Why scrap shipbuilding strategy? Improved outcomes starts with open communications and transparency

“That project was awarded to the Seaspan’s Vancouver Shipyard. The briefing assigned no blame but suggested there were improvements the B.C.-based shipbuilder could make . . . “Vancouver Shipyards needed to find skilled staff, establish capability to increase design work and learn how to use new facilities,” the briefing material said.” – CBC News, November 25th, 2015

As I read the above excerpt from a recent newspaper article in which it was reported that costs related to the national shipbuilding procurement strategy (NSPS) had “ballooned” by the billions of dollars, it would be reasonable to wonder what happened?

Was there a breakdown in communication, or a lack of understanding relating to what was and was not actually possible, that led to the project coming in at 181 percent over budget?

Simply put, in formulating its “procurement strategy” through which partners such as Seaspan were engaged, were the government and its industry partners too eager to make a move in a particular direction? Did they make key decisions before they had a true handle on either the scope of the project, or its eventual cost?

Once again, and coming in at 181 percent over expected budget, one could be excused for thinking that this was the case. To a certain degree – at least in relation to the last paragraph, this would be a fair conclusion.

But does it bring us any closer to a real understanding of why it happened, and more importantly, how we can prevent it from happening again in the future?

In this regard, I would like to refer to an Ottawa Citizen article by former ADM MAT Alan Williams.

According to Williams, the government should scrap its plan – in fact the entire NSPS strategy, in favor of a return to the way things had been done in the past. Specifically, utilize DND personnel to write the statements of requirements that will achieve the needed balance between effectively describing the military’s needs while, enabling the private sector to bid a fixed or certain price.

While Williams’ approach may at first glance, seem reasonable, there are some problematic gaps in terms of what he is recommending.

To start – and this should come as no surprise to anyone who has read my blog or, attended my seminars, it is virtually impossible to reliably establish a set requirement without taking into account that both our needs and/or the product or service offering of the vendor will inevitably evolve over time.

Beta Versus VHS

Think about what I am saying from the standpoint of an everyday situation.

Many of you will likely remember when both Beta and VHS first came out.

They were clearly different formats that were not interchangeable. This meant that when you chose one over the other, you were in reality locked in to that choice.

However, and before making your final decision of which technology to buy, you likely did some research into the differences between the two, in an effort to determine which format would best suit your needs both now and in the future. In short, you made your decision based upon the best information that was available at that time.

Shipbuilding Options

What happened to everyone who chose Beta?

In choosing Beta, did you make a bad decision? Did you make a mistake?

Perhaps you can take solace in the fact that even VHS was eventually replaced by newer and more advanced technology.

The point is this; wouldn’t it have made sense to pursue a certain course of action today, while keeping your options open for the future relative to any unforeseen changes in the market?

For example, what if you purchased your Beta system from the vendor, with the understanding that you could trade in the unit and exchange your library of movies at a future date, and do so at a preferred price?

I realize that this is an overly simplistic example, but it does effectively illustrate my point regarding the problems with locking in both the buyer and vendor into a set course of action. Particularly when it involves complex technologies and long term contracts that can span years and even decades.

Now I do not want you to misinterpret by position regarding the Williams suggestion as an indication that I am fully supportive of the NSPS approach. It clearly has its shortcomings. This being said, I do believe that the NSPS strategy has its strong points, and is therefore good for Canada.

For example, it does facilitate government intervention with regard to creating a sustainable supply chain. The NSPS strategy also stimulates economic activity and opportunities, that would otherwise have been missed under the transactional model that Williams is proposing.

What this means is that rather than trying to tighten specifications and hold vendor feet to the proverbial flame, we need to work towards creating a more consultative and collaborative engagement mechanism between government and private industry.

Once again, this is something that is not possible under the ever elusive certainty model that Williams is proposing.

While Williams and perhaps even the Central Agencies want us to think that they operate in a world of absolutes in which there is a high degree of certainty in costs and outcomes, nothing can be further from the truth. The fact is, there is no such thing as absolutes – especially when it comes to building new aircraft, new warships or for that matter any complex acquisitions for which either new supply chains must be established or, an economic activity created.

Now at this point, some might be inclined to point to LCC analysis models as a solution to the problem. While there is no doubt that LCC analysis will enable management to understand the total cost of ownership, it is not a cost prediction tool.

A more reasonable approach to addressing budget overruns is to accept the fact that with complex initiatives, absolutes do not exist until after the fact. It is the immutable 20-20 hindsight rule of the procurement world.

Within this context, it would make far more sense to openly say that we do not know what the exact cost and benefit will be at this time however, it would be reasonable to establish a target of say $30 billion in cost, and $50 billion in potential benefits.

As we progress further through the process we are, at set time intervals, committed to establishing a communication and reporting discipline involving all stakeholders. It is at these points of open engagement that we will be able to gain more certainty regarding costs as well as the related economic and industrial benefits. In short, the present information vacuum that exists between project announcement and the revelation of a 181 percent budget overrun will be eliminated, and with it the shock leading to a futile exercise in finger pointing, and what went wrong lamentations.

What I am really talking about is managing a collaborative process as opposed to executing an adversarial transaction.

If the government really wants to achieve a different outcome, then they have to move beyond the adversarial matrix of a transactional orientation in which the buyer’s role is limited to project monitoring and contract enforcement.

Shipbuilding transparency2

This means that they will have to adopt a radically different yet undeniably proven mindset, that is based on a collaborative approach that drives ongoing alignment with project goals, and open communication.

The real question this raises is whether or not TBS, PSPC, IC and Program owners are ready to become relational in their thinking and approach.

FrontLine Defence Magazine Special

Andy Banner

Click magazine cover to access article . . .

“To be truly successful, the Defence Analytics Institute or DAI has to take the program beyond itself to deliver results” – Andy Akrouche

Editor’s Note: Defence spending is a hot topic lately on both sides of the Atlantic, as government’s are challenging Defence Departments to do a better job in terms of procurement. In this special article for FrontLine Defence Magazine, I provide my perspective on the Canadian Government’s efforts to better manage Defence spending through the formation of the new Defence Analytics Institute.

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Understanding the Changes in Defence Spending by Andy Akrouche

When news broke earlier this month that there were major changes being implemented regarding Defence spending in Canada, no one was really surprised.  Change as they say was inevitable.

The question is what does it really mean?

Over the next week I will be posting several articles that will provide what I believe will be an unprecedented look at why these changes happened and even more importantly, what we can expect in terms of both immediate as well as long-term outcomes.

In the meantime, and in referencing PWGSC Minister Diane Finley’s comment regarding the need to engage Canadian businesses in the defence spending process, the following video excerpt from my Relationships First webinar series explains the why and how of an effective Industrial Regional Benefit policy.

Click anywhere on image to play video . . .

Click anywhere on image to play video . . .

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Focus on building relationships that create sustainable value in Canada key to CF-18 Hornet replacement contract (Part 1) by Andy Akrouche

“I am not pro or against the technology, I just want to build value in Canada.  So let’s take the focus off of politics and technological leanings and place it where it best serves everyone’s interests.  What I am talking about is leveraging the proper industry analysis, strategic vendor capability assessment tools and to build the relationships that are necessary to create sustainable value in Canada.  If you do that you will inevitably make the right decision.”

The above is the response that I gave regarding a recent question from the media surrounding the controversy of the F-35 situation, and in particular the paper by the Conference of Defence Associations Institute.

Click to access CDAI Report

Click to access CDAI Report

I of course read the F-35 paper with great interest, noting in particular that the authors and the institute itself at least indirectly, seem to be championing the fighter jet as being the right answer for Canada’s military needs.

For me the paper’s efforts to stack the deck in favor of the F-35 by suggesting that a new procurement framework be used to specifically select the fighter under the proposed “international model for defense procurement scheme” thereby averting our usual procurement regime, is disconcerting on many levels.

To start what the paper is suggesting would ultimately mean our abandoning an investment in Canada and leaving it to the “International Allies” to throw us some “leftovers” under a sub-contract arrangement. This is hardly the ideal scenario under which we can develop our own capability to build weapon systems of significant military value.  It would also mean that a select few US, UK, French and German corporations would become the de-facto suppliers, thereby reducing our national role to that of nothing more than a trained consumer of defense systems and technologies.  In practical terms this would all but kill the whole idea of using procurement to promote innovation and jobs in this country.

Let’s look at Canada’s Industrial and Regional Benefits or IRB policy.

The primary goal of the IRB policy is to ensure “that Canadian industry benefit from Government defence and security procurement.”  In this capacity, the IRB policy is a crucial instrument for SME innovation which, as everyone would agree, is the engine of our economy.

Now there are those who contend that by actively working towards achieving the goals associated with the IRB policy, it will cost more to build warships and fighter jets.  That may be true, but as an investment in our country’s industrial base, we will create an economic endowment in Canada in which the benefits will far outweigh the additional initial cost, for generations to come.  I am not just talking about jobs.  I am also talking about progressing and securing the nation’s economic position in the world by developing the all-important Tertiary and Quaternary industrial sectors.

For those of you who may be unfamiliar with this reference, the Quaternary sector is considered to be an extension of what was originally referred to as the “three-sector hypothesis of industry.”  Developed by Colin Clark and Jean Fourastie, the hypothesis includes the extraction of raw materials (Primary), manufacturing (Secondary), and services (Tertiary).  The Quaternary sector is generally viewed as being the engine driving both innovation and expansion.  It consists of those industries providing information services such as “computing, information & communication technologies, consultancy, research and development.”

Because this transitional process spans many years, the groundwork for where we are today was laid a long time ago, through different times and involving many different governments.  Therefore from a political perspective, and in relation to my earlier reference regarding government procurement, we have to both ask and answer the following question; “has the government done enough to stimulate development and growth (including re-training) through each sector for future generations?”

Given the significant cuts in recent years to Department of Defence budgets, the fact that we would potentially reduce our industrial stake in remaining contracts – such as the CF-18 Hornet replacement undertaking – to that of a spectator, would suggest that the answer to my question would be no.

What is particularly important to note, is that this is truly a bipartisan issue that should not solely rest at the feet of the current administration.  As a result, the adherence to the true intent of the IRB policy is critical because it transcends political agendas and affiliations as well as which party is or is not in power.

In part 2 of today’s post, I will talk about what needs to be done to refocus our attention on leveraging military spend to achieve IRB objectives, including the tools that are available to ensure that we build the proper relationships to meet Canada’s military needs today and solidify our economic position in the emerging global economy.

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