Patience is key for SMEs that hope to supply Canadian Armed Forces

So you have moved out of the family garage, set up shop in a small office in an industrial park, hired a few staff, and now want to sell your great product or service to the Canadian Armed Forces.

First, be patient.

In a business sector comprised largely of small- and medium-sized enterprises (SMEs) in which the primary customer rarely buys directly from those SMEs and the procurement process is long and even tortuous, breaking into the defence sector requires some special qualities. 

“Be consistent, persistent and patient,” said Charles Bouchard, chief executive of Lockheed Martin Canada.

Bouchard was one of three defence industry executives on a panel of original equipment manufacturers (OEMs) at the Aerospace Innovation Forum in Montreal on April 25 to 26 to offer guidance to SMEs through the convoluted process of defence acquisition and the alphabet soup of acronyms that make up the government’s procurement strategy. 

Patience is a virtue in defence procurement and all three panellists emphasized the necessity of being prepared to play a long game, building durable relationships with OEMs and government, and investing in sectors outside defence to sustain a product while the procurement process grinds along.

“I can’t over emphasize the patience part,” said Mike Greenley, vice-president and general manager for CAE Canada, Military. “A government procurement will take years and years.”

The formula for growing a business in the sector hasn’t changed much over the years and applies whether you are a small or large enterprise, Greenely explained. But navigating that well-worn path requires a firm understanding of the DPS (defence procurement strategy) and its ITBs (industrial and technological benefits) and VP (value proposition), the rules surrounding ITARs (International Traffic in Arms Regulations) and Canada’s CGP (controlled goods program), and the requisite security clearances through the ISP (industrial security program).

“The same elements that made us successful as a small business—Canadian customer that cared, with procurement strategies that encouraged us to be engaged, followed by whole-of-government support to export—still work,” said Greenley, who has over 25 years of experience in the sector.

So how should an SME approach the sector? 

“The key thing is to be brave and market and promote yourself,” said Greenley. As the government continues to refine its procurement strategy and departments like Innovation, Science and Economic Development Canada seek to better understand the key industrial capabilities in the sector that should be included in the value proposition of future projects, the onus is on the SMEs to help educate the government and larger firms.

“The process of knowing your offering, knowing your value proposition, and patiently and persistently educating both the government and the OEMs is a key first step to harness,” he said.

The recent shift from industrial regional benefits to ITBs has “opened the door” for greater SME involvement in new military platforms and in-service support (ISS) programs, said Paul Mercier, vice-president of business development, sales and programs for L-3 MAS, a Montreal-based ISS provider that maintains aircraft and other platforms for the Canadian, United States and Australian armed forces, among others.

Under the ITB policy, 15 per cent of the proposed content for a platform must be from smaller Canadian businesses, meaning “we (OEMs) have to create opportunities for SMEs that will be evaluated at the bid. Fifteen per cent may not seem large, but if it is a multi-billion dollar acquisition, that is significant. The [new] value proposition is forcing everybody to try to find solutions that are Canadian.” 

While it is still early days for the ITB policy—only a few procurement programs have required bidders to have Canadian content as part of their value proposition for the bid evaluation—Greenley said it has changed OEM behaviour, forcing them to search out more SMEs and start-ups that can contribute to a Canadian program and have the capacity to export. 

“It has affected our approaches to bids. It has created new opportunities. People have come to us and offered to transfer their IP [intellectual property] so that I can own the Canadian version of a product and bid it to the Canadian government and support it, and then identify key follow-on countries where I can have exports to,” he said.

For ISS providers, the shift has been significant, Mercier acknowledged. L-3 recently renewed an ISS contract for the Royal Canadian Air Force CC-150 Polaris multi-purpose jets, but its win was by the narrowest of margins.

“We won by approximately one per cent above our closest bidder,” said Mercier. “It was that close. If the value proposition is worth between 10 to 20 per cent of the [bid], that means it is worth a lot.”

When SMEs and potential international partners asked about the defence procurement strategy and its emphasis on ITBs, Bouchard said the answer is simple: What’s in it for Canada? 

“It is not a prescriptive [strategy] to the point where you follow a checklist. It leaves room for imagination,” he explained. “But at the end of day, can you answer that question: How much are we bringing in terms of Canadian content?”

While the government has improved resources to assist SMEs pursuing work with OEMs on platforms or in-service support, companies need to comply with controlled goods and security regulations. All three panellists said OEMs have a vested interest in coaching their supply chain through those processes if they see value in a product.

“Those areas are daunting for SMEs,” Mercier acknowledged. “[But they] are areas where we can coach and guide SMEs…and we are being compelled to do it even more.”

The greatest threat for most OEMs is cyber breach, said Bouchard. “My corporation gets hit thousands of times a day,” he said, so SMEs that want to be part of a Lockheed Martin program must ensure “your networks [are] protected.”

New rules may be encouraging greater involvement with SMEs, but Bouchard said most OEMs have recognized the importance of small companies to their long-term growth. 

“Innovation is the way for all of our companies to flourish, so we are always looking for new ideas,” he said.

But as much as he is interested in cheaper, faster or better ways of doing things, Bouchard said his aim is to solve challenges for the military, not just deliver equipment, so he wants ideas that “will give us an edge.”

He urged SMEs to think outside of the box, to what is “on the next horizon,” and to always think about how a product or idea could be exported. “That is the big value proposition when we talk with the government of Canada.”

As the Department of National Defence (DND) gains greater delegated authority over its purchasing—from $25,000 in 2015 to $400,000 in 2016 and possibly $5 million by 2018—more of its smaller projects will be managed directly by its own staff. “Logically, that means things will move faster and there will be more agility in the defence procurement system for the ‘s’ in SME,” said Greenley.

But he urged companies to “gently release your enthusiasm” by understanding how the process works. The defence acquisition guide, for example, is only a guide, and a discussion with a military member at a trade show is not proof DND is about to buy new equipment.

“Spend time with people in the community to learn the signals that are out there,” he said. The first time an industry day occurs does not mean an RFP is going to come out six months later; it can be the start of a three-year process.” 

The defence sector landscape is changing, opening more opportunities for Canadian SMEs. But whether you are new or well-established, expect to have to constantly prove yourself. The days of locking down a 20-year in-service support contract, for example, and staying well fed are long gone, said Mercier. 

“You have to demonstrate that you are improving. People are going to have to work hard, not just to win, but to keep a contract.”