Constabulary forces, such as
the Coast Guard or the RCMP are not sufficient to achieve all these goals.
Historically nations have relied on Navies to fulfill many of these roles and Canada is no
different.
In order to maintain its navy
Canada
will be recapitalizing much of the naval surface fleet under the National
Shipbuilding Procurement Strategy (NSPS). Most of the promised $38 billion for
the program is earmarked for 15 Canadian Surface Combatants (CSCs)
Also known as the Single
Class Surface Combatant Project, this procurement project is designed to
replace the Iroquois-class and Halifax-class warships in the period beginning
2018–2020.
These ships are being
procured in the wrong way.
On January 12, 2012, it was announced that the Government of
Canada had reached agreements with Irving Shipbuilding Inc. and Vancouver
Shipyards Co. Ltd. This set the course for construction of Canada’s
combat, and non-combat, surface fleets under the National Shipbuilding
Procurement Strategy (NSPS).
The strategic sourcing
arrangements, called umbrella agreements, with each of the selected shipyards
have been signed. Irving Shipbuilding Inc. has been selected to build the
combat vessel work package. The combat package includes the Royal Canadian
Navy’s CSC ships. Individual ship construction contracts will now be negotiated
with the respective shipyards.
This creates a situation in
which Irving Shipbuilding becomes the sole supplier to the Canadian Government,
who in turn becomes the sole customer for the product. (No one reasonably
believes that Irving
will ever sell a major warship to any other country.)This is called a bilateral monopoly. In a
bilateral monopoly there is both a monopoly (a single seller) and monopsony (a
single buyer) in the same market. Most economics texts would advise that this
is an extremely complex relationship and one that is highly resistant to any
kind of downward price pressures.
An alternative procurement
strategy can be found in the Canadian Patrol Frigate (CPF) procurement program,
which can be viewed in retrospect as a reasonable successful program which
procured the desired ships in the desired quantities within the desired price
envelope.
The strategy used to procure
those frigates is referred to as Most Capable Design (MCD). It
entails an open competition for capability and price.
Under an MCD strategy Canada would fund or partially fund
two teams to come forward with a ship design and combat system in competition
with each other. Under the terms of an MCD
contract, each team would have to deliver a complete proposal that would
include ship performance, delivery timelines, industrial participation
undertakings, commercial terms and, perhaps most important, price.
Unfortunately it would appear
that Canada
intends to use a variant of a procurement option referred to as Most Qualified
Team (MQT).
This strategy would see Canada make its
selection on the basis of how “qualified” a given team is. The decision-making
process would be similar to that used in selecting the lead NSPS shipyards, and
criteria for what’s “qualified” may be identified through arbitrary benchmarks.
This means that there would
be no competitive commercial pressure brought on key members of the selected
team. As the shipyard is already in place, all the pressure to cut costs would
be downloaded to those bidding to supply goods and services to the prime
contractor. The winners of those bids are less likely to invest in Canadian
industry due to cost pressures. This makes in turn the MQT approach less likely
to develop a sustainable marine industry, one of the primary goals of the
National Shipbuilding Procurement Strategy.
The method to be used by the NSPS to enable the delivery of
these shipbuilding projects in a timely manner includes a requirement for the
selected shipyards to achieve a "Target State".
The Target
State is defined as the level of
productivity and capacity needed to build Canada's ships efficiently. In this
case, a third-party expert, First Marine International, will measure the shipyards'
progress towards achieving this Target
State. It is hoped that when
the shipyards reach Target
State, they will have the
capability to build vessels at established international benchmark productivity
levels.
Contrast that approach with
that of the Australian
government. In June of this year they announced that in light of the current
low productivity of shipbuilders involved in the Hobart class Air Warfare Destroyers (AWD)
program they would conduct a competitive tender process limited to Spanish and
South Korean shipyards for the construction of two replacement replenishment
vessels. It was even suggested that if Australian yards did not get their act
together they would not even be considered for the upcoming frigate replacement
program.
It is hard to imagine a
Canadian government, of any party, putting anything like this kind of pressure
on a Canadian shipyard. But until the buyer, in this case the Canadian taxpayer
is in a position to bargain openly and responsibly with the supplier Canadians
will continue to pay too much for too little.
Canadian Surface Combatant
(CSC)
THE DUAL MONOPOLY DILEMMA
The Canadian Surface
Combatant: Is Canada
About To Launch A Flawed Procurement Strategy?
Backgrounder on the National
Shipbuilding Procurement Strategy (NSPS) - Year 2: A Status Update November
2013
Australia’s Next Supply Ships: Serious about Success
