Procurement problems continue; Canadian Forces truck project up in air

The Ottawa Citizen

June 17, 2008

By David Pugliese

 

A Defence Department project intended to be a straightforward and relatively quick purchase of commercial trucks for the army has gone off the rails after only one firm bid on the multimillion-dollar program and the government determined its proposal didn’t meet requirements.

 

The contract to buy 800 commercial trucks, slightly modified for military use, was originally announced in June 2006 and labelled by then-defence minister Gordon O’Connor as one of the Harper government’s top priorities.

 

Military officials expected the purchase to run smoothly since the vehicles would be based on a commercial design with only minor modifications needed. But vehicle firms shunned the program and only one company, International Truck of the U.S., put in a bid. That company’s bid, however, has now been deemed “non-compliant,” and it’s unclear how the Defence Department will proceed.

 

The truck project is the latest large-scale military procurement to run into difficulties, with firms either deciding the hassle they face in dealing with the Canadian Forces is not worth the effort, or others being disqualified or deciding not to bid because of what they say are unreasonable requirements set out by the military and Public Works.

 

In the last month, two companies withdrew from a $100-million project to lease aerial drones for the Afghanistan mission. Officials with both firms have said the financial risk to industry on the project was just too great to entice them to compete. The government then decided that the remaining two firms in the competition didn’t meet the requirements, so the bidding has been extended.

 

Around the same time, General Dynamics of Canada withdrew from the $1.1-billion project to upgrade the navy’s frigates after the firm determined the program was not commercially viable. That left only one company in the running, but Public Works and the Defence Department have extended the bidding process as they try to figure out what to do next.

 

Earlier this year, the $2.9-billion project to build a fleet of supply and transport ships for the navy ran aground after the industry consortiums involved informed the Defence Department that not enough money had been set aside to build the vessels. The military is now asking the government for more funding.

 

In addition, Defence Department and Public Works procurement officials are still trying to straighten out a $5-billion project to purchase maritime helicopters after U.S. aerospace giant Sikorsky informed them they had fallen behind schedule on delivery.

 

Industry officials say part of the problem is that the Canadian Forces often wants suppliers to make numerous changes to their products or deal with requirements that can’t be met without major design changes.

 

Since the Canadian Forces orders relatively small quantities of gear, it usually isn’t financially worthwhile for firms to make such changes. Even those companies that once would have made concessions no longer need the business, because many are working flat-out to supply the U.S. war effort in Afghanistan and Iraq.

 

Industry officials say four or five firms should have bid on the Defence Department truck project, but the fact that only one came forward should be seen as a signal to the government that there are problems with the procurement process.

 

The Defence Department did not respond to a request for comment.

 

Public Works spokeswoman Lucie Brosseau said a contract for the trucks is expected to be awarded in January 2009. Delivery of the first vehicles is scheduled for the summer of 2009, said Ms. Brosseau.

 

Roy Wiley, corporate spokesman for International Truck, declined to discuss why the firm’s bid was deemed to be non-compliant, and said what happens next will be up to the Canadian government.

 

“We have to wait until we get some direction from the government,” said Mr. Wiley. “Are they going after bids again? If they go after bids, I’m sure we’ll be a bidder.”

 

Acquiring new trucks is critical for the Canadian Forces since the existing fleet, purchased in 1982, is falling apart.

 

The truck replacement was to have been done in two phases. The 800 commercial vehicles were the first phase while follow-on phases included the purchase of 1,500 standard military pattern trucks with 300 trailers and 150 armour protection kits. Those vehicles would be for use on international operations such as Afghanistan. It’s expected several firms will compete when the bidding for that part of the project begins.

 

The total project is estimated to cost $1.1 billion, but military officials have refused to say how much the commercial truck portion is worth.

 

Army chief Lt.-Gen. Andrew Leslie has said the vehicle replacement should have been done five years ago.

  

 

For more Canadian Forces and Defence Department news go to David Pugliese’s Defence Watch at:

 

http://communities.canada.com/ottawacitizen/blogs/defencewatch/

 

 

Online: Blog

 

What’s so secret about a new army manual that was public domain for more than a year? For all things military, check out David Pugliese’s blog Defence Watch at ottawacitizen.com

 

MILITARY PROCUREMENTS IN TROUBLE BY DAVID PUGLIESE

Military contracts fizzle

Gear in Procurement Limbo. Company withdraws from competition to upgrade frigates; bidding for drones restarted after requirements not met

 Dave Pugliese

The Ottawa Citizen

An Ottawa company’s decision to withdraw from a project to upgrade the navy’s frigates has left government officials scrambling to drum up competition for the $1-billion program, while a separate plan to buy aerial drones for the Afghanistan mission has had to be restarted because bidders couldn’t meet the requirements.

Government procurement officials are trying to cope with the latest setbacks in the two major projects to purchase gear for the Canadian Forces.

General Dynamics Canada, which has 1,500 employees in Ottawa and was leading one of two major consortiums approved by the Defence Department to bid on the frigate upgrade, informed the government it would not proceed. General Dynamics decided against participating because the firm determined the project was not commercially viable.

That decision would have left the federal government in the position to award the only remaining bidder, Lockheed Martin, the contract, likely further fuelling complaints about another non-competitive deal.

And in what defence industry officials say is a highly unusual turn of events, the government quietly decided on the weekend to extend bidding on the frigate program for another two weeks in the hopes other firms might come forward.

The frigate modernization contract involves upgrading the combat systems on the vessels with new computer software, improved sensors and communications gear and other items. It is separate from other work to refit the ships with upgraded mechanical systems.

In addition, on Friday, the same day the frigate bids were due, Public Works and Government Services Canada had to restart a $100-million project to lease aerial drones for the Kandahar mission. That came about after Public Works determined the bids submitted by industry did not meet qualifications.

“This will not delay the project or our anticipated date for the awarding of the contract in July 2008,” Public Works spokeswoman Lucie Brosseau said of the aerial drone lease.

Industry officials say the aerial drones and the frigate upgrade are just the latest large-scale defence equipment programs to slide off the rails. Several weeks ago, a $2.9-billion project to build a new fleet of supply and transport ships for the navy ran aground after the industry consortiums involved informed the Defence Department that more money was needed.

Earlier this month two firms, Thales Canada, of Ottawa, and General Atomics, of the U.S., informed the Defence Department they were declining to bid on the aerial drone lease. Officials with both firms have said the financial risk on the project was just too great to entice them to compete.

Thales was also part of the General Dynamics consortium bidding on the frigate upgrade.

In addition, Defence Department and Public Works procurement officials are trying to rejig the $5-billion project to purchase new Cyclone maritime helicopters after U.S. aerospace giant Sikorsky informed them that they had fallen behind schedule on delivery. That delay could be about nine months, but some military officers have suggested it could be as long as three years.

Numerous defence industry officials, who asked not to be named, say the problem with the military procurement system is that the Defence Department and Public Works expect top-of-the-line equipment for relatively modest budgets.

In some cases, the government expects custom changes to existing equipment that are unreasonable because Canada is buying such a small amount of gear, according to industry officials. In other cases, procurement budgets are unrealistic. For instance, in the case of the supply ships, industry officials say the military did not take into consideration that the price of steel has risen 40 per cent in the last several years.

The Defence Department has consistently declined to answer questions about the ongoing procurement projects and the associated problems. It has been referring such questions to Public Works.

Ms. Brosseau said in the case of the frigate modernization, Public Works cannot comment since the procurement process is ongoing. She noted in the case of the lease of the aerial drones, the aerospace and defence industry was consulted when the bids were being solicited.

Amy MacLeod, director of communications for General Dynamics Canada, said the firm conducted a detailed analysis of the frigate modernization project, but determined it was not financially viable to bid.

“In this instance, it was a tight budget compounded with commercial conditions, which just increased the industrial risk to unacceptable levels,” explained Ms. MacLeod.

Steven Yankowich, head of the General Dynamics Canada team, previously said the firm had planned to increase its Ottawa work force if it had won the frigate modernization.

Under government regulations, the modernization contract should be awarded to the only bidder left, Lockheed Martin Canada, of Ottawa, if that company can fulfil all the requirements. But the government has instead extended the bidding process for another two weeks in the hopes other firms might submit a proposal.

The first modernized frigate will be delivered to the navy by 2011. The work on the frigates will continue until 2017 with each refit taking about 18 months.

Contract Complications

 

– Drones: $100-million project to lease aircraft for war in Afghan-istan restarted because submitted bids did not meet targets.

 

– Frigates: General Dynamics Canada withdraws from frigate upgrade on grounds the project is not commercially viable. Lockheed Martin only remaining bidder on $1-billion upgrade.

 

– Helicopters: U.S. firm says it can’t deliver new maritime helicopters on time. $5-billion project could be delayed by years.

 

For more Canadian Forces and Defence Department news go to David Pugliese’s Defence Watch at:

 

http://communities.canada.com/ottawacitizen/blogs/defencewatch/

 

 

Defence Watch: Read David Pugliese’s blog at ottawacitizen.com

© The Ottawa Citizen 2008

CANADIAN ARMY STRETCHED TO BREAKING POINT

By David Pugliese

Ottawa Citizen

Canada’s army is stretched almost to the breaking point and replacement stocks of equipment for Afghanistan have long been used up, either destroyed by the enemy or in the process of being repaired, warns the head of land force.

 

In a strategic assessment written in January, Lt.-Gen. Andrew Leslie discloses that the size of the army has actually shrunk by 30 soldiers since 2005 even though the service is supplying 80 per cent of the personnel for the Afghanistan mission.

 

“The Army is now stretched almost to the breaking point and something is going to have to give if we are to be sustainable over the short and mid-term,” the general writes in his 2008 business plan leaked to the Citizen.

 

He predicts the personnel situation will only get worse in the short term.

 

The army is short 250 officers and 1,000 non-commissioned members.

 

Lt.-Gen. Leslie warns the army is also facing a serious problem with equipment. Spare parts are in short supply and the Afghanistan mission is taking its toll on a significant amount of equipment.

 

“Obviously all of it has to be replaced from existing stocks, but the initial pool of stocked equipment has long since been used up, either destroyed by the foe or is off being repaired,” the general writes. “To create a stock of equipment we have to take it from the home based training systems, which has an immediate and negative impact on training. All of our equipment is either deployed, being reset, used in training or broken and waiting either labor or spare parts.”

 

Additional money is needed to buy parts and to hire more people, military or civilian, to fix the equipment which is used for training for Afghanistan, Lt.-Gen. Leslie writes.

 

The army is not alone in dealing with excessive wear and tear on its vehicle fleets and equipment. The U.S. military is going through similar problems because of the Afghan and Iraq wars and has had to go back to government for additional funding for repair and overhaul of vehicles and gear.

 

On the issue of personnel shortages, Lt.-Gen. Leslie cites increasing attrition rates in the army and in the Canadian Forces overall. That is due to an aging workforce approaching retirement and a strong economy which appreciates skills possessed by military veterans.

 

The other reason is that many hundreds of the army’s most experienced field personnel have been taken to fill new positions in recently created headquarters and units, he writes.

 

Chief of the Defence Staff Gen. Rick Hillier has started a process to transform the military for the future. Part of that has been creating new commands as well as units such as the Canadian Special Operations Regiment.

 

Lt.-Gen. Leslie warns in his business plan the army can’t sustain both the current operational needs and the requirement to provide new units and headquarters with staff.

 

A similar assessment by the navy in December warned there will be a decrease in maritime capabilities as the service sidelines some of its ships in the coming years with no immediate replacements. The air force warned in its assessment in November that it may reduce flying hours for aircraft since it did not have enough money for spare parts and fuel. The navy and air force also said they were facing major issues in recruiting skilled personnel.

 

But Defence Department spokesman Lt.-Col. Jamie Robertson said in an email the army, navy and air force assessments do not reflect the current situation. He noted the government “continues to provide stable, predictable funding with annual increases which will directly result in a stronger, better-equipped, flexible Canadian military.”

 

In his email statement Lt.-Col. Robertson pointed out, for instance, that “the Army will be able to successfully conclude its personnel training and equipping requirements within the funding levels and equipment envelope provided to it by the Government of Canada.”

 

Asked for other examples of where issues raised by the assessments are being dealt with, the department did not provide any.

 

Lt.-Col. Robertson also said the use of the “six-month old Strategic Assessments misleads the Canadian public into believing the CF is being inadequately funded. This is simply not the case.”

 

The army document cited by the Citizen, however, was dated Jan. 10, 2008, a little more than three months old.

 

Privately, officers have said many of the problems identified in the navy and air force assessments and the army’s business plan have not been fixed and won’t be for a long time, if at all. They noted, for instance, that contrary to what is being claimed by the Defence department, there are still ongoing issues with recruiting, retention and equipment.

 

Officers also say there will indeed be a drop in maritime capability since the navy’s destroyers will be removed from the water before there are replacements for them. The air force, which stated in its assessment that it was short more than $500 million in its budget, will receive only $97 million.

 

In an email, army spokesman Doug Drever noted the service is dealing with its personnel shortages. The army is accelerating junior leadership training and will graduate 1,000 junior non-commissioned officers this year to address both routine needs and address the personnel gap, Mr. Drever added.

 

“The Army continues to grow each year, expanding by a total of 3,000 positions in the coming years to bolster existing formations and units,” his email noted.

 

Asked how the army will deal with the overall concerns raised in the assessment, Mr. Drever responded in an email “the foundation for building the Canadian Forces of tomorrow was laid with the $5.3-billion, five-year plan announced in Budget 2006.”

 

But Liberal senator Colin Kenny points out the army, navy and air force documents clearly show the level of funding is not enough. The situation, he added, has not changed in the last five or six months.

 

“You can see how the organization has been eating its stock of seeds and really eliminating its capacity to regenerate simply by getting worn down and not getting the resources to come back,” said Mr. Kenny, chairman of the senate defence committee. “We’re getting to a point where we’re going to see capabilities falling off the table.”

 

Mr. Kenny said whoever is chosen to replace Gen. Hillier as defence chief will have a unique opportunity to speak forthrightly about the funding problems. “A savvy CDS who knows he is untouchable for the first little while can come in and point out to Canadians what the military doesn’t have,” he said.

 

For more Canadian Forces and Defence Department news go to David Pugliese’s Defence Watch at:

 

http://communities.canada.com/ottawacitizen/blogs/defencewatch/

 

 

 

MORE MONEY NEEDED FOR JOINT SUPPORT SHIP

BY DAVID PUGLIESE

 

The Canadian navy’s $2.9 billion project to replace its aging supply ships has run aground with defence and industry officials concluding that the vessels can’t be bought with the amount of money the Conservative government is providing.

 Defence department representatives have met with Treasury Board to ask for more money for the Joint Support Ship project but at this point it is unclear whether additional funds will be approved.

 

 The JSS project, as it is called, was announced in Halifax in June 2006 by Public Works Minister Michael Fortier and then defence minister Gordon O’Connor. The new vessels are to replace the navy’s aging supply ships which are considered vital to supporting destroyers and frigates for long periods at sea.

 

 The project will acquire three new vessels as well hire a company to conduct in-service support for the ships over a 20-year-period.

 

 The Conservatives used the JSS project to kick off the equipment portion of its Canada First Defence Strategy two years ago, heralding the event as a new beginning for transforming the Canadian military for the future. At the time Mr. O’Connor said the JSS project showed the Conservative government was “committed to getting the right equipment for the Canadian Forces, at the right price for Canadians, with the right benefits for Canadian industry.”

 The problems with the JSS, however, are the latest to affect the Canada First Defence Strategy. Last week the strategy became mired in controversy after Prime Minister Stephen Harper announced further details of the long-term plan but was later contradicted by government officials on the cost of various equipment programs. That prompted opposition MPs to accuse the Conservatives of low-balling the cost of new military gear by tens of billions of dollars.

 Other opposition MPs said there was no way the government could guarantee the funding for various equipment programs would be available that far into the future.

 

The $2.1 billion set aside for buying three Joint Support Ships is not enough, confirm defence officials. They point out that part of the problem is that the new vessels would conduct missions far beyond the scope of re-supplying warships at sea, the role now done by the decades-old Protecteur-class ships.

 

 Besides supplying ships, the JSS will have to carry army vehicles, a command centre and a small hospital as well as other facilities to support ground troops on shore. There is no similar type of ship like it in the world as most navies use two types of vessels to do the two distinct roles.

 

 Defence officials have heard from industry that the money set aside by the government might be enough for two ships, not three. A minimum of three ships is needed because of the size of the territory covered by the navy and the fact that at times one ship could be sidelined for maintenance.

 

 The Defence Department declined to provide comment and referred questions to Public Works and Government Services Canada. That department, however, also declined to discuss the ongoing problems with the JSS.

 

 “As the procurement process has not been completed yet, it would be inappropriate to comment further,” said Lucie Brosseau, a Public Works spokeswoman.

 

 The first ship is supposed to be delivered sometime in 2012 but it’s unclear at this point whether that schedule will be kept.

 

 Liberal senator Colin Kenny said too many capabilities are expected from the ships for the budget the government approved. “Having some kind of replenishment capability for the navy is vital so this is a serious issue,” said Mr. Kenny, chairman of the senate’s committee on national defence and security.

 

 He noted that having just two ships would be unacceptable and unworkable in that one vessel is often docked for regular maintenance.

 

 Negotiations between Treasury Board and the Defence Department are expected to continue.

 

 The new ships will be around 200 meters in length and have a displacement of 28,000 metric tonnes.

 

 Defence chief Gen. Rick Hillier views the ships as key to the future of the Canadian Forces, not just to support the navy in its missions. He has said the JSS would be used to provide support to international operations for the other services as well.  “The ships will provide the vital lifeline of supply and support to other Canadian navy ships as well as to army and air force assets in certain deployed operations,” Gen. Hillier has said. “A key component of the Canadian Forces transformation, the ships will help build a truly ‘joint’ navy, army and air force capability.”

For more Canadian Forces and Defence Department news go to David Pugliese’s Defence Watch at:

 

http://communities.canada.com/ottawacitizen/blogs/defencewatch/