A good example would be the
way so many military procurement projects seem to drag on. In some cases this
is a result of a well known phenomenon known as a planning fallacy. This is the
not uncommon tendency for people and organizations to underestimate how long
they will need to complete a task, even when they have experience of similar
tasks similar tasks over-running
Those who study this subject
have suggested that the trend can even be defined as the tendency to
underestimate the time, costs, and risks of future actions and at the same time
overestimate the benefits of the same actions. According to this definition,
the planning fallacy results in not only time overruns, but also cost overruns and
benefit shortfalls.
But because these problems
are identified they can be curbed. Using a technique known as reference class
forecasting the effects of the planning fallacy in decision making can be eliminated
or at least reduced. By identifying a reference class of past, similar projects,
establishing a probability distribution for the selected reference class and then comparing the specific project with
the reference class distribution, a most likely outcome for the specific
project can be estimated.
As contracts become more complex the time necessary to fulfill them grows, as the time needed to fulfill the contract expands the requirements change, resulting in a renegotiation of contracts. A cycle develops in which the supplier throws more people at the new problems created, the time lines increase, the budget increases and deliveries slow.
The growth in the complexity of procurement contracts can have far reaching effects. The larger and more complex the contract, the harder it can be for smaller firms to compete, which in turn means that those smaller firms will have to subcontract bits and pieces of the work from the few big defence contractors. This is particularly relevant in Canada where many firms in the Defence industry are too content to be suppliers for projects run by U.S. mega-corporations and don’t see a place for themselves as prime contractors.
If these potential problems are recognized there are solutions at hand. If the goal is to deliver an affordable system that’s available when needed and effective when used then a start can be made by acknowledging that adding more requirements and more cost simply leads to over-priced, over-engineered goods that have more points of failure and are more likely to fail when you need them most. There is a direct correlation between big teams with big budgets with lengthy schedules and failure. Conversely, significant successes are achieved with small teams, short schedules, tight budgets and realistic goals.
Making these changes will
require a cultural shift. For many, complexity equals sophistication. Managing
high cost programs bring prestige. For some there is money to be made on large,
slow, expensive projects where costs can be added in to each stage of the
process. A change from valuing the most advanced, complex, expensive system to
valuing a system that is affordable, effective, and available can be a cultural
shock to those invested in a different paradigm.
One way of easing the shock
in this shift of emphasis is to recognize that reducing requirements and
increasing speed will not lead to an inferior result. Technological change is
the driver in this case. In a world in which a two-year-old phone is outdated
and a ten-year-old computer is antique, a five year, let alone a twenty year,
contract will only serve to lock in obsolete technology. The alternative is
changes that come so often that the whole thing becomes an exercise in futility.
The CH-147 Chinook medium
lift helicopter program is a case study in how a procurement project should not
work. Almost everything that we have identified as being counter productive in
weapons systems acquisition can be found in this program.
In 1991, Canada’s CH-47 Chinook medium-lift
helicopter fleet was sold to the Dutch. The belief was that they cost a lot to
maintain and operate and, at the time, they didn’t seem like a priority. This
belief was subject to change however.
In 2002 Canada became involved in the conflict in Afghanistan.
The Armed Forces had no helicopters capable of operating in the hot and/or
high-altitude environment of southern Afghanistan. To support its 2,000
or so troops in Afghanistan,
Canada
had to rely on favors from other coalition countries, including Dutch pilots
flying the former CH-47 Chinooks.
By 2005, the then CDS,
General Rick Hillier, made Chinooks (or similar medium-lift helicopters) his
top priority for the Kandahar
deployment
In June 2006 the Canadian
government announced a $ 4.7 billion program to purchase 16 “medium-heavy”
helicopters for military and “disaster response” roles. In the end it took 21
months after this helicopter program was announced before a sole-source RFP was
even issued.
The January 2008 Manley
Report was an independent panel called by the Parliament of Canada, and a key
part of their report recommended that “the
Government should secure, no later than February 2009, new medium-lift
helicopters or if the necessary equipment is not procured, the Government
should give appropriate notice to the Afghan and allied governments of its
intention to transfer responsibility for security in Kandahar.”
Under pressure from the terms
of the Manley Report, and unable to provide helicopters through the program
previously initiated, the DND arranged to buy CH-47Ds already in Afghanistan
from the US Army. Six CH-147D helicopters were handed over to the CF in Dec
2008 to be operational in Feb 2009.
According to the DND
announcement in June 2006 the estimated total project cost for this aircraft
acquisition was $ 2 billion plus an estimated contract value of $ 2.7 billion
for 20 years of in-service support, a contract to be completed by the winning
contractor, with work largely to be done in Canada by Canadian mechanics and
contractors. As with other contracts in the series, the winning contractor was
expected to provide total industrial offsets equal to at least 100% of the
contract value.
The Canadian Department of
Public Safety was also part of the purchasing process, as they expected the
aircraft to be used to respond to natural or man-made disasters.
It was originally expected to
award a contract by July 2007. The problem arose when DND worked with Boeing to
develop a detailed statement of work. These continued to change, and by March
2007, Boeing informed DND that the additional requirements would create both a
delivery delay of 12 months, and cost increases of about USD 360 million in
one-time engineering costs.
CH-147 changes from the
standard CH-47F included enlarged ‘fat tanks’ developed to give US Special
Forces Chinooks longer range; a new electrical system based around twin 60KvA
generators, producing 2x the electrical power; a new cockpit avionics suite;
and “standard” special forces additions like a rescue hoist, surveillance and
targeting turret, etc.
DND responded by trying to
stay within its authorized spending limits, and didn’t finalize its
requirements until 2009, when the contract with Boeing was signed. That
contract includes a provision for Canada to receive some royalties,
if a future customer purchases the Canadian CH-47F version.
Once the final contracts were
signed, estimates of C$ 4.7 billion in 2006 had risen slightly to C$ 4.9
billion by 2010, for the helicopters and their accompanying support contracts.
In 2010 the Office of the
Auditor General released their 2010 Fall report. It reports that the
procurement process itself was unfair, and that DND kept senior decision makers
in the dark about major changes to the project and its costs.
“We found
that National Defence’s needs and priorities were not precisely defined at the
outset and… were not finalized until the contract with Boeing was signed in
2009…The June 2006 statement of operational requirements was not reviewed or
endorsed by the Senior Review Board or by the Joint Capability Requirements
Board until October 2006 and, consequently, did not benefit from the rigorous
challenge these bodies are expected to provide… The intended configuration of
the Canadianized Chinook evolved as decisions were made… According to National
Defence, the seven high-level mandatory
requirements could have been met by a basic Chinook model (emphasis added).
However, in the process of detailing its specifications with Boeing, National Defence
also drew from the set of rated operational requirements, effectively treating
extended-range fuel tanks, an upgraded electrical system, and aircraft
survivability equipment as mandatory requirements, though none had been
originally identified as such. These additional modifications resulted in
significant changes to a basic Chinook model and also had an impact on the
timing and complexity of certification for airworthiness…
The full
extent of modifications was not initially presented to decision makers.… We
disagree with the characterization of this helicopter as being off-the-shelf.
It is evident that from the beginning, National Defence did not intend to
procure an off-the-shelf Chinook but rather a modified one… So significant were
the modifications to the basic Chinook helicopter that Boeing’s estimate
included nearly US$360 million for one-time engineering costs… National Defence
knew, prior to seeking preliminary project approval from the Treasury Board and
issuing the ACAN, that significant modifications to a basic Chinook were
desired and planned. It knew also that these would increase the risks to cost
and schedule. However, this was not presented to the Treasury Board when
seeking preliminary project approval… Ultimately, Canadian-required
modifications increased the cost of each aircraft by 70 percent more than
initially quoted by Boeing in early 2006 (emphasis added). This prolonged the negotiation of the
contract by over two years and delayed the delivery of the aircraft.”
…Overall, in
our opinion, the manner in which PWGSC used the 2006 ACAN did not comply with
the letter or intent of the applicable regulations and policies and,
consequently, the contract award process was not fair, open, and transparent.
In addition, we believe a second ACAN should have been issued in 2009 and
should have included the final helicopter requirements and specifications, the
revised delivery and certification schedule, an indication of willingness to
pay one-time engineering development costs, and other significant changes made
to the project scope.”
The OAG report compares the C$ 2 billion advertised
cost for 16 helicopters with the current C$ 4.9 billion, but it’s not an even
comparison because the current program total includes long term support
contracts, and the original cost did not. They do note, correctly, that planned
delivery of the first fully capable CH-147 has been delayed from 2008 to 2010,
and then again to 2013, while the buy was cut to 15, due in part to poor
decision making within DND”
In the end, Boeing officially
handed over the 1st of 15 CH-147F Chinook helicopter to the Royal
Canadian Air Force’s 450 Tactical Helicopter Squadron, based at CFB Petawawa, following
formal delivery at the plant in Ridley, PA on June 21, 2013. The
final CH-147F was delivered on June 30, 2014
There is no doubt that the
CH-147F Chinook is a formidable aircraft. But the truth is that the program to
procure this capability was unable to provide the right aircraft at the right
time in the right numbers at the right price. It was a failure. A lesser, but
serviceable aircraft, in the form of the standard U.S. Army CH-47 was
available, at a known price, in a reasonable time scale in the right numbers. Canada’s
inability to achieve this simple goal, even under war-time conditions, stands
as an indictment of our military procurement system.
The final words must be left
to Lt. Col Ian Hope commanding Task Force Orion who reported that “It
is quite possible this lack of transport helicopters has cost limbs, if not
more, because we have had to resupply troops in remote areas using vehicles on
the ground. That has produced a risk that would be reduced if we could take
helicopter flights. It does not take a military tactician to know this. We have
mitigated the risks. Losses have been reduced, but not to zero.”
