Doing business in Canada for foreign defence contractors

Canada is spending more on defence than it has in decades and has committed to keep increasing that spending over the next ten years. This creates significant opportunities for foreign defence contractors looking to enter or expand in the Canadian market.

But winning work in Canada is not as simple as submitting a good bid. Canada increasingly wants its defence spending to support Canadian businesses, workers and supply chains, while also imposing strict requirements on companies that handle sensitive information and controlled goods. For foreign contractors, meeting these requirements may mean investing in Canada, partnering with Canadian businesses or establishing a Canadian presence. Many of these steps take time, making it important for foreign companies to understand the requirements early and plan accordingly.

Canada buys Canadian first

Canada’s Defence Industrial Strategy aims to award 70% of defence purchases to Canadian firms, using a “Build–Partner–Buy” approach:

• Build in Canada where Canadian firms have the capability
• Partner with trusted allies and global companies where Canada can’t build it alone
• Buy from allies only where neither works, with conditions requiring reinvestment in Canada

For a foreign company, the message is simple: The strongest bids will partner with, or invest in, Canada.

In practice, Federal buyers are expected to look first at whether a requirement can be met by Canadian industry before turning to foreign suppliers, and foreign bids will increasingly be judged on what they contribute to Canada’s domestic defence industrial base. Foreign contractors that identify credible Canadian partners, suppliers or investment opportunities early, even before a contract is won, will be better positioned to fit within the Build and Partner streams rather than competing solely as an off-the-shelf purchase.

Industrial and Technological Benefits (ITB) Policy

The ITB Policy, administered by the Defence Investment Agency (DIA), is the main Canadian content rule foreign contractors will face. The Policy applies on defence and Canadian Coast Guard procurements over $100 million that are not subject to trade agreements or for which the national security exception is invoked. Defence procurements between $25 million and $100 million are reviewed case by case.

Among other stipulations, the Policy outlines that winning contractors do business in Canada equal to the value of the contract, with a bid’s Canadian commitments affecting scoring. Bids that include work with Canadian firms whose products have at least 70% Canadian content earns extra credit, as well.

Bidders set out their Canadian commitments in a Value Proposition, which is scored alongside technical and cost requirements. These commitments can be met by building the product or providing the service in Canada, or by investing in Canadian research and development, skills development or suppliers. Once a contract is awarded, the commitments become binding ITB obligations, and contractors that fall short can face liquidated damages.

Security clearances, controlled goods and export controls

Security clearances, controlled goods and export controls each come with their own specific considerations for foreign contractors:

• Security clearances – Contracts involving sensitive information require an organization to be cleared by the Federal Contract Security Program (CSP). An organization must first be sponsored to be screened, and only organizations formed or incorporated, physically located and registered to do business in Canada are eligible. Foreign organizations cannot be sponsored through the CSP.
• Controlled goods – Foreign contractors must register before handling most military goods and technology in Canada. Eligible applicants include businesses incorporated or otherwise authorized under Canadian Federal, Provincial or Territorial law to operate in Canada, as well as Canadian citizens and permanent residents who ordinarily reside and carry on business in Canada and consent to a security assessment.
• Export controls – Moving military goods or technology out of Canada requires export permits.

Military goods are primarily listed in Group 2 of Canada’s Export Controls List, known as the Munitions List, and export permits are issued by Global Affairs Canada under the Export and Import Permits Act.

In practice, these requirements usually mean a foreign contractor needs a Canadian subsidiary or a Canadian partner.

Investment Canada Act

Setting up or buying a Canadian business may require a filing under the Investment Canada Act. Any foreign investment, regardless of size, can face national security review, and the published guidelines identify defence capabilities as a relevant factor. Recent amendments add a pre-implementation filing requirement for prescribed sensitive sectors once implementing regulations take effect, plus stronger penalties. For more detail, see the Competition/Antitrust, Investment and Trade group’s Guide to Foreign Investment Review in Canada.

Cybersecurity

The Canadian Program for Cyber Security Certification (CPCSC) sets mandatory cyber requirements for defence suppliers handling sensitive unclassified government information.

Level 1, launched in April 2026, requires an annual self-assessment against 13 basic security controls and may already appear in select defence contracts. Levels 2 and 3 are under development and will require more rigorous assessments by an accredited third party for Level 2 and by the Government of Canada for Level 3 with requirements expected to be phased into contracts between spring 2027 and 2028.

Indigenous participation

As outlined in a previous Insight, Federal departments must direct at least 5% of total contract value to Indigenous businesses, and the ITB Policy rewards partnerships with Indigenous businesses.

Some Federal contracts are set aside for Indigenous businesses under the Procurement Strategy for Indigenous Business. To qualify, a business must be at least 51% owned and controlled by Indigenous people and be listed in the Indigenous Business Directory. Federal departments may also ask bidders to submit an Indigenous Participation Plan (IPP), which can include subcontracting with Indigenous businesses and employment and training opportunities for Indigenous Peoples.

How we can help

Entering the Canadian defence market as a foreign company involves many moving parts, and preparing for them in advance can make or break a bid. The MLT Aikins Defence team is well positioned to help foreign contractors at every step, from setting up a Canadian subsidiary or structuring partnerships and teaming arrangements with Canadian firms, to planning and meeting ITB commitments, obtaining security clearances and Controlled Goods Program registration, managing export controls, navigating Investment Canada Act filings and preparing for cybersecurity certification. Our goal is to make sure that when the right Canadian defence opportunity comes up, your business is set up, compliant and ready to compete.

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