Understanding the New Value Proposition and the role for SME’s.

April 27 1016

Understanding the New Value Proposition and the role for SME’s

● Whose Value Proposition (VP) is it?● The move to the Value Proposition

○ Purpose○ Weighted and Rated○ Evaluation○ When does it apply○ What’s in it for me/ how to get involved

Whose Value Proposition?

● Value Proposition is a common term - can be confusing when speaking about defence opportunities.

● The Value Proposition refers to a document the bidders (Primes) must put together and submit to the Government on any bids they put forward

● You want to get on a Prime’s Value Proposition

Value Proposition in Brief● Represents a shift from IRB policy (scoring on pass/fail basis) to

Industrial and Technological Benefits (ITB), with a Value Proposition.● Focus on Value Proposition as a weighted, rated, and required element

of bids. This is a more powerful lever for the Government. ● Favours actions that reflect:

○ Investments that strengthen Canadian market segments.○ Investments that support enhanced productivity.○ Broader Industrial and Technological high-value activities, such as

technology transfers.● Timing of fulfilling Value Proposition commitments will also be

considered (ie. favours upfront). Identified activities at time of bid equal 30% of the ITB obligation.

Shift to ITBs and Value Proposition● Canadian Forces equipment coming to the end of its useful life -

many programs aimed at replacing major capital equipment. ● Programs like NSPS, Next Generation Fighter ensure increased

spending in the coming years● Looking to encourage higher value investments.

○ Value Proposition looks to increase the long term sustainability and growth of Canada’s defence sector.

○ Looks to support the growth of SMEs/ homegrown capabilities

○ Looks to enhance R&D in Canada○ Looks to help increase exports for Canadian companies.

Weighted and Rated

● Bids under the old IRB policy bids were evaluated primarily on technical merit and price.

● IRB portion was pass fail and did not have a % weighting of the overall bid.

● Weighted and Rated nature of Value Prop means that companies are now evaluated on Price, Technical, Merit and their Value Proposition.

Weighted and Rated continued.

All Value Proposition plans will be evaluated based on the following criteria:1. Defence Sector2. Canadian Supplier Development3. Research and Technology Development4. Exports

Weighted and Rated Continued1. Defence Sector - core objective of ITB policy is to ensure the support of Canada’

s defence sector. Government will motivate bidders to maximize the business activity undertaken by awarding points for direct work. Points also awarded for indirect work when there is limited capacity in Canada.

2. Canadian Supplier Development - points may be awarded for work offered to and investments made in Canadian suppliers that enhance the productivity and competitiveness of the supplier.

3. Research and Technology Development - key policy objective is to encourage innovation in Canada - enabling companies to move up the value chain. Points awarded based on proposed R&D related to the procurement, the defence sector or other sectors of the economy. Further incentives on points awarded to include universities and colleges. (Multipliers)

4. Exports - in 2011 49% of revenue for the defence sector was from exports. VP aims to increase that as well as tap into non-traditional export markets. Points awarded for international export strategies that demonstrate incremental capacity to export from Canada related to suppliers lines of business. Very important when there is limited capacity in Canada related to the procurement.

Weighted and Rated Continued.

Example weighting of four areas

Weighted and Rated ContinuedFlexibility within each procurement exists to:

a) increase or decrease the 10 percent weight of the Value Proposition in the overall bid score; T/56 F404 sustainment at 20% of total bid with prorated points.b) weigh individual evaluation criteria differently;c) apply all or some of the evaluation criteria;d) add additional evaluation criteria;e) apply mandatory requirements; andf) develop different rating grids to adequately assess and differentiate among Value Propositions.

Evaluation of the Value Proposition● Point rated criteria - recently have seen some move to a

prorated system● Mandatory requirements for each Value Proposition- bids

that don’t meet the requirements are thrown out. ○ Commitment to 100% obligation and to a schedule for

identifying specific activities - 30% at the time of bid○ Commitment to 15% SME involvement○ Acceptance of ITB terms and conditions○ Submission of four plans - ITB, company, regional, SME

What’s in it for me?

● Big opportunity to get involved with a Prime Contractor before the work has started - be part of their bid team.

● Difficult for a Prime to remove you from the program if you were a part of the Value Proposition.

● Huge opportunity for exports and getting into global supply chains.

Ways to get involved

● Buy & Sell and Defence Acquisition Guide - be proactive in reaching out to primes.

● Banking - doesn’t necessarily need to be related to an ongoing project.

● Understand your offering and where you can help a Prime maximize their points.

● Understand your Canadian content value● Industry Associations - conferences and trade shows● Regional Development Agencies - Western Economic

Diversification Canada● Industry Canada - IRB/ITB Managers● OMX - Free to Register & Connect with Primes

Questions

Contact me at:

jon@theomx.com416-780-9544 ext 109