Southern status quo is ‘problematic’ for northern projects beset by delays and cost overruns, say report, procurement experts
The federal government “can’t afford” to implement its regular fixed-price contracting approach in the Arctic if it wants to avoid major delays and cost overruns, says an industry report as Canada sets out to spend millions of dollars on defence infrastructure in the region.
A July report by Deloitte, a multinational professional services company, calls on the government to adopt a more "flexible" strategy instead of a fixed-price procurement model, citing geographic, economic, cultural, and political circumstances in the region.
“In the Arctic, speed is sovereignty: infrastructure that is delayed, narrowed in scope, or trapped in procurement is capability that is not available when it is needed,” reads the report, explaining that the Arctic is a tough place for procurements due to the short construction season, challenging logistics, uncertain site conditions, and limited contractor capacity, all of which contribute to delays and cost overruns.
Matt Campbell, a senior manager in Deloitte's infrastructure practice, told The Hill Times that while Canada has made significant commitments to Arctic defence and infrastructure, the question now is how to turn them into operational capability on the ground.
“Our argument is that when uncertainty is high, locking in a price too early can create a false sense of certainty. The risk doesn't disappear; it just shows up later in the form of delays, contingencies, change orders, or reduced scope,” he said.
“Scope will be narrowed to fit fixed budgets, procurements may need to be repeated, and costs will rise through inflation, remobilization, extended overhead, and missed construction windows,” reads the report, noting this may lead to contractors seeing Arctic work as commercially unattractive over time, reducing competition in what is described as an “already thin market.”
“The report’s argument is that it's better to understand those risks earlier, assign them transparently, and align incentives so both government and industry benefit when projects are delivered efficiently. This is less about sharing overruns and more about sharing risk, sharing information, and sharing the benefits of successful delivery,” Campbell explained.
In March, Prime Minister Mark Carney (Nepean, Ont.) committed to $40-billion in federal investments to defend, build, and transform Canada’s North.
The federal government’s Major Projects Office oversees 18 projects worth a total of $192-billion in investments.
Those include major Arctic infrastructure projects such as the Mackenzie Valley Highway project, a year-round road access to Indigenous and remote communities in the area; the Grays Bay Road and Port Project in Nunavut; the Arctic Economic and Security Corridor, an all-season road of approximately 400 kilometres through the Slave Geological Province to the Nunavut border, where it will connect with the Grays Bay Road; and the Taltson Hydro Expansion Project to double the Northwest Territories’ hydro capacity.
Procurement delays can lead to defence capability gap: report
“For defence infrastructure, delay is not just a cost issue. It is a capability issue,” reads the report, referring to examples like ports, radar-support sites, logistics hubs, fuel facility projects. The report notes that most procurement processes executed in multiple steps add years to the delivery schedule and inflates total cost of projects.
“Canada’s Arctic defence challenge is, therefore, not only whether the country can fund the right projects, but whether it can structure delivery in a way that turns commitments into operational infrastructure at the pace required,” the report says.
Stéfanie Hamel, a spokesperson for the Defence Investment Agency (DIA) tasked with rolling out major defence procurement projects, told The Hill Times in a statement that the agency “is tailoring procurement strategies to the specific needs of each project to support effective capability delivery, manage risks and provide the best value for Canadians.”
“Defence projects vary significantly in scope, complexity and environment, particularly in the Arctic, where remoteness, climate, infrastructure constraints, and evolving operational requirements can present unique challenges,” said Hamel in the statement.
Flexibility, consultation critical for northern projects: experts
Jake Kennedy, an adviser to Indigenous governments on modern treaty implementation, governance, policy, and major projects, agreed with Deloitte's assessment that fixed-price contracting does not work in the North.
“You're dealing with shifting seasons, lack of road access, reliance on shipping by air or by sea. So those are things that are very hard to predict and control when a company is trying to put in place a fixed-price bid,” he explained.
“We recognize there's inherent risk in operating in the North, and fixed price kind of tries to pretend that that risk isn't there. But all it does is hide it. It hides it in the contingency fees, in the claims that'll come [later], or or it ends up happening with scope cuts.”
With a three- to four-month construction window in the Arctic, a delay that would be manageable in southern Canada can push work in the North to the next season, which would increase the overall costs, the report highlights. Construction plans can change due to a need for roadwork or site challenges such as permafrost, drainage, coastal conditions, and contamination.
“Some of these risks are genuinely hard to know at the procurement stage without further investigation, causing uncertainty which adds time and costs,” says the report.
“A fixed-price contract—unless you're buying pencils and ballpoint pens in the South—is really problematic," said Peter Kasurak, a fellow of the Centre for International and Defence Policy at Queen’s University. "That is going to lead to all sorts of management difficulties and delays and problems,” including that contractors would likely charge the government more as the project proceeds for the contingencies.
“The government should not commit itself before it has a good understanding of the entire problem of construction of whatever it is they're going to build," said Kasurak, who previously served as a senior principal in the Office of the Auditor General responsible for defence and national security projects.
Deloitte’s report recommends the government select one near-term Arctic defence project with a manageable scope and urgency attached to it, and with real delivery risks, to test the development phase, target-cost pricing, Indigenous partnership aspects, and more. The analysis puts forward suggestions for this pilot project, like the building of a northern airfield, a runway improvement, or a logistics facility.
The report also calls on Ottawa to create a “policy pathway” for northern defence procurement that allows non-fixed-price delivery models with the understanding that risks cannot be anticipated as early as the request for proposal stage.
Kasurak also argued that the government needs a “strategic human resource plan” as well as a strategic contracting process.
“Not only just suppliers—labour—to do the job, but the technical people available to do the job will be limited, so you're going to end up selecting the right team in their Stage 1. I don't think it is going to be as simple and easy … [it] may be the most problematic and critical step in how you're going to qualify these teams, and how you go about managing that process,” he explained.
Heather Nicol, the director of Frost Centre for Canadian Studies and Indigenous Studies at Trent University whose study focuses on political geography of the North American Arctic and Canada-United States relations, told The Hill Times that the government needs to build the infrastructure—for transportation, for instance—in the North before it can start take on any major defence projects.
Nicol echoed that the pre-planning will be important given the anticipated challenges and risks in a myriad of phases of a project from securing a labour market to community buy-in.
“But to actually do that on the ground in the procurement process really has to create relationships, and you have to find the right groups [at the] community, and territorial or provincial level. And all of this takes time to lay out teams with the ability and the expertise, and who are representative of northern populations to actually identify what the local challenges are, what kinds of materials could be procured locally or not,” she explained.
“If you don't do that step [of consultations], then the potential for failure is enormous,” said Nicol, acknowledging that it could be “really difficult” to do as “this isn't how the government works,” adding that she has not seen a concerted effort to create a set of policies focused on procurement that incorporates the expertise of different northern actors.
Kennedy also highlighted that most of these defence projects in the Arctic are going to be in modern treaty territory, which means, “Ottawa's not going to be able to legislate its way around them.”
“The challenge in working in the Arctic is that—especially when you're talking about procurement—you need to understand the treaty obligations early in the process,” he said.
Treaties could have an impact on timelines and risk calculation, he said, adding that any given project will be subject to multiple mandates and involve multiple federal departments and agencies such as Public Services and Procurement Canada, the Major Projects Office, DIA, and the Treasury Board.
The Hill Times