By Geoff Foulds

Geoff Foulds has spent the last 30-plus years getting companies, from Canadian startups to foreign-owned enterprises, into overseas markets.

What can Canadians learn from how Norway used procurement to stimulate startups and scaleups? Quite a lot.

After Norway discovered it had large oil and natural gas reserves its people started thinking about new uses for natural gas that might clean up oil-powered essential services.

Ferries seemed to be a good bet. Because of Norway's geography, it has developed a fleet of 200+ ferries. The coast is dominated by fjords, thousands of long narrow bays that cut deep into the coast. Towns on opposite sides of fjords may be separated by a few kilometres of water and be a day or more of driving apart. Or a car ferry can cross in 20 minutes.

For these reasons Norway's first ferries went into service over 100 years ago, floating mobile highway sections, managed by Norway’s Roads Department and State governments. The ferry fleet is fueled by marine gas oil (MGO). It's a high-energy density fuel that's very cheap. It’s also really smelly and is very hard to clean up when spilled.

So in 2000 Norway’s roads department issued an request for proposals for a ferry fuelled by liquefied natural gas (LNG) instead of MGO. The plan was to put the ferry into regular service, accumulate operating experience, and if the results were favorable, convert more of the fleet.

While ferries are funded by the public purse, the private sector builds and operates the vessels under long-term contracts. The first LNG ferry was called MV Glutra and went into service in 2000.

Fuelling with LNG did reduce carbon dioxide emissions and some of the smell compared to MGO fuel. Capital costs were higher and operating costs were much higher. LNG is more expensive to design for, and to refine distribute and store than MGO.

Due to the higher costs, after seven years only a handful of ferries were converted.

In the meantime, innovation in transportation propulsion systems accelerated. The EV-1 from General Motors created a lot of enthusiasm. Then two entrepreneurs incorporated a company to convert a high performance gasoline-powered sports car to battery-electric power using LiON batteries.

That company was Tesla, incorporated the same month in 2003 that General Motors killed its EV-1. Tesla’s success inspired entrepreneurs in Vancouver to develop LiON battery chemistry for the marine market.

When Norway’s Roads Department launched a second pilot project in 2010, there were several big differences from the previous go-round.

• The request for proposals set performance targets and left the “how” up to the bidders. Bidders could earn bonus points by exceeding the performance targets.
• Performance claims were to be validated by computer simulations. 
• Bidders were expected to form consortia to show their command of all the expertise needed.
• There were two bidding rounds. First, to identify the range of possibilities, second to identify the highest performing option. 
• In both rounds all bidders were paid, at cost. 

The resulting vessel was christened MV Ampere and its performance was spectacular:

• Thanks to a novel hull design it needed much less energy to move.
• Eliminated emissions of NOx, SO₂ and PM2.5, all health hazards; CO₂ eliminated for all but battery manufacturing.
• Crews preferred the superior safety margin of electric motors.
• Passengers preferred the odor-free and quieter environment.
• Total lifecycle cost was 15 percent less then MGO-fueled vessels; within seven years 40 percent of the fleet was converted to battery electric propulsion.

Remember that Vancouver-based marine battery startup? Corvus Energy was part of the winning bid even though it was just one year old when Norway launched the procurement. Today Corvus is a global company employing upwards of 240 people. 

And now for the kicker: Corvus moved its headquarters in 2018, to Norway. Ouch!

What lessons can Canada learn from Norway?

When I tell this story people say that Norway's nest egg invalidates any learnings for Canada. They’re talking about Norway's trillion-dollar sovereign wealth fund. Surely with such deep pockets Norwegians don’t feel risk the way Canadians do.

I believe this is a red herring for three reasons.

1. Norwegians are thrifty too. They are just as conscious of the value of their kroners as Canadians are of their loonies. 
2. Norway kept a tight rein on scope. Limiting scope limits risk. If Norwegians didn’t feel risk they would allow more scope, every time. They did not. 
3. The real challenge was the culture change. 

Unlike the first ferry procurement, a design-build process where lowest price won, the second ferry procurement was different. 

Instead of dictating how bidders should solve the problem in the request for proposals (RFP), the Roads Department RFP requested suggestions on the best approach.

To be compliant, all key project participants – naval architects, general contractor, and key subcontractors – had to form bidding consortia. The government paid the costs of each consortium, sharing their risks. The critical decision criteria was total lifecycle cost, not lowest capital cost. Policy did not change until practice showed that electric propulsion was the best on all parameters. 

These differences caused a lot of stress among the public servants. One of the representatives of a Norwegian State government talked about the internal struggle that all the government representatives went through prior to signing off on the second ferry RFP. That the hardest part was the feeling that they were giving up control. The questions they would have to answer if things went badly.

So here are three modest proposals for changing up the way Canada buys.

• The number one rule of strategy is focus and the bewildering array of grant programs for startups and scaleups fragments capital and attention. Pool these capital puddles into a single program to contract for innovation and commercialization that serves the nation’s needs. Then focus more. Target five areas in the national interest, say, health, food, defense, energy, education. Design the program to be lean. Simple applications, standardize requirements and timelines across departments, process fast and pay promptly.
• Use change, don’t fight it. An overlooked benefit of living in a tech explosion is that procurements are opportunities to improve service and cut costs. The responsible thing to do is issue performance-based RFPs with bonus points for over achieving. Unlike the one-and-done procurements of the past, get really good at multi-stage procurements, discovery then It’s that two-phase, performance-driven process. Phase one defines the scope. Phase two procures the optimal solution.
• Capitalize on the strengths of startups and scaleups. They’re great at innovation, cashflow conscious to a fault and need to develop strengths in teaming, system integration, project management. So, pay bidders for their time, at cost. And make half of the projects big enough that startups and scaleups must team to deliver. It makes the companies stretch. And helps governments to get outside their risk comfort zone.

The elephant in the room is intellectual property. Who owns it? That’s a topic for another day.

Are the risks worth it? The results speak for themselves. 

Do we Canadians dare? We can’t keep on as we’ve been going. 

For some of the details of Norway’s journey I am grateful to the 2020 Maritime Hybrid & Electric Europe conference organized by Riviera Maritime Media. It  brought together several of the key players from Norway to talk about the ferry journey. 

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