Leveraging Defence Procurement Through Key Industrial Capabilities

The Government of Canada received the report of Mr. Tom Jenkins, the Special Adviser to the Minister of Public Works and Government Services on 12 February 2013.  The report is entitled Canada First: Leveraging Defence Procurement Through Key Industrial Capabilities.

The ‘Jenkins Report’ recommends identifying and supporting ‘Key Industrial Capabilities’ (KICs) so that Canada’s defence-related industries and the government can to work together to meet the operational requirements of the Canadian Forces (CF) while generating sustainable economic growth in Canada.  Significantly, it also proposes that the government should move immediately, in partnership with industry and academia, to facilitate the establishment of an independent, third-party defence research and analysis capability in Canada.  This capability should conduct a more robust review in the near-term, based on experience and better data and analysis, to validate or amend an initial selection of KICs.

The panel that prepared the report projects a rapid transition in global defence spending, led by the United States, which accounts for almost 50 percent of the global amount.  The panel expects annual spending by the United States defence-related activities will decline by 25 percent or more over the next three years.

Defence-related industries have a unique status globally.  Governments are essentially their only customers and they have flexibility under international trade agreements to favour domestic suppliers.  The report suggests that Canada should act, like other nations do, to encourage the development of national defence industrial capacity.  This is particularly important because as Canadian industrial opportunities decrease globally, they are posed to increase in Canada.

The government’s Canada First Defence Strategy (CFDS) calls for an investment of $240 billion to re-equip the CF between 2008 and 2027.  The report notes that $60 billion is allocated to the ‘Readiness Pillar’ (spare parts, maintenance, repair, and training) and that by the end of this fiscal year $12 billion will have been allocated.  Decisions on how to spend the remaining $48 billion are supposed to be taken over the next three years, which represents a significant and unique opportunity to leverage defence spending to promote long-term economic benefit for Canada.

The report identifies that declining global markets will increase competitive pressure on Canadian industry from foreign suppliers for the CFDS expenditures.  With a commitment to ensure value for money for Canadian taxpayers, a government commitment to fairness, transparency and competition in defence procurement means that Canadian Industry must rise to the challenge by seeking excellence in a limited number of key areas that constitute a relatively small proportion of total defence procurement expenditures.

To achieve this goal the panel suggests that Canada foster an approach that identifies and supports KICs.  The panel believes that this approach may provide significant gains in innovation and competitiveness over the long term, particularly for long-term growth in jobs and income.  The panel also recommends reducing a list of comprehensive Canadian defence-related capabilities to a limited number of KICs to guide defence procurement policies and programs.  Each KIC brings the objectives and requirements outlined in the CFDS, market opportunities, and potential for innovation together. The panel also factored how Canadian and American industrial capabilities could compliment each other.

The panel recommends the following six KIC clusters (in no order of priority) as having particular potential for export-led growth:

Arctic and Maritime Security

Protecting the Soldier

Command and Support

Cyber-Security

Training Systems

In-Service Support

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