Deloitte Report Highlights Risks of Fixed-Price Contracts in Arctic Defence Infrastructure Projects

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A new Deloitte report warns that Canada's traditional procurement model may hinder timely and budget-compliant Arctic defence infrastructure projects, advocating for a fit-for-purpose procurement approach.

As Canada initiates an unparalleled surge in Arctic defense infrastructure funding, a recent report from Deloitte has raised alarms about the federal government’s conventional procurement strategies, suggesting they could become significant barriers to completing projects effectively and within financial constraints in the North. The report, titled 'Delivering Arctic Infrastructure at Speed: Why Canada Needs a New Procurement Risk Model,' posits that Canada’s dependence on fixed-price contracts is ill-suited for the unique challenges posed by Arctic conditions, where unpredictability is prevalent, construction seasons are limited, and essential infrastructure developments are urgently required to bolster national security and sovereignty.
With the government committing billions to projects including NORAD modernization, Northern Operational Support Hubs, advanced radar systems, runway enhancements, and various transportation infrastructure initiatives, Deloitte emphasizes the necessity of shifting focus from merely announcing these projects to ensuring their feasibility in terms of actual construction. Jordan Eizenga, a partner in infrastructure and real estate at Deloitte Canada and one of the report's authors, states, 'Speed should be the main barometer as to whether you’re successful.'
The report critiques the lengthy and complex traditional procurement process that typically involves a Request for Qualifications (RFQ) followed by a lengthy Request for Proposals (RFP) aimed at securing a fixed price for projects. Instead, it advocates for a more adaptable procurement model or a collaborative delivery method tailored to the complexities of northern projects. According to the report, this revised approach could mitigate uncertainties prior to the commencement of construction and create a more transparent risk-sharing framework between government entities and contractors.
Canada has committed substantial resources for Arctic defense, which includes additional funding for Coast Guard infrastructure, northern transportation networks, and military operational hubs spread across the Arctic region. However, unlike their counterparts in southern Canada, Arctic projects encounter a distinct set of challenges that introduce risks even before construction begins. These include limited transportation options, constrained labor markets and accommodations, unpredictable ground conditions, and a small pool of contractors with relevant experience. Many project sites can only be accessed during short seasonal windows via sealifts, winter roads, or limited air transport, making logistical planning crucial. Consequently, materials, equipment, fuel, and workforce accommodations often need to be arranged months in advance; failure to do so can delay projects by an entire year.
The report identifies a major flaw in the traditional procurement model, which is predicated on fixed-price contracts that theoretically offer cost certainty by mandating contractors to submit firm bids before work commences. This approach is effective when project conditions and risks are clearly understood; however, Deloitte argues that such assumptions are frequently inaccurate in the Arctic context. Eizenga notes, '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.' When contractors are compelled to estimate costs under uncertain site conditions, unstable supply chains, limited labor availability, and evolving project requirements, they often inflate bids with significant contingencies, narrow project scopes, seek contract exclusions for protection, or opt not to bid altogether. This can diminish competition, escalate costs, and lead to protracted disputes during project execution.
The report uses the Nanisivik Naval Facility as a case study to illustrate how risks can manifest when Arctic uncertainties are forced into a fixed budget prematurely. Initially conceived as a strategic refueling and docking facility in the High Arctic, the project’s scope was eventually curtailed to remain within budget constraints. Deloitte advocates for a fit-for-purpose model that combines traditional contracting where risks are manageable with a staged, collaborative delivery approach for Arctic projects.
Under the proposed framework, procurement would be executed in three distinct stages. The first stage would prioritize selecting the appropriate delivery team based on qualifications, experience in the North, logistical expertise, plans for Indigenous partnerships, safety records, and technical capabilities, rather than merely opting for the lowest bidder. The second stage would encompass a funded project development phase where contractors, engineers, Indigenous partners, and government officials collaborate to refine project scope, assess site conditions, evaluate logistics, and clarify costs prior to committing to construction. The final stage would establish a transparent target-cost model with shared incentives, where both contractors and the government agree on project budgets and delivery timelines. If project performance exceeds expectations, both parties would benefit; conversely, if costs rise or schedules are delayed, the repercussions would also be jointly managed.
To facilitate the transition from concept to implementation, the report presents three recommendations: first, Ottawa should initiate a pilot project employing the collaborative risk-sharing model for an immediate Arctic defense initiative, such as an airfield upgrade, radar-support facility, or Northern Operational Support Hub. Second, the federal government should create a formal policy framework that allows non-fixed-price procurement models for Arctic projects where risks cannot be accurately priced during the bidding process. Lastly, Defence Construction Canada, along with the Department of National Defence and other federal agencies, should enhance their internal capabilities to manage collaborative procurement arrangements, focusing on skills in commercial management, logistics, Indigenous engagement, scheduling, and project control.

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