As Canada embarks on an unprecedented wave of Arctic defence infrastructure spending, a new Deloitte report is warning the federal government’s traditional procurement model could become one of the biggest obstacles to delivering projects on time and on budget in the North.
The report, Delivering Arctic Infrastructure at Speed: Why Canada Needs a New Procurement Risk Model, argues Canada’s reliance on fixed-price contracting is poorly suited to Arctic conditions, where uncertainty is high, construction seasons are short and critical infrastructure projects are urgently needed to strengthen sovereignty and national security.
With billions of dollars committed to NORAD modernization, Northern Operational Support Hubs, Arctic radar systems, runway upgrades and transportation infrastructure, Deloitte says the focus must shift from simply announcing projects to ensuring they can actually be built.
“Speed should be the main barometer as to whether you’re successful,” says Jordan Eizenga, partner, infrastructure and real estate at Deloitte Canada, and one of the authors of the report.
Instead of going through a lengthy course of action that entails an RFQ, followed by a drawn-out RFP process to get a fixed-price for a project, the feds should look at a fit-for-purpose procurement model or collaborative delivery approach for complex northern projects, he says.
Such a model, the report states, would reduce uncertainty before construction on a project begins and create a more transparent framework for sharing risk between government and industry.
Canada has pledged major investments in Arctic defence, including additional funding for Coast Guard infrastructure, northern transportation networks and military operational hubs stretching across the Arctic.
But unlike southern Canada, Arctic projects face a unique set of challenges that create risks before construction begins, including limited transportation, constrained labour markets and accommodation, uncertain ground conditions and a small pool of experienced contractors.
Many sites can only be reached during narrow seasonal windows using sealifts, winter roads or limited air transport. Materials, equipment, fuel and workforce accommodations often need to be arranged months in advance and missing a single construction season can delay a project by an entire year.
The report argues these realities expose a major weakness in the traditional procurement model built around fixed-price contracts.
In theory, fixed-price contracting provides cost certainty by requiring contractors to bid a firm price before work begins. That approach works well when project conditions are well understood and risks can be accurately assessed, but Deloitte says those assumptions often do not hold in the Arctic.
“You’re not going to get a firm, fixed-price construction number because they’re not going to be able to tell you what it’s going to cost because there’s too much risk and unknown,” notes Eizenga.
When contractors are asked to price uncertain site conditions, unstable supply chains, limited labour availability and evolving project requirements, they typically add large contingencies, narrow project scope, seek contract carve-outs to protect themselves, or choose not to bid.
That can reduce competition, inflate costs and lead to lengthy disputes once projects are underway.
The report cites the Nanisivik Naval Facility as an example of how risks can materialize when Arctic uncertainty is forced into a fixed budget too early. Originally envisioned as a strategic High Arctic refuelling and docking facility, the project’s scope was later reduced in an effort to remain within budget.
Deloitte prefers the fit-for-purpose model which would combine traditional contracting where risks are manageable with a staged, collaborative delivery approach for projects in the Arctic.
Under the proposed approach, procurement would unfold in three stages.
The first stage would focus on selecting the right delivery team based on qualifications, northern experience, logistics expertise, Indigenous partnership plans, safety performance and technical capability, rather than simply choosing the lowest bidder.
The second stage would involve a funded project development phase. During this period, contractors, engineers, Indigenous partners and government officials would work together to better define project scope, investigate site conditions, assess logistics and refine costs before committing to construction.
The third stage would establish a transparent target-cost model featuring shared incentives. Contractors and government would jointly agree on project budgets and delivery plans. If performance exceeds expectations, both sides share in the benefits. If costs rise or schedules slip, the consequences are also shared.
To move the concept from theory to practice, the report outlines three recommendations.
First, Ottawa should launch a pilot project using the collaborative risk-sharing model on a near-term Arctic defence initiative such as an airfield upgrade, radar-support facility or Northern Operational Support Hub.
Second, the federal government should establish a formal policy pathway that permits non-fixed-price procurement models for Arctic projects where risks cannot reasonably be priced during the bidding stage.
Third, Defence Construction Canada, the Department of National Defence and other federal agencies should strengthen their internal capability to manage collaborative procurement arrangements, including expertise in commercial management, logistics, Indigenous engagement, scheduling and project controls.
