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A new framework for Defence – Industry partnerships

Line of Defence Magazine, Spring 2017

NZDF Framework for External & Industry Engagement - released this year.NZDF Framework for External & Industry Engagement - released this year.

 

NZDF Chief Joint Defence Services Charlie Lott spoke at a 23 August New Zealand Defence Industry Association members meeting in Auckland about managing Defence-Industry relationships and the NZDF Framework for External & Industry Engagement.

 

By all accounts, Defence has come a long way in a short time in terms of engaging positively and confidently with industry, in adopting supplier relationship management principles and in removing the traditional ‘master-slave’ approach to contracts.

According to Charlie, it was in the wake of 2015 Government directives to increase performance, add value and define results, create an environment for New Zealand businesses to succeed, and account for cost savings over whole of life, that the NZDF started looking at total cost of ownership through life rather than just the initial purchase.

The government introduced risk-based rather than rules-based government rules of procurement, and as with other government agencies, Defence now operates in accordance with the five procurement principles of the Government Rules of Sourcing: plan and manage for great results; be fair to all suppliers; get the right supplier; get the best deal for everyone; and play by the rules.

“They’re pretty simple rules, and are actually common sense in any commercial procurement environment,” commented Charlie. “We’re in the game now of incremental yet determined improvement. What we’re trying to do is to take small steps along a journey with a long game context to get compliance with those five principles.”

It’s a journey that Charlie clearly enjoys leading. “I have the best job in the Defence Force. I have fingers in everybody’s pies, and I have an opportunity for my team to make changes to the way we actually engage with industry as part of our capability plan.”

It’s about ensuring value for money both at the procurement stage and in terms of looking for efficiencies in ongoing contract management.

“We have 9,000 contracts, and the administrative burden of managing these is awesome. It’s driving costs in my business, and I’m wanting cost cutting. What I am looking for are fewer, more capable suppliers, and we’re starting to see that among in the membership of the NZDIA.

“So, what do I mean by value for money? It’s the best available outcome for money spent in procuring NZDF’s products. It’s not input focused. We’re looking at outputs: managing suppliers, not managing supplies.

“We’re looking for benefits to drive procurement related activities that can be maintained and enhanced through a process, not being slaves to the process but being more agile in applying the principles and the processes together for better outcomes for you and for us.”

Traditionally, the contractual relationship between Defence and supplier was a true master-slave relationship, notes Charlie, and it was adversarial. The time spent managing conflicts between the NZDF and suppliers was costly. “What we found was generally a win-lose over the long term.”

“We now have a clear delineation between the ‘decider’ and the ‘provider’, where the decider, us, provides the ‘what where when and why’, and the provider provides us with the ‘who and how’, because you know best. You know how to do it – that’s your business, it’s not ours. What we find is that it becomes a gain-gain partnership.”

 

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Much of this change in approach has its basis in the review initiated by the Minister of Defence and published as the 2014 Ministry of Defence report Optimising New Zealand Industry Involvement in the New Zealand Defence Sector.

Assisting the review was the Expert Advisory Group comprised of representatives from the Ministry, NZDF, MBIE, DIAC, NZDIA and Treasury, including Charlie in his role at that time as Commander, Defence Logistics Command. The report made three recommendations:

  1. Applying and improving whole-of-life costing in key stages of the Defence capability process, and ensuring tender information to industry is clear what whole-of-life costs are to be included in the tender.
  2. Improving Defence purchasing processes and practices to optimise New Zealand industry involvement. Eg. requesting a New Zealand Industry Engagement Plan for all large tenders, and requiring suppliers to report on expenditure on New Zealand subcontractors.
  3. Improving Defence’s relationship with the defence industry, for example, developing a website that suppliers can use to make enquiries and Defence can use to provide information on future tender processes.

“We took the report and asked ourselves so what does it mean for us,” said Charlie. In doing so, and espite the report’s existence, it turned out that people in Defence working on a day to day basis with suppliers didn’t understand what we were trying to do.

Hence the release this year of the NZDF Framework for External & Industry Engagement, which Charlie describes as “a simple guide for our people who on a day to day basis on our camps and bases buying goods and service to engage properly with industry.”

The goal of the framework is to ensure that: 

  1. industry has appropriate access to information, infrastructure and personnel enabling it to contribute effectively to NZDF procurement, acquisition and sourcing business decisions.
  2. NZDF engages with capable suppliers and external parties to support Defence outputs and outcomes.
  3. NZDF’s processes for early engagement harness innovation to optimise capability decisions and enhance equipment, product and service delivery.
  4. Effective external partnerships are developed that support the full capability lifecycle of equipment that contributes to NZDF capability.

According to Charlie, the next phase is to professionalise Defence’s procurement people to re-orientate them to look at managing suppliers and strategic relationships rather than contracts. “Anybody can write a contract – you can outsource that,” he said, “what I want to see is a pool of procurement specialists rather than contract lawyers.”

“Why are we doing it? Our environment has changed and is changing as we speak. We’re faced with a massive recruitment issue. People join the Defence Force for six or so years, get a mission under their belt and then leave, and our recruitment base in New Zealand is dropping,” Charlie explained. In addition, budgets are tighter, and Defence is having to get the most from its capability spends.

In other words, in the context of finite human resources and budgets, having a Defence Force made up heavily of people supporting and maintaining equipment, vehicles and weapons systems no longer makes sense. “Defence is needing to focus on our core business. If it’s not our core business we shouldn’t be doing it.”

The new relationship-based approach involves the signing of a charter between Charlie or CDF and the CEO of the other party in the strategic relationship that defines both parties behaviours towards each other. The contract, explains Charlie, comes later.

Focused on outcomes and outputs, they are based on trust and integrity and underlined by professional conduct and probity.” Relationships are assessed annually, with success measurement focused on the relationship and behaviours.

But Charlie admits that Defence has quite some way to go to ensuring that its expectations are well articulated. “We’re struggling at that. We have a tendency to ‘over-gig’ things... and we confuse the market when we go out with 400-page RFTs that don’t say anything about the things we want, how we’re going to do it and when we want it.”

“I want to ask, ‘can you help?’, rather than saying ‘this is what I want’. It’s about asking the right questions.”

 

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