Canada making real procurement progress, but still falling short

Canada is once again under fire for not spending enough on defence. At the NATO Parliamentary Assembly meetings in Halifax this past week, an American congressional delegate called Canada out for not having a plan to spend two per cent of GDP on defence. In response, Canadian officials referred to the spending increase baked into the Strong, Secure, Engaged defence policy, which would see spending rise to around 1.4 per cent of GDP by 2024, an increase based on a recalculation of Canada’s accounting formula (already enacted) and a major recapitalization of the Canadian military’s equipment base. Recently released Department of National Defence (DND) financial reports to Parliament show that the Trudeau government’s procurement plans remain very much a work in progress, despite some encouraging developments. First, two bits of good news. The Public Accounts of Canada for 2017-18 showed a meaningful increase in DND’s procurement spending in the first year of Strong, Secure, Engaged. In the new policy’s first year, DND spent $3.7-billion on capital. In inflation-adjusted dollars, that is the most Canada has spent on military equipment procurement since 2010-11, the high-water mark for Canadian defence procurement in the last decades. The Supplementary Estimates A for 2018-19 indicate that this current fiscal year might see that level of spending rise yet again. So far, DND’s capital allocation stands at $4.1-billion, roughly $200-million more than at this point last year. While that money is not yet spent, it is a positive indicator that Canada’s procurement spending could rise for the second year in a row. This is particularly the case because last year’s Public Accounts revealed that DND has finally started to spend most of its annual procurement allocation again. Historically, National Defence would spend almost all of the money it was allocated for procurement each year, 98 per cent on average. Starting in 2007, however, after successive injections of billions of dollars in additional funding for procurement, DND started leaving hundreds of millions worth of procurement funds unspent at year’s end. This underspending, which takes several forms, is referred to generically in the Public Accounts as a “lapse.” The second piece of good defence procurement news is that for 2017-18 DND only lapsed about $160-million, or just four per cent, of its total capital funding allocation. As a percentage of its allocation, that was the smallest capital lapse since 2006-07. So at least for one year, things have returned to normal. DND actually spent most of its procurement money; hopefully the same will occur this year. Despite these positive trends, DND is still falling well short of meeting the procurement spending targets laid out in Strong, Secure, Engaged. In 2017-18, actual capital spending fell $2.5-billion short of the projection laid out in the policy. The Supplementary Estimates are painting a very similar picture for the current year, showing that DND is on track to fall short by a comparable amount once again. The fiscal year is not finished, however, and DND’s deputy minister has stated that she is hoping to see that amount drop below $1-billion. Achieving the deputy’s spending target will be extraordinarily difficult, as Canada’s defence procurement system is still trying to ramp up to spend money at a much higher rate than it has been in decades. Part of that effort is underway within DND as it attempts to make up for several decades of underinvestment in a very short timeframe, while also delivering on an otherwise ambitious defence policy. The public services minister has indicated that additional help could be on the way if, as she hinted in a recent speech, the Canadian government moves to a risk-based contracting approval model for defence procurement. Such a shift won’t be flashy, as it would represent an incredibly wonky change to one part of Canada’s cumbersome approvals process, but it could have a huge impact if done right. Searching for more small, unsexy, but meaningful changes to a procurement process is probably the most realistic way of ensuring those spending targets are met. David Perry is a vice-president, senior analyst, and fellow with the Canadian Global Affairs Institute. The Hill Times