the more commonality of pieces the easier it is in terms of training requirements for the technicians, for managing inventory, etc.

More than one commander in recent months has noted the importance of schedule, especially on shipbuilding projects. What do you need to do to ensure there is minimal slippage?

I think a key step will be the governance that has just been put in place. In the past, a file may have stalled at a lower level because somebody in one of the key departments – DND, PW, Industry Canada or Treasury Board Secretariat – may not have been seized with the urgency of the file. Now these issues will escalate up the chain much faster to the level where people can make decisions and unblock files.

Further, schedule is just one of three key project performance criteria – capability and cost are the others – and there has to be a balance between the three. Schedule does tend to be king because we lose buying power over time on multi-billion dollar projects, but there is a requirement to be able to accept possible tradeoffs – for example it might be worth accepting a delay of a project for six to nine months if the capability that is going to be delivered is significant enough to justify the schedule slippage.

The government has clearly stake a lot on the DPS and has raised hopes in industry: how important will it be to manage expectations as this rolls out?

It is still early days. As we were putting the strategy together we gave ourselves gates by which certain things would be accomplished: six months, 12 months, and 18 months. The review panel was one of the items that had to come out within the first six months and it is progressing well. The DAG is out and we are also doing a lot of work on increased delegation of authority. We will, however, need time to figure out the various processes and how they are going to work, and to build capacity within the system. Many of these components are new and we will need to figure out how to get the right balance, for example, between value propositions, cost, schedule and capability.

In terms of managing expectations, we are going down the right path, but there are some projects that are caught in between the previous system and the DPS and we are doing our best to apply the DPS or its intent with the least amount of churn possible.

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