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.

To buy or not to buy . . . that is the FWSAR question! by Andy Akrouche

In a recent presentation I gave to a senior government management team I was introducing what I believed to be an innovative yet practical approach relating to cross agency collaboration.

While there seemed to be no disagreement as to the merits of what I was presenting, the inevitable first questions were not unexpectedly centered on what I call the “let Mikey try it first” mindset.  Specifically, where has this be done previously, did it work and, what were the results?

On the surface, they are reasonable questions.  However, it is not so much the actual asking of the questions themselves, but the reasons behind their being asked that leads one to wonder if we Canadians have lost the ability to think and the ingenuity to innovate without the tacit approval garnered through the previous experience of other governments such as the United States, UK, Australia or New Zealand.  Logic and overwhelming evidence to the contrary we have for all intents and purposes become fixed on an innovative entry strategy of between fourth and second in.

Speaking of being fixed, let’s examine more closely the Fixed Wing Search and Rescue (FWSAR) project.

In its 8th year, the project to purchase new aircraft to replace our aging CC-115 Buffalo and CC-130 legacy Hercules aircraft is reminiscent of the number of years that have passed since the Toronto Maple Leafs last won Lord Stanley’s Cup or for you movie buffs, the 31 years that the animated film “The Thief and the Cobbler” was in production before it was finally released.

FWSAR image2

A CC-115 Buffalo on training maneuvers

Okay, the examples may be somewhat extreme in terms of actual time, but the point is pretty clear . . . why is it taking so long to replace rapidly aging equipment?

Perhaps this is the reason why the Canadian Government has created a secretariat to oversee the FWSAR procurement similar to what had been done for the shipbuilding program.  Although it is worth noting that in the latter instance, the framework for the shipbuilding project lacked critical relational elements that have plagued its progress from the get go.

Challenges notwithstanding, the FWSAR team is using its best efforts to select the replacement aircraft from an existing array of capable technologies   ̶   a summary of which is available on the following website; http://www.journal.forces.gc.ca/vol12/no4/page58-eng.asp

Interestingly enough, and as reported by The Ottawa Citizen’s David Pugliese in his July 22nd article Team Spartan Finishes Cross-Country Partner Tour For Fixed Wing Search and Rescue, one of the manufacturers competing for the contract recently concluded a cross-country partner tour under the name of Team Spartan.  I am of course talking about the C-27J team who embarked on the tour with the “twofold objective” of gaining a better understanding of the aerospace and industrial capabilities of each Canadian region as they relate to Team Spartan’s FWSAR offering, and to identify new Canadian partners who match Team Spartan’s platform and Industrial Regional Benefits (IRB) needs.”

While the outcome of the tour was deemed to be generally positive, it still failed to answer what I consider to be the most important of questions; why do we want to own and operate the equipment in the first place?  Would it not make more sense to procure them as a service?

The idea is certainly not out of the realms of being a sound strategy worth pursuing.  In fact when I used the FWSAR project as a case study during my July 10th and 11th seminar in Toronto on Public-Private relationships, every senior executive in attendance indicated that they would pursue the outsourcing strategy as opposed to their owning, maintaining and operating these aircraft themselves.

After all, and being mindful of the importance of the “who’s done it first” viability test, the British not that long ago made the decision to outsource their SAR requirements to a third party (see Colin Cram’s July 24th article Outsourcing of UK Air/Sea Rescue).  This decision according to the Defense Industry Daily is part of a global trend toward public-private partnerships to perform some Coast Guard and SAR functions, including Australia’s billion-dollar Coastwatch program.

So what’s holding Canada back from becoming part of the above trend   ̶   or perhaps creative contracting evolution would be a better term?  The way I see it, there are many benefits relating to outsourcing our SAR operations including: 

  1. Gain a major step change in service coverage and quality that cannot be gained organically by means of evolution or incremental change.
  2. Manage fluctuation in demand for SAR services.
  3. No capital investment – relieves Canada from the task of having to decide what plane or combination of planes can do the job properly and from making huge capital investments and upgrades on an ongoing basis.  In essence, Canada will pay for the service at the quality levels it deems necessary at any time today and into the future.
  4. Under a relational procurement approach, the outsourcing option provides ongoing alignment with Canada’s needs versus the needs at a particular static point in time.
  5. Focus on core business – the business of SAR delivery management through relationships and not SAR delivery itself.

Once again, we have to stop and take advantage of this unintended 8 year pause to ask why we are continuing to go the buy route.

Even though I would not consider outsourcing the security and defence of our country, when it comes to non-military services, we owe it to ourselves to examine this option in an objective, forward looking manner.

I firmly believe that if we consider our goals and expected outcomes relating to SAR operations we will, like a growing number of other governments, come to the conclusion that a service based relationship with a private sector provider and partner will deliver a high quality service at a lower cost.

Further, and with the right outsourcing strategy we can create significantly more sustainable economic value in Canada when compared to the current options on the table.

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Government’s proposed changes to procurement show that they are in the right room but haven’t turned the lights on . . . yet! by Jon Hansen

“What makes what you do so exciting Andy is that you not only see the process beyond the actual procurement but that you have also created a model that incorporates the relationship factor into the buying equation itself. In essence you have created a methodology that goes beyond experience or gut feel (things that while important are not scalable and often leads to charges of favoritism), that identifies and weighs the importance of key relationship characteristics up front thus ensuring ongoing and long-term initiative success.”

Click to check out Andy's Relational Contracting Intelligence Blog

Andy Akrouche

I made the above statement during an interview with Andy Akrouche regarding his soon to be published book “Relationships First: The new relationship paradigm in contract management.” More specifically his emphasis on sourcing relationships as opposed to sourcing deals.

The timing for the interview was fortuitous in that it was scheduled well before the news broke that the government was “mulling” the viability of a new procurement agency for the expressed purposes of procuring “ships, planes, trucks, and all the other extraordinarily expensive and frequently controversial gear required by a modern military.” Especially since the shipbuilding contract referenced in the newspaper that was awarded to Irving Shipbuilding Inc. and Seaspan Marine appeared typical of contracts he discussed in his book.

Recognizing that I could utilize this news to better understand Akrouche’s model in the context of a real-world present day challenge, I obviously could not resist asking him what all of this meant in terms of the government’s contemplation of two possible options.

For those of you who may not yet be familiar with the recent developments, the article published in the Ottawa Citizen stated that the government is looking to either; a) roll out individual “secretariats” for each successive military procurement, as was done in the fall of 2011 for the Royal Canadian Navy’s new fleet of warships or b) consolidate an estimated 10,000 bureaucrats from three federal departments – Defence, Public Works, and Industry Canada – into a “single huge new agency, under the aegis of a single minister.”

However, when I asked Akrouche the million dollar question – which option do you think is the best, his answer was unique and quite enlightening.

“Well I will tell you,” started Akrouche whose authoritative manner reflects the experience of someone who over the past 25 years has held senior positions with some of the planets largest IT and electronic publishing organizations, “either option has a degree of logic to it.” While the government’s thinking clearly shows that “they are in the right room,” he continued, it also “highlights the fact that they have not yet turned on the light in a manner of speaking.”

“Right room” . . . “haven’t turned on the lights?” I have to admit that he got both my attention and interest.

“The biggest problem with both considerations” Akrouche explained, “is that they do not go far enough in that they do not put into place a framework for managing the post-acquisition relationship. It is like giving someone a new car without any gas in it. It will look good while promising you a good ride but in reality won’t get you out of the parking lot.”

This is an important disconnect according to Akrouche, because awarding the business is not the same as realizing (or managing) the desired outcome.

So how do you manage to achieve the “desired outcome?”

Referencing Akrouche’s in the room with the lights off analogy, here is what he had to say:

Both of the options presented in the Citizen article propose an approach that continues to disconnect the procurement of a long-term business relationship from the very operational or fulfillment considerations that are essential to achieving sustainable success. With complex procurement these considerations include factors such as the impact on our economy as a whole, foreign policy as well as other strategic national objectives. Specifically, it is not just about building a ship or buying fighter jets. It is about meeting the seemingly disparate yet undeniably interconnected interests of different stakeholders simultaneously and consistently. In their efforts to address these relational challenges the government is in the right room from the standpoint of acknowledging that there is a problem. The light will come on so to speak when they realize that the framework or model for managing the relationships between these various stakeholders must be incorporated into the process at some point. Ideally this relationship model would be introduced as part of the initial procurement process. However, and as demonstrated by past successes, the model’s introduction can be facilitated by a willing group of stakeholders at any point in time.

The fact is that until a viable relationship model is put into place success, as demonstrated by the secretariat framework that was established for the current shipbuilding initiative, will continue to be an elusive quest in terms of realization. These very sentiments were expressed in an Atlantic Business Magazine article by Jon Tattrie which was published under the heading “Ships will start here (eventually).” Tattrie deftly pointed to the fact that for Irving, the biggest challenge in the wake of the $25-billion contract win is “managing expectations.” Unfortunately you cannot manage stakeholder expectations from the confines of the individual silos associated with the project-oriented approach that is commensurate with the present TBS approval process.

Taking into account the above, I would be in favor of individual secretariats as opposed to a consolidated centralized organization under the following guidelines:

  • Each individual secretariat would include representatives from all stakeholders to ensure that collective interests are understood and properly managed on an ongoing basis
  • There would be a defined focus on specific types of procurement
  • The creation of a built-in flexibility to adapt to yet unseen changes in areas such as market conditions or stakeholder capabilities to ensure that the end result represents the best outcome
  • Finally, and similar to the U.S. Veteran’s Health Administration’s VISN structure, each secretariat would be held accountable for achieving the expected outcome. Of course to hold them accountable they must be given the tools to effectively manage the stakeholder relationships associated with complex acquisitions.

While each of the above guidelines is important the ability to adapt to unforeseen changes is particularly critical. You cannot put yourself in the position to identify let alone respond to the inevitable changes that will occur over the life of a contract if you source long-term relationships with a project mentality. The reason for this is fairly obvious . . . past experience is no guarantee for future success. Nor can you adequately address future or unanticipated contract/relationship risks through the typical financial inducements or increased oversight of a project-centric approach that ends with the procurement itself.

This is why we have to start sourcing relationships as opposed to transactions or deals.

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