Impact of COVID on Procurement
The COVID-19 pandemic has created unprecedented challenges for all of us, both here in Canada and around the globe. Everyone has been impacted in some way by the crisis that we continue to experience.
This reality has been no different for procurement in the defence industry. Members of the Defence Team, along with our industry partners, have done an incredible job at overcoming many of those challenges by being flexible, adaptable and innovative.
While we’ve made incredible strides at adjusting to the changing circumstances caused by the pandemic, it’s important to appreciate the challenges that COVID-19 has created, and that we continue to experience, in order to understand the effect it has had on procurement projects as we move forward.
In the beginning of the pandemic (Winter/Spring 2020), the biggest impact was, of course, the unknown. Everyone including contractors, employees, bargaining agents, suppliers, etc., were figuring out how to move forward together. No one knew what to expect, how to navigate this new reality, or how long any of this would last.
Shutdowns and working from home
- For the safety of everyone, there were occasions where the work was completely stopped. This was in line with the same health and safety procedures that had to be followed by all public and private sectors across the country and around the world.
- Offices were shut down and our teams had to adjust to working from home. This took time as we needed to enable and equip our staff, as not everyone had access to the technology and tools they needed to work from home on day one. Some databases and other systems were not accessible from off-site, and teams had to adjust the way they worked and communicated with one another.
Ultimately we made our way through that initial period, although closures and complete lockdowns in certain areas continue to have an impact.
- Everyone was also dealing with the personal side of this crisis such as the closure of schools and daycares, physical distancing and stay-at-home guidelines, feelings of isolation and fear, extreme caution for those with pre-existing health issues, and other family obligations.
Defence industry challenges
- While this same situation was being experienced by the Defence Industry, they also had their own challenges such as navigating new safety and travel regulations, international and inter-provincial border closures impacting the supply chain, as well as the financial impacts of the pandemic.
Making our way through
Like all Canadians, our teams had to adapt. As we received more information from health officials, we found ways to accommodate our employees as much as possible, and found practical and effective mitigation measures to allow work to continue where possible.
We focussed on certain priorities, such as ensuring that the fleets critical to Canadian Armed Forces’ operations were supported without interruption. For example, we needed to ensure sufficient supplies of spare parts for CAF vehicles, and made urgent investments in specialised equipment including for transportation of infected patients on RCAF aircraft.
While there was a certain adjustment period, by leveraging our relationships with other government departments, allies, industry associations and company representatives, as well as through the ingenuity and creativity of our teams, we were able to deal with immediate priorities and continually improve during the first few months of the pandemic.
Where work could be done from home, we enabled our people to do so, which has allowed us to continue to progress on projects regardless of the external conditions. However, there continue to be ongoing challenges presented by the pandemic.
The most significant of these challenges continue to be:
- Capacity limitations due to physical distancing measures:
- Despite diligent efforts of all stakeholders and partners to find solutions, under current health and safety guidelines there continue to be limitations on projects that rely on work being done in smaller spaces (ships, submarines, maintenance, etc.).
- Regulations on physical distancing, limited numbers of workers, as well as the additional time required to ensure proper cleaning and sanitization procedures, continue to have an impact across the country and around the world.
- In some cases this means that work has slowed requiring timelines to be reassessed.
- Supply chain impacts:
- Global supply chains across all industries have been significantly impacted due to border closures or restrictions, production line capacity limits, etc.
- This has resulted in a scarcity of resources, manufacturing and shipping delays, and increased costs of goods.
- While things have begun to reopen, challenges persist and it will be quite some time before the supply chain returns to a point similar to before the pandemic.
- Travel and international borders:
- Ongoing safety protocols and restrictions on travel have also continued to impact efforts from sub-contractors, reviews by project offices, and shipments from suppliers.
Working in collaboration with our industry partners, we continue to keep our respective workforces safe, while implementing mitigation measures where possible, and continuing to make progress on our projects.
Each project is unique, but all procurement projects have been impacted in some way shape or form. The degree of the impact depends largely on the stage of the project when the pandemic began. We have been working closely with Public Services and Procurement Canada and industry throughout the pandemic to assess and address any impacts to the delivery of ongoing and future major procurement projects.
We remain optimistic, but we understand that the situation will continue to change, as we have not yet seen the full impact this pandemic continues to have on production and procurement. We are monitoring the situation closely, and analyzing information and details as they become available, to ensure value for taxpayers.
Any updates to times and costs for projects will be provided as they are available.
Degree of the impacts
Some acquisitions (such as the Canadian Surface Combatants) were in an earlier stage akin to general project management work, such as reviewing documents, working on schedules, and preparing plans. This work can be done remotely for the most part and has continued to progress without much impact after the initial period of adjustment.
Projects that were further along in the process and required more on-site activities, have seen a greater impact. For example:
- where work space was limited – such as in shipyards;
- where the work was largely dependent on supply chains, or being conducted internationally; or
- where the requirement for in-person collaboration was not possible due to travel restrictions; or
- where access to classified information was required.
This type of work had to stop completely at times, or be reduced significantly, which has caused more pronounced delays.
Other projects may have had initial delays as things were shut down or restricted, but work has since continued in an adapted capacity. For example, repair and overhaul of spare parts, or maintenance in larger spaces, may enable more space to manoeuvre and different kinds of personal health measures to be put in place to protect staff.
In some cases, timelines will be, or have been affected.
Some projects have seen minor delays, due to the initial pandemic challenges. Those have been evaluated and mitigation measures have been put in place where possible to account for schedule adjustments. While initial schedules may have slipped to some degree, they won’t cause major problems for the overall project.
Other projects have seen more significant impacts, which have a greater effect on the timelines. These projects continue to be evaluated even as COVID impacts continue. We are working closely with contractors and suppliers to develop alternate solutions and renegotiated schedules that minimize the impact on projects, while taking into account the continued challenges faced by industry.
We will see minor impacts to some projects, and a more significant impact on some of the larger projects that are further along in the process.
Costs have been impacted for a variety of reasons:
- Inflation due to delays.
- Reduced workforce: Reduced productivity and supplier limitations have caused manufacturing backlogs.
- Reduced supply availability and shipping backlogs have caused an increase in prices and, given the specific requirements of defence, alternatives are not readily available which could help drive down the price.
- Limited pool of suppliers: Given the specific requirements of defence, finding alternative suppliers is not always an option.
Industry and allies have recently reported the impacts of supply chain delays and cost increases of 40% to 80% for some components, as well as increased shipping costs – up to eight times the norm. Given the known impact of COVID to workforce and productivity, as well cost increases due to inflation, Canadian acquisition and sustainment costs are expected to be similarly affected as these increases make their way through the supply chain.
These cost increases are making their way up the supply chain, and are expected to effect the cost of some products and projects. The longer term impacts of these factors will continue to be assessed.
Our number one priority is ensuring the health and safety of our Defence Team members and their families, and ensuring we do our part to limit the spread of the virus.
We’ve been analysing the ever-changing situation, making adjustments, and implementing measures where possible to try and mitigate the impacts on cost and schedules:
- Connecting: From the very beginning, we’ve ensured that we’re making the connections we need between government staff, contracting authorities, technical authorities on projects, and industry suppliers.
- For example, in the early pandemic, we met every two weeks (virtually) with industry and government partners, through the Defence Industry Advisory Group, and have continued to stay in close communication with them to discuss ongoing efforts, information exchange, and ways of mitigating concerns.
- Technology: As everyone has, the Defence Team has made use of various online tools and platforms during the pandemic to implement remote meetings, workshops, collaboration tools, etc.
- Suppliers: We rely heavily on our suppliers’ expertise of the marketplace, to find the most cost effective solutions possible on our behalf.
While we are following the risks, looking at the implications across the projects, and mitigating where we can, we also understand that many of the variables impacting our projects continue to fluctuate outside of our control. As such, we expect continued impacts on our project, and will continue to work with industry to adjust wherever and however we can.
A lot of our industry partners have already done a tremendous job at finding solutions to optimize their ability to continue to get the work done. We’ve been impressed with the level of work that has been accomplished, and we continue to see improvements in that regard.
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