Governments purchasing defence equipment have a bad record because buying military hardware isn’t like other types of procurement.
Media reports about defence procurements gone awry are so common they can almost seem routine. And that is not only a Canadian phenomenon. It happens in most of our allied nations as well. So what makes the procurement of defence equipment so prone to problems, when it seems that large commercial procurements don’t have the same problems? Why don’t we just apply the same industry approach and solve the issue once and for all? Because, in the simplest terms, defence procurement and commercial procurement are very different.
First, the marketplace for defence procurement is very different from the commercial market. The defence market has limited buyers (governments) and limited sellers. Major procurements occur on an irregular basis, they are often subject to a variety of secondary objectives (more on that later), and actual military requirements tend to push the technology envelope. For industry, given the relatively small number of large military procurements, each one becomes very important and must be aggressively pursued, even if a particular offering doesn’t quite meet the requirements. Contrast that situation with a commercial marketplace with lots of opportunities for sellers: in such a market, if one opportunity is lost, another will come along before too long. Sellers can afford to focus where their goods and services are most suited. On the buyer side, governments have to deal with a limited range of sellers, who, in order to compete, must commit to leading-edge requirements, but who also know that once the contract is signed, governments will usually cover any extra costs.
Second, commercial buyers tend to look for well defined, proven products for a particular purpose. Indeed, much of commercial procurement is done on a “tender” basis as opposed to the “request for proposal” approach used for large military procurements. By contrast, military planners must develop equipment requirements based on very limited knowledge of what they will have to face in the future. Hence, military planners often try to anticipate any and all possible eventualities when defining their requirements. This often means that the stated requirements push the limits of technology, particularly if the system will need to be in service for 20 or more years. This can, at times, lead to “gold-plating” of the requirements or to a set of requirements that only one supplier can meet — or, worse, that no supplier can meet. However, planners have to be equally careful not to overly constrain the requirements such that equipment that is not suited to deal with future dangers ends up being procured. That is an even worse waste of money. To guard against either eventuality, a well established, credible and consistent review process needs to be an integrated part of the requirement definition process. What is often labelled a “procurement failure” is often really a failure of the operational staff to agree on a well defined set of requirements, which is the basis of a successful procurement.
Third, as defence budgets are most often the largest discretionary pot of money that governments have at hand, governments of all stripes naturally want to use that money to achieve as many different government objectives as possible. Hence, loaded onto the requirement to meet the military specifications, suppliers often have offset obligations (known as “industrial and technological benefits” in Canada), trade obligations, environmental considerations and (in Canada) possibly bilingualism requirements. All these additional and often competing objectives add complexity, risk and cost to already demanding procurements. But, looking at the big picture, it is not unreasonable for governments to try to achieve multiple objectives when spending the same dollar. National Defence is, after all, a department of government and, like all departments, has a responsibility to contribute to overall government objectives. But this approach can become dangerous when secondary objectives overtake the primary one and, for example, industrial development objectives trump the goal of acquiring the best military solution.
Lastly, industry is from Mars and government is from Venus. Each one’s lack of knowledge about what drives the other and how it functions and the frequent indifference to the other’s priorities are most distressing, especially when one considers that to successfully deliver a large complex project, the two sides need to work together. Perhaps the most obvious dichotomy is in the very different appreciation of the impact of time on cost and successful project delivery. For industry, time is money; for government, time is almost an infinite resource. Government approvals, already notoriously slow, routinely take longer than announced. If a file misses one Treasury Board meeting, it must wait for the next one, which may be weeks if not months away. Reviews and approvals of industry reports by government officials that are needed to proceed are often late. All this adds cost and risk.
But it is perhaps not surprising that there is such a gulf in understanding. Unlike those pursuing careers in industry, most senior government procurement and contracting officials have followed no formal career progression path to reach their high positions. While one would never ask a policy wonk to head up a sensitive scientific or health program, there seems to be no hesitation about appointing officials who have no prior experience to executive government procurement positions. And to ensure that the two solitudes remain firmly separated, any attempt at informal socializing is quickly and firmly prohibited under the government’s ethics policies.
All of the above factors eventually have an impact on the issue of risk management. For government, risk is a four-letter word, to be avoided at all costs. For industry, risk is a fact of life, something to be managed. Government’s risk mitigation strategy, then, is often simply to transfer the risk onto industry, whether or not industry is best positioned to manage the particular risk. For industry, which often has no choice but to accept the additional risk if it wants the contract, the additional risk is covered by adding extra cost. But the risk has not been eliminated; it has merely been moved around!
That government should have a fear of assuming risk is not surprising. In industry, if you do 99 things wrong but one thing that causes the share price to go up, you are a hero. In government, do 99 things that save money but one that causes even minor loss of taxpayers’ money and that one thing is on the front page of every newspaper. The transfer of responsibility for risk to industry may be costly, and does not usually eliminate it, but it does give governments a convenient excuse to avoid blame should things go wrong.
It must be emphasized that the factors described above are not unique to Canada’s defence procurement process. Nor are they associated with one particular government as opposed to another. They are, by and large, immutable. How one chooses to deal with them does change over time and does vary between nations. However, as the American defence expert Harvey Sapolsky wrote in an article in Defense News in February 2009, “You can centralize or decentralize. You can create a specialist acquisition corps or you can outsource their tasks. You can fly before you buy or you can buy before you fly. Another blue-ribbon study, more legislation and a new slogan will not make it happen at last.”
The amazing thing is not that major military procurements get in trouble, but that they still manage to deliver something in most cases.
So what could a new government do to manage this perennial thorn in the side? First, be realistic and pragmatic. Avoid trying to apply solutions that don’t fit the military and government environment, and don’t use inappropriate metrics to measure outcomes. The military is different from the commercial world. Acknowledge that military procurement is a high-risk business and that — like your kitchen renovation — it will most likely take longer and cost more than first thought, so build in buffers for success.
The key is ensuring effective process: organizational constructs are secondary. The process must of course be open, transparent and fair, but, equally important, it must be consistent, which, in part, means it must be free from partisan political influence. That not does mean giving up all ministerial and government oversight and approval. However, once direction has been given and the process has begun, suppliers must have confidence that it will not deviate from the objective assessment of options based on a consistent and sound basis.
This article is part of the Equipping the Military special feature.
Photo credit: Canadian Forces Combat Camera, DND / Crown Copyright