If there is a front-burner issue in Canadian defence today, it is the future of the defence industrial base. It sits at the intersection between Canada’s national defence, international trade, and the country’s diplomatic relations with the United States. In a few weeks the government is likely to announce a new policy outlining its direction in this area.
This will be a pivotal moment. Prime Minister Carney must balance the need to rapidly modernize the Canadian Armed Forces in the face of the rapidly deteriorating strategic environment, while trying to extract as much economic benefits for what is clearly a sick economy, while also trying to balance relations with the Trump administration, without alienating a significant portion of his political base who expects him to follow through with his decoupling rhetoric.
From one perspective, this just reflects the day-to-day reality of politics: creating tradeoffs between competing demands. But the Carney government faces additional challenges, such as a procurement system that has faced severe difficulty delivering combat systems on budget, time, and scale necessary for the armed forces. Without first repairing the system, any policy choice made by the government will fail to meet any of its political objectives.
The announcement of a Defence Investment Agency (DIA) earlier this month is one of the most significant steps so far taken to address the serious challenges here. Modelled after the government’s other bureaucratic reform efforts, such as the Major Projects Office or the Housing Task Force, it seeks to short-circuit the existing processes in order to facilitate quicker decision-making.
The DIA would draw in some of the authorities and personnel from the six bodies currently involved in defence procurements, building an interdepartmental team with the authority of the prime minister to facilitate procurements. Potentially, it may assume more of the responsibilities from Public Services and Procurement Canada, absorbing staff and functions from that department.
Unfortunately, there are several early warning signs that suggest the government’s policy foundation for this process is potentially flawed, betraying fundamental misunderstandings concerning Canada’s security situation, the nature of the defence industry, and the challenges that afflict the defence procurement system.
Landmines ahead
One of the core issues with the procurement system is that the DIA will be immediately hamstrung by a capacity deficit. At present, many project staff have as few as 30 to 50 percent of the required personnel. Moreover, the distribution of scarcity is not equal: programs in the competition phase tend to have more personnel devoted to them; programs post-selection tend to see the greatest staff deficiencies.
The individuals needed to staff these programs do not exist—the austerity environment of the past 30 years has meant the government never trained and sustained them through the system. Nor can they be hired from the private sector. These positions often require security clearances, highly specific technical knowledge that really is limited to military applications (which only the government offers), and, above a certain level, bilingualism. Although the bureaucracy is trying to address this, it’s a generational deficiency that will likely take a decade or more to fully address.
Can the new Defence Investment Agency truly fix Canada's procurement issues, or is it destined to be bogged down by political realities?
How can Canada balance the need for a modern military with the desire for domestic economic benefits from defence spending?
Is Canada's current defence capability sufficient to meet the threats it faces, and what are the consequences of this deficit?
Now, if the organization can better rationalize the use of existing personnel by shortening the duration of procurements and avoiding the duplication of roles, that would certainly help address this deficiency. But it should also be noted that the government is planning to expand the military, both in personnel and the capabilities it will field, which will require a large array of new systems as well as the procurement programs to procure them. Moreover, the DIA’s remit at this time will only extend to procurements above $100 million. This represents less than 10 percent of the Department of National Defence’s (DND) yearly total contract value. The remaining 90 percent will remain under the existing procurement system. The lack of competent staff could have consequences for how Canadian industry interfaces with government policy. The announcement of a defence industrial strategy and statements from the Carney government about its intention to promote domestic industrial development have certainly raised the enthusiasm within the sector. However, their involvement must be managed carefully. First is that the Canadian defence industry is not well organized to really provide the CAF a significant proportion of its equipment. While many firms may have some useful technical knowledge or production capacity, they may offer products that are unsuitable for service because they don’t understand military requirements. Again, the lack of defence spending for the past 30 years has created this situation, as well as an innovation system that effectively is broken. Many individuals have claimed that the CAF prefers to acquire only American systems. This, however, misunderstands the fiscal realities that the military has faced. The financial and process-driven constraints put on the department have basically made it unwilling to take any risks. Thus, the easiest approach to replace obsolete systems has been to just acquire American systems, since they have historically been Canada’s most significant ally, and the foreign military sales system provides ancillaries like training and long-term support that ensure the capability is effective in CAF service. Furthermore, Canada will not create a defence industrial autarky—it will still rely on foreign firms and countries to provide a very large proportion of its defence needs, much of which will still originate from the United States. The government, or specifically the DIA and other procurement bodies, will need to create a highly sophisticated understanding of what is within the Canadian domestic industry’s capacity, and where investments actually make sense, lest it suffer further procurement failures, which could dampen public support for this already tenuously supported new defence spending. That will require those technical staff members to assess and perhaps even guide domestic industries’ development, again an area of serious constraint. The defence industrial transformation will take decades to unfold, requiring tens of billions of dollars in investment to create a vibrant ecosystem of firms with the technical knowledge and capacity to execute projects for the CAF. The dangers of prioritizing politics The most serious issue that the Liberal government’s defence industrial strategy will face, however, is one that has consistently plagued this space: politics. Rather than see the industry for its role in promoting national defence, it is tempting for the government to view it primarily as an instrument to promote domestic industrial development. This, to put it lightly, ignores the purpose of the defence industry. The gravest national security threat facing this country is not an over-reliance on U.S. military systems or an industrial base that’s starving for even more government funding; it is, rather, the total lack of capabilities the CAF possesses. By any metric one can imagine, the military’s capability to defend Canada is clearly insufficient to the challenges the country faces. Its ability to defend Canada’s sovereignty, or better framed, provide capabilities that are commensurate to the threats faced by the country, is nonexistent. The reality is that the United States, under successive administrations going as far back as President Obama, desires allies to take up a greater proportion of the defence and security burden. Many European states have understood this and sought to expand their militaries as quickly as possible, even buying American arms in large quantities. Denmark, for example, where Trump has threatened to annex Greenland, announced its intention to acquire 16 additional F-35s to defend its territory earlier this month. Yet for decades, Canada has completely ignored warnings by Americans and other NATO allies about its dangerous lack of defence spending. And even now, these comments seem to reflect a naïveté of what a precarious position Canada’s national security is in. Rather than actually deal with this defence deficit, the focus seems more about playing politics and parochial economic benefits. The very individual in charge of reorganizing the government procurement system, Secretary of State for Defence Procurement Stephen Fuhr, is complicit in such an effort. Over the past several months, he has been the driving force behind the initiative to cancel the F-35 order, despite clear statements by the senior military and defence departmental leadership that the aircraft is central to the modernization of the Air Force and the defence in Canada. He’s deployed various justifications in public about better industrial opportunities and even better capabilities, despite no international competition over the past 20 years, including Canada’s, ever reflecting such a finding. When challenged about his role in this matter, he has disavowed his involvement by claiming it is not his file, despite travelling to Fort Worth to be briefed on the program and conducting several interviews expressing his views. Recent speeches by Mélanie Joly further underline the dangers of politicization. She continually goes to great lengths to show how defence investment can support job creation in Canada. This alone is not problematic or surprising, given her role as industry minister. Yet she’s also highlighted policies or options that seem much more in line with her political interests than military requirements. Joly highlighted the Saab Globaleye airborne early warning system as a world-leading capability and an option for Canada, despite the reality that it is likely incompatible with NORAD’s networks. Comments like these on defence industrial development show how easily the focus of these efforts can be perverted from their original intent. While the DIA is supposed to coordinate policy functions, there are clear political differences within the government on the purpose of defence procurement. And if they are unable to resolve themselves within the interdepartmental process, they will come to a head within cabinet or caucus and cause disruptions there. While Prime Minister Carney may be able to smooth some of those over for the time being, the history of Canadian defence procurement has seen a consistent effort by members of Parliament to extract as much benefit for their local constituents. These views illustrate the real risk to the DIA’s efforts to improve defence procurement. If the priority is not actually on obtaining systems for the CAF, but rather funding domestic industrial development, any potential benefits of the reorganization will be lost. If there is a program where this dynamic will manifest itself most clearly, it’s with the upcoming decision on the Canadian Patrol Submarine Project. The Royal Canadian Navy desperately requires new submarines to defend its coasts and arctic domain. Yet of the two finalists, the South Korean KSIII can be delivered roughly three to five years earlier (depending on whether you measure first delivery or being able to continuously deploy submarine capability) and with lower risk than the German Type 212. Both are seen as roughly comparable in capability. Even if the latter potentially offered superior economic benefits, which is not at all assured, closing the capability gap should be the government’s first priority. More broadly, this principle should be applied to a wide range of programs. This doesn’t preclude industrial development for future capabilities. Just like Canada is assessing sixth-generation programs while procuring a current replacement for the CF-18, industrial development in many cases will require foresight and a grounded understanding of where Canada’s needs are now and in the future, and what makes the most economic sense to address. That would be the ideal approach, which addresses the current challenges that face this country.
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