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Defence procurement: Standing Committee on Government Operations and Estimates—March 12, 2020

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Defence and marine procurement general accomplishments

In this section

Commitment

In line with the minister’s mandate, the Government of Canada (GC) is committed to ensuring that Canada’s biggest and most complex National Defence and Canadian Coast Guard procurement projects are delivered on time and with greater transparency to Parliament, continuing the revitalization of the shipbuilding industry across Canada, creating middle class jobs and ensuring Canada’s marine services have the modern ships that they need and managing the competitive process, selecting a supplier and entering into a contract to construct Canada’s fighter aircraft fleet.

Key messages

Current status

Through collaboration between the department, Treasury Board of Canada Secretariat and Department of National Defence (DND), an 18-month pilot project for risk-based contract approvals began in late 2018. The pilot is testing a new process for low risk and low or medium complexity defence procurements to be approved within Public Services and Procurement Canada (PSPC) instead of by the Treasury Board. This streamlined process is intended to help Canadian Armed Forces members receive the equipment they need faster, without compromising on oversight and due diligence.

The department is also taking steps to ensure maximum competition in evaluation processes by using phased bid compliance, or cure processes, as part of large, complex competitive procurement processes. For example, as part of recent bid evaluations for the Canadian Surface Combatants project—the largest procurement ever for the Canadian government—bidders were given an opportunity to adjust their proposals if they had not initially demonstrated compliance with the requirements set out in the request for proposals. This approach reduces the risk of procurement processes not resulting in a compliant bid as a result of technical errors or omissions in bid documents. This approach proved successful and will be applied to other large defence procurements in the future.

Background

In 2017, DND released Canada’s defence policy, which outlines its investment strategy for the Canadian military. The defence policy included significant funding for major platforms, including replacing the CF-18 fleet with 88 advanced fighter aircraft and funding for the full complement of 15 Canadian surface combatants.

In May 2019, enhancements to the National Shipbuilding Strategy were announced to respond to future federal fleet requirements including those of the Canadian Coast Guard. These include directing the procurement of 18 new vessels (2 Arctic and offshore patrol ships and up to 16 multi-purpose vessels) to existing shipyards and expanding domestic shipbuilding capacity through the selection of a third shipyard in Canada to build 6 program icebreakers.

There are 3 broad objectives to defence and marine procurement:

Four departments are central to achieving these objectives:

Public Services and Procurement Canada leads interdepartmental governance at the deputy minister level and below, which coordinates many aspects of the process for defence and marine procurements. There are over 150 procurements with a value of $20 million or more, together worth approximately $200 billion, that have moved through the oversight of interdepartmental governance committees.

As the exclusive authority to acquire defence goods and services of all kinds on behalf of the Canadian Armed Forces, the Canadian Coast Guard, and other government departments, the department is actively working to identify opportunities to streamline the procurement approval process that falls under its auspices, including by supporting DND in reducing project delivery time by at least 50% for low-risk and low-complexity projects, increasing DND’s contracting delegation, and growing internal procurement capacity.

Questions and answers

Question 1: What are you doing to improve defence and marine procurement?

Answer 1: In December 2018, PSPC launched a pilot project to streamline defence procurement using a risk-based approach, allowing for departmental approval for low risk and lower complexity defence procurements. This approach also allows Treasury Board of Canada Secretariat to focus on the most complex, highest risk defence procurements. The results of this pilot are promising. Between December 2018 and June 2019, this was applied to several lower-risk projects totalling almost $3 billion, resulting in more quick and efficient contract awards.

We are also using “cure periods” in procurements—where, rather than being rejected immediately for not meeting mandatory criteria, bidders receive feedback and have a chance to address non-compliance issues. This helps us increase competition and avoid failed procurements.

Question 2: When will we finally see ships delivered to the Royal Canadian Navy and to the Canadian Coast Guard?

Answer 2: The National Shipbuilding Strategy is a long-term plan to renew the fleets of the Royal Canadian Navy and the Canadian Coast Guard, while generating economic opportunities for the Canadian marine sector.

Two of 3 offshore fisheries science vessels for the Coast Guard have been delivered with the third to be delivered later this year.

The first and second Arctic and offshore patrol ships have been launched, with 2 more currently under construction.

We are also responding to evolving federal shipbuilding requirements, notably the renewal of the Coast Guard’s fleet, by carrying out a process to select a third partner shipyard under the NSS. We expect to have an agreement in place with the new shipyard in this year.

In early 2019, the Prime Minister announced a $15.7 billion investment in the Canadian Coast Guard—the single largest investment ever made in the Coast Guard. This includes building up to 16 multi-purpose vessels and 2 Arctic offshore patrol ships customized for the Canadian Coast Guard needs.

The Government of Canada will continue to work in concert with shipyards to monitor improvements in shipyard productivity, manage and adhere to timelines, and closely monitor costs, all while investigating and implementing opportunities to minimize any potential work disruptions related to fluctuations in production.

Defence and marine procurement is essential to building the capabilities needed by the Canadian Armed Forces and the Canadian Coast Guard to exercise Canada’s sovereignty, while also generating economic benefits for Canada.

It is a complex process with many stakeholders (both internal and external) and substantial policies and procedures, which receives a high level of public attention. It is also a significant contributor to the Canadian economy. It is estimated that the defence industry contributed close to $6.2 billion in gross domestic product and 60,000 jobs to the Canadian economy (in 2016).

Future Fighter Capability Project

In this section

Commitment

In line with the minister’s mandate, the Government of Canada (GC) is committed to managing the competitive process, selecting a supplier and entering into a contract to construct Canada’s fighter aircraft fleet.

Note

All questions related to capability gap and costs should be answered by the minister of National Defence.

All questions related to industrial and technological benefits should be answered by the minister of Innovation, Science and Industry.

Key messages

If pressed on request for proposals for an extension:

Current status

On October 4, 2019, Canada received preliminary security offers from the 3 eligible suppliers. The preliminary security offers outline how the suppliers intend to meet Canada’s security and interoperability requirements.

Canada completed its assessment of the preliminary security offers and provided extensive feedback to the suppliers, to help them understand the scope of information that they have to provide in their proposals, which are due in June 2020. Following evaluation of the proposals, Canada may conduct a dialogue phase with one or more of the compliant bidders starting in winter 2020 to address any gaps and risks for final proposals.

Contract award is anticipated in 2022, with the first replacement aircraft delivered as early as 2025 and initial operational capability achieved in 2026.

Background

In November 2016, the Government of Canada committed to launch an open and transparent competition to acquire a permanent replacement for Canada’s CF-18 fighter aircraft fleet. This decision followed consultations held in summer 2016 with partner countries on fighter aircraft currently or scheduled to be in production.

In December 2017 Canada launched the competitive procurement process by inviting fighter aircraft manufacturers and their governments to qualify as a team on a suppliers list for future fighter capability. It was also announced that Canada will continue to participate in the Joint Strike Fighter II Program. Canada’s ongoing participation in the program allows companies in Canada to continue to benefit from contracts and provides the option to buy the aircraft through the program, should the F-35 be successful in the competitive procurement process.

In February 2018, the government established a list of 5 eligible suppliers that were invited to participate in formal engagement activities. This initial list included foreign governments and fighter aircraft manufacturers as follows: France-Dassault, Sweden-SAAB, UK-Airbus, US-Boeing and US-Lockheed Martin. Three supplier weeks were conducted in 2018 and 2019 where officials engaged with the eligible suppliers to share and obtain initial feedback on Canada’s requirements and planned solicitation approach.

In October 2018 and June 2019, Canada released drafts of the request for proposal to eligible suppliers for their review and feedback. Canada also invited eligible suppliers for a first-hand look at existing fighter operations and infrastructure at its main operating bases in late 2018. Canada made many changes to the request for proposal throughout this period with the objective of promoting as much competition as possible. The formal request for proposal was released on July 23, 2019.

On November 8, 2018, the France-Dassault supplier team officially withdrew from the future fighter capability competition. On August 30, 2019, UK-Airbus also officially withdrew from the competition.

Currently, there are 3 eligible suppliers in the competition Sweden-SAAB, US-Boeing and US-Lockheed Martin.

Canada is also engaging with the Canadian aerospace and defence industries and other stakeholders to ensure that they are well positioned to participate in the future fighter capability competitive procurement process. In addition to an Industry Day held on January 22, 2018, Canada also completed 6 regional forums in spring 2018. In August 2019, Canada, with support from the Canadian Association of Defence and Security Industries and the Aerospace Industries Association of Canada, gave a detailed presentation on the Future Fighter Capability Project competitive process to Canadian industry, including timelines and the economic benefits approach, with a particular focus on the value proposition and priority areas where Canada will encourage investments.

Questions and answers

Question 1: What is the current status of the project? Why is it taking so long to get new fighter jets?

Answer 1: This is the most significant investment in the Royal Canadian Air Force in more than 30 years, and is essential for protecting the safety and security of Canadians and meeting international obligations.

Extensive engagement with eligible suppliers was conducted from early 2018 to summer 2019, to ensure bidders have the opportunity to present compliant proposals. As a result, changes were made across all areas of the request for proposals to ensure that Canada receives competitive proposals.

A request for proposals was issued to eligible suppliers on July 23, 2019. Preliminary security offers for meeting Canada’s security and interoperability requirements were received from all 3 eligible suppliers on October 4, 2019.

On January, 31, 2020, the Government of Canada provided all 3 eligible suppliers with feedback on their preliminary security offers. This feedback does not affect suppliers’ eligibility to bid in any manner; rather, it is intended to help them put forward successful, final security offers, as part of their bids.

Eligible suppliers have until end of June 2020 to submit their proposals.

Question 2: Were changes made to the request for proposals to ensure that Lockheed Martin can compete?

Answer 2: Changes were made across all areas of the request for proposals to maximize the likelihood that Canada receives competitive proposals. This included adapting the economic benefits approach to ensure the highest level of participation among the eligible suppliers. As a result, under the points-based system a company does not necessarily have to sign a binding contract committing to a certain amount of economic benefits—but a company will get more points if it does. Other changes were made to increase the likelihood that all bidders can submit competitive proposals, such as providing bidders with multiple opportunities to demonstrate they can meet Canada’s security and interoperability requirements. The aim was to make sure that everybody could stay in the competition.

Strong economic outcomes are anticipated as a result of this procurement and we are confident that the value proposition will generate Canadian aerospace and defence jobs and growth over the coming decades.

Question 3: Do these changes favour a bid from Lockheed Martin?

Answer 3: No. All proposals will be evaluated according to the same evaluation criteria. Canada is taking steps to ensure the widest possible field of potential bidders for this procurement, including a truly competitive environment that will maximize and drive benefits for Canadians. The Government of Canada is committed to conducting an open and transparent competition, which is being overseen by an independent third-party reviewer, and an independent fairness monitor to ensure a level playing field for all potential bidders. This is one of many steps being taken in the procurement process to remove barriers for all bidders and provide them the opportunity to submit competitive proposals.

Question 4: How will Canada evaluate proposals for the future fighter capability?

Answer 4: Proposals will be rigorously assessed on cost, technical requirements and economic benefits. The evaluation will also include an assessment of bidders’ impact to Canada’s economic interests.

Question 5: Why are you assessing impact on Canada’s economic interests?

Answer 5: We are continuously looking for ways to enhance our procurement processes and improve outcomes for Canadians. Procurements are about forming effective and long-term partnerships and we want to ensure that we are doing business with suppliers whose activities align with Canada’s economic interests.

Question 6: Was the economic impact assessment developed as part of the future fighter capability consultations?

Answer 6: No. The new criteria, as well as the guidelines for its application as an ongoing procurement tool, were developed by Innovation, Science and Economic Development Canada through separate consultations.

Question 7: How much is the government going to spend to acquire a new fleet of fighter jets?

Answer 7: Consistent with the 2012 recommendation of the Auditor General and the new direction in Canada’s defence policy: Strong, Secure, Engaged, this procurement will be costed on a full lifecycle cost basis. Details on costing will be developed and released as we go through the procurement process.

Canada’s defence policy notes a budget of between $15 and $19 billion which includes the procurement of aircraft and the initial set-up of training and maintenance services.

On July 23, 2019, Canada released the formal request for proposals for the Future Fighter Capability Project, with bidders’ proposals expected in June 2020.

Emergency towing vessels

In this section

Commitment

Public Services and Procurement Canada (PSPC) is investing in the Canadian Coast Guard to ensure it can provide the vital services needed by Canadians while also growing our economy and creating jobs. This includes emergency response capacity on the west coast.

Key messages

Current status

On October 18, 2019, the Canadian International Trade Tribunal dismissed allegations of bias and of bid repair in relation to this procurement, but indicated that 2 of Heiltsuk Horizon’s complaints are valid in part. On November 18, 2019, Canada, Heiltsuk Horizon and Atlantic Towing Limited each separately sought judicial review of the tribunal’s decision regarding the complaints. The judicial review applications, which will be heard together, are at the preliminary stage and a hearing is not expected until late 2020.

Background

On February 5, 2018, the department issued a request for proposals for the lease of 2 emergency towing vessels under the Oceans Protection Plan to meet an immediate need for increased emergency response capacity on the West Coast. These vessels form part of a broader strategy under the Oceans Protection Plan to bolster Canada’s marine safety system. This strategy also includes an in-depth towing needs analysis.

Industry and stakeholders were consulted extensively on this process and the requirements for this contract, and all parties were given several opportunities to provide input.

On August 9, 2018, Atlantic Towing Limited of Saint John, New Brunswick, was awarded a 3-year contract worth $67 million (taxes included) for the lease of 2 emergency towing vessels. The contract includes options for extensions.

The first emergency towing vessel entered into service in November 2018 and the second emergency towing vessel in December 2018.

In August 2018, Horizon Maritime Services Limited/Heiltsuk Horizon Maritime Services Limited (Heiltsuk Horizon) filed a complaint with the Canadian International Trade Tribunal, alleging bias and that the department incorrectly evaluated Atlantic Towing’s bid as compliant with mandatory requirement MR-12 (the minimum bollard pull requirement).

In January 2019, the tribunal found the complaint to be valid in part: it dismissed the allegation of bias but recommended the department re-evaluate MR-12 for all bids received. Heiltsuk Horizon sought judicial review of this decision.

The department proceeded with the re-evaluation, which confirmed the original results. As with the original evaluation, an independent fairness monitor oversaw the re-evaluation, which was conducted by a new team of evaluators.

In June 2019, the tribunal accepted for inquiry a second complaint by Heiltsuk Horizon (PR 2019 020), alleging that the re-evaluation was flawed and that the department engaged in impermissible bid repair by allowing the successful bidder to provide new information regarding its compliance with MR-12. In July 2019, the government filed its response to the complaint with the Tribunal, and Heiltsuk Horizon filed its reply.

In August 2019, the tribunal accepted for inquiry a third complaint by Heiltsuk Horizon (PR 2019 025), which alleges that the government failed to re-evaluate all bids in accordance with MR-12 and that the government engaged in impermissible bid repair in respect of all bids. On September 3, 2019, the government filed its response to the allegations made in the third complaint. Heiltsuk Horizon filed its reply on September 17, 2019.

Questions and answers

Question 1: What is this contract for?

Answer 1: Following an open, fair and competitive process, Atlantic Towing Ltd. of Saint John, New Brunswick, was awarded a 3-year contract worth $67M for the lease of 2 emergency towing vessels to provide interim heavy-towing capacity. The towing services are required under the Oceans Protection Plan to meet an immediate need for increased emergency response capacity on the West Coast. These vessels form part of a broader strategy under the Oceans Protection Plan to bolster Canada’s marine safety system. This strategy also includes an in-depth towing needs analysis.

Question 2: Where are we at with the long term solution?

Answer 2: The minister of Transport and the minister of Fisheries, Oceans, and the Canadian Coast Guard are working with Indigenous communities, local stakeholders and industry to develop a long-term strategy for emergency towing on the West Coast and across Canada in the context of Canada's Oceans Protection Plan. Any further question on the long-term solution should be directed to them.

Question 3: Why is the Canadian International Trade Tribunal finding that the complaints are valid in part?

Answer 3: PSPC cannot comment further as this matter is currently before the courts.

Risk-based pilots

In this section

Commitment

Public Services and Procurement Canada PSPC) is committed to modernizing procurement practices, which includes the deployment of modern comptrollership. The department has led on an 18 month pilot to test a risk-based approach for procurement decisions. Under the pilot, PSPC’s minister is able to enter into and amend higher value contracts and contractual arrangements with low risk for defence procurements that exceed PSPC’s current contracting limits.

Key messages

Next steps

The pilot will end on April 30 2020, at which point PSPC will work with Department of National Defence (DND) and TBS to evaluate it to determine if it helped streamline and modernize defence procurement as intended, discuss the potential application of the risk-based approach moving forward, and deliver a final evaluation report by June 2020.

Background

Canada’s Defence Policy: Strong, Secure, Engaged, increased the National Defence budget from $18.9 billion in fiscal year 2016 to 2017 to $32.7 billion in fiscal year 2026 to 2027. This increase had direct implications for defence procurements that are subject to review by PSPC and TBS.

In November 2018, PSPC launched, in collaboration with TBS and DND, an 18-month pilot project to implement a new risk-based contract approval process. This is a progressive, forward-looking approach which aims to modernize comptrollership and improve the efficiency of defence procurement for all stakeholders.

This pilot allows PSPC to approve internally lower risk and complex procurements above its contracting limits, allowing Treasury Board to better focus on more complex, higher-risk defence procurements. Based on results to date, this new approach has resulted in a faster, simpler and more efficient overall process, and in the longer term it is expected that it would save money and ensure prompter delivery of goods and services to Canadian Armed Forces members.

Questions and answers

Question 1: Why are you testing a risk-based approach for contract approvals?

Answer 1: PSPC is testing a risk-based approach to defence procurement approvals to prepare for an increase in spending and procurement. The pilot is expected to simplify procurements and reduce administrative burden where appropriate, in support of PSPC’s procurement modernization goals.

Question 2: How does this risk-based approach work?

Answer 2: Previously, the department had to seek approval of Treasury Board ministers for all defence procurements above its contracting authorities (dollar value), regardless of risk and complexity. Under the new approach, defence procurements that exceed PSPC’s contracting limit will be individually assessed, with TBS and DND, to determine the level of risk and complexity.

Procurements considered to be low risk with low or medium complexity are recommended for approval within the department. Procurements considered to be higher risk or complexity continue to require approval of Treasury Board ministers. Under the pilot, Treasury Board ministers can review any defence procurement.

Question 3: How will risk and complexity be assessed?

Answer 3: For this pilot project, PSPC is leveraging existing processes and tools to assess procurements on a case-by-case basis. The assessment may consider the impact of as many as 150 factors, including the impact of trade agreements, possible legal challenges and supplier history.

Question 4: What are PSPC’s procurement authority limits?

Answer 4: PSPC’s departmental authorities are:

Question 5: Is the government considering implementing this approach on a more permanent basis, once the pilot is over?

Answer 5: After the pilot is completed, PSPC will work with DND and TBS to evaluate the pilot and discuss the potential application of the risk-based approach moving forward.

Question 6: What are the results to date?

Answer 6: Between November 2018 and December 2019, the number of overall defence procurements approved increased by 26%when compared to the same period before the pilot. During this time, 24 procurement were approved, and of those procurements 13 were identified for approval within PSPC under the risk-based procurement. As of December 2019, 11 of these procurements had received PSPC contract approval. 

We will continue to collect data and evaluate the approach to ensure it is helping to streamline and modernize defence procurement as intended.

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