Canada has a unique once-in-a-century opportunity to create jobs and growth while enhancing its sovereign military capability. The Canada First Defence Strategy (CFDS) sets out a comprehensive plan to re-equip the Canadian Forces over the next generation, with a forecast expenditure of $240-billion from 2008 to 2027. This amount is on the same scale as the forecast investment in the oil sands over the same time period.
One of the CFDS milestones was the decision in 2011 to build a new generation of warships in a Canadian shipyard. Many other defence-procurement decisions will take place in the period ahead. In anticipation of those decisions, the expert panel on review of federal support to research and development, which I chaired, was asked to provide advice on how best to leverage procurement for Canada’s economic benefit.
This request was timely, not only because of the pending Canadian defence procurement, but also because of the potential impact on Canadian industry of anticipated declines (forecast at 30 per cent) in defence spending in the U.S. and other allied markets. About three quarters of Canada’s defence exports go to the U.S.
With few exceptions, the Canadian defence market has historically been open to foreign suppliers in the interests of achieving “value for money” (i.e. lowest cost). This is not the approach taken by many of Canada’s allies who have interpreted value for money more broadly to encompass a sustainable domestic defence industrial base that contributes to both security and economic growth. Looking forward, the challenge for Canada, as a niche player in defence markets, will be to balance these competing objectives by focussing on a few key areas where Canada can achieve high-value, intellectual property-driven, world-class excellence. The concept of Key Industrial Capabilities (KICs) provides the basis for that focus.
We are recommending to the government six sets of KICs where Canada is, or has the potential to be, world-class: Arctic and Maritime Surveillance; Clothing the Soldier; Command and Support; Cyber-Security; Training Systems; and In-Service-Support. The proposed KICs encompass about a quarter of the value of Canada’s planned defence procurement.
To ensure the best possible outcome for these investments, we recommend that the government adopt a KICs-centric approach to its defence procurement policies, as well as to complementary supply-side support programs. This may well require significant changes in procurement policies and programs for KICs areas.
Important areas for change include several also identified by the David Emerson in his recent aerospace review – for example, the recommendation to require foreign prime contractors to engage in partnerships with Canadian suppliers of in-service-support (which can amount to three times the value of an equipment purchase over its lifetime); or, the recommendation to have industrial and regional benefits (IRBs) negotiated with prime contractors, up front, as rated requirements for bid evaluation. These two elements alone could significantly improve outcomes for Canadian firms, while reducing our reliance on the burgeoning value of IRBs which could otherwise accumulate to $60- to 70-billion in the next decade as defence acquisitions proceed. This is on the same scale as the current reserves of the Bank of Canada.
It is, of course, for government to decide how to implement and manage a KICs-centric defence procurement strategy. In this regard, we have two main observations: first, in order to ensure a cohesive, “whole of government” approach, accountability needs to be clear; and second, in order to ensure evidence-based policy development that measures outcomes, Canada needs an improved defence analytical capacity, ideally through an independent, third-party institute (or network) facilitated by the federal government and industry.
Among nations, Canada is fortunate to have this unique opportunity for the next generation to create wealth and jobs while ensuring our sovereignty.
Tom Jenkins is the CEO of Open Text, and chair of the expert panel to further leverage the impact of military procurement to support the Canadian economy