Navigating Defence Canada procurement: Programs and incentives

This article was prepared with the assistance of summer law student Kylee Matravolgyi.

Recent announcements from the Federal Government demonstrate that Canada is committed to rebuilding domestic defence capacity. From increased funding to the development of new programs, defence procurement is now a viable business opportunity for Canadians. Whether your business already sells the products that Defence Canada requires or is new to the world of defence, Defence Canada’s many procurement programs and initiatives present an opportunity for all businesses to become involved in the supply chain.

For a more in-depth discussion of the Federal Government’s announcements, see Developments in Canada’s defence sector mean new opportunities for businesses.

The Industrial and Technological Benefits Policy

The Industrial and Technological Benefits Policy (ITB) provides an opportunity for Canadian companies to connect with major defence suppliers. Through ITB, companies receiving contracts worth more than $100 million from Defence Canada and the Canadian Coast Guard are contractually obligated to participate in business activity in Canada that is equal to the value of their contract. This means procurements are leveraged to support the long-term growth and sustainability of Canada’s defence industry through the creation of new jobs and innovation enhancements.

Once a contract is awarded, business activities in Canada are tracked and multipliers are applied to highly-valued transactions. The following are some of the most important incentives for Canadian businesses to be aware of:

• 2x multiplier on transactions for performing direct work with a small- and medium-sized business
• Up to 9x multiplier on transactions involving innovation-related investments in small- and medium-sized businesses
• 5x multiplier for investments in skills development and training
• Up to 10x multiplier on transactions involving Indigenous workforce development
• Canadian Company Boost: If a Canadian company does 70% of the work domestically, they are credited as if they completed 100% of the work

However, Canadian companies should still ensure that they are competitive in terms of the price, quality and delivery of their products as the ITB allows contractors to select the businesses that they would like to work with in Canada.

Canada’s Defence Industrial Strategy

Canada’s Defence Industrial Strategy (the “Strategy”) is designed to increase revenues in the Canadian defence industry through creation of new jobs, accelerated procurement, and increased governmental investment. Under the Strategy, the Federal Government launched the Build-Partner-Buy Framework which prioritizes Canadian suppliers and products. As a result, the focus is on building the necessary systems and equipment in Canada and only partnering with capable nations to co-develop systems or buying systems off the shelf when necessary.

The Strategy will also prioritize the development of Key Sovereign Capabilities (KSCs) which are critical in successfully defending Canada. The KSCs include:

• Aerospace including aircraft communications
• Ammunition
• Digital systems such as AI and quantum computing
• In-service support for naval, land and air
• Personnel protection
• Sensors
• Space such as satellite communications
• Specialized manufacturing such as marine systems and land vehicles
• Training and simulation
• Uncrewed and autonomous systems

The Strategy is administered by the Defence Investment Agency (DIA) whose focus is on sourcing critical minerals in Canada, promoting Indigenous participation in supply chains and increasing exports of Canadian defence-related goods.

Canadian Defence Industry Resilience Program

The Canadian Defence Industry Resilience Program (CDIR) provides funding to Canadian businesses who are looking to increase their production capacity for defence-related goods, equipment, services and materials. All corporations or limited partnerships established under Canadian law and carrying on business in Canada are eligible to participate.

Businesses who want to become involved in the defence supply chain under CDIR should consider how their business activities will enhance existing defence capabilities or generate new production capabilities in defence.

Indigenous businesses

As part of the Federal Government, Defence Canada is bound by the Federal Government’s mandatory minimum 5% Indigenous procurement target. This target requires that 5% of the total value of federal contracts be held by Indigenous businesses. To qualify as an Indigenous business, the business must be:

• Owned and operated by elders, band and tribunal councils, or
• Registered in the Government of Canada’s Indigenous Business Directory (the “Directory”)

To register in the Directory, a business must be at least 51% owned and controlled by Indigenous peoples.

Canadian businesses

Under the Buy Canadian Procurement Policy Framework, the Federal Government and Defence Canada are committed to supporting Canadian suppliers in the federal procurement process. Several policies have been developed under the By Canadian Framework which prioritize Canadian suppliers, content and materials.

Policy on Prioritizing Canadian Materials in Federal Procurements: Policy requires that large defence purchases use Canadian-produced steel, aluminum and wood products. It is not enough that the materials are sold by a Canadian company, they must be made in Canada.

Policy on Prioritizing Canadian Suppliers and Canadian Content in Strategic Federal Procurements: Policy encourages the participation of Canadian suppliers and incentivizes the use of Canadian content in defence procurement. Under the Policy, offers from eligible Canadian suppliers receive a 10% discount during price evaluation. However, a successful business will receive the full value of their proposal under a contract.

Contact us

If you would like to discuss how your business can become involved as a supplier for Defence Canada, please reach out to one of the authors or any member of the MLT Aikins Procurement team. Any member of our team would be happy to help you navigate the defence landscape and identify which procurement programs and initiatives provide the best opportunities for your business.

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