Strengthening Canada's Defence and Security Industries

OTTAWA, ONTARIO--(Marketwired - May 28, 2015) - Industry Canada

Minister of Industry James Moore spoke today at CANSEC, Canada's premier defence trade show, where he highlighted how government defence procurement policies strengthen the competitiveness of Canadian defence and security firms, while creating jobs and benefits across the supply chain.

Minister Moore discussed actions taken by the government to sustain the success of the defence and security industries. These include changes made to the Industrial and Technological Benefits Policy that will help attract earlier investment by prime contractors in Canadian firms, particularly small and medium-sized enterprises, while reducing red tape and increasing the transparency and accountability of the policy.

Minister Moore also reiterated the government's commitment to continue working with the industry to create high-quality jobs and grow Canada's economy.

Quick facts

• Military procurement plays a major role in the Canadian economy. The Canadian defence sector includes over 650 firms, employs more than 65,000 full-time workers directly and indirectly, and contributes $9.4 billion in revenue.
• The changes are being made to the banking and pooling provisions of the Industrial and Technological Benefits (ITB) Policy and to its Investment Framework, which applies a multiplier to investments made by prime contractors in Canadian small and medium-sized businesses. As well, administrative changes, such as introducing electronic forms and instituting a six-month service standard for crediting company investments in Canada, will reduce the administrative burden on defence contractors.
• The ITB Policy encourages companies to establish or grow their presence in Canada, strengthens Canadian supply chains and develops Canadian industrial capabilities.
• The ITB Policy applies to major Coast Guard, defence and security procurements announced after February 5, 2014.
• The objectives of the Defence Procurement Strategy are to deliver the right equipment to the Canadian Armed Forces and the Canadian Coast Guard in a timely manner, to leverage purchases of defence equipment and services to create jobs and economic growth in Canada, and to streamline the defence procurement process.

Quotes

"Our government has worked to set the right conditions for strengthening the competitiveness of Canada's defence and security industries. The refinements to the Industrial and Technological Benefits Policy announced today will leverage greater economic benefit from defence procurement, and they are strong examples of how we are working in lockstep with industry to create jobs and economic growth for Canadians."

- James Moore, Minister of Industry

"The changes announced today will leverage investment in Canadian companies and make it easier for small and medium-sized businesses to secure contracts through the Defence Procurement Strategy and the Industrial and Technological Benefits Policy. This is good news for our industry, and it once again demonstrates how close consultation between government and industry is essential to ensuring that Canadian companies and jobs benefit from defence procurements. We applaud the government for their leadership on this important file and look forward to continuing to work with them to strengthen Canadian aerospace and defence capabilities going forward."

- Jim Quick, President & CEO, Aerospace Industries Association of Canada (AIAC)

"The improvements we are seeing made to the Industrial and Technological Benefits Policy should reduce the administrative burden on companies and enable Canadian SMEs to seize more business opportunities. These changes, which were developed in consultation with some of our members, build on the strong collaborative relationship the defence industry has enjoyed with Industry Canada throughout the development of the Defence Procurement Strategy."

- Christyn Cianfarani, President, Canadian Association of Defence and Security Industries (CADSI)

Related products

- Backgrounder: Industrial and Technological Benefits Policy Enhancements

Associated links

- ITB Policy

- Value Proposition Guide

- Leveraging Defence Procurement to Create Jobs and Benefit the Economy

- Government of Canada Unveils Value Proposition Guide

Follow us on Twitter: @industrycanada

Backgrounder

Industrial and Technological Benefits Policy Enhancements

A number of enhancements to the Industrial and Technological Benefits (ITB) Policy are being made to align it more closely with the overarching goals of the Defence Procurement Strategy: delivering the right equipment and services to the Canadian Armed Forces, leveraging economic benefits for Canada and streamlining the procurement process.

The Government of Canada is introducing changes to the ITB Policy to attract earlier investment in Canadian firms, particularly small and medium-sized enterprises (SME), while reducing red tape and improving transparency.

Industry Canada, in keeping with a core principle of the Defence Procurement Strategy, consulted industry stakeholders on opportunities to strengthen the ITB Policy.

Attracting earlier investment in Canada

The ITB Policy's banking provision allows companies to undertake business activities in Canada prior to the procurement and to bank these investments for later credit against their ITB obligations once they secure a defence contract.

The government is changing the banking provision in order to enhance the attractiveness of investing in Canada in advance of a contractual requirement. This change will also motivate prime contractors to extend successful business relationships with Canadian suppliers above and beyond their contractual requirements.

The changes to the ITB Policy will:

• allow banking for up to 10 years before the procurement;
• eliminate depreciation of banked activities;
• allow banking on overachievement of contractual obligations; and
• allow credit for banked activities when these investments are made in Canada.

The ITB Policy's pooling provision allows companies to get credit against multiple procurement obligations for investments over $100 million that they make in Canada.

To encourage companies to make more large-scale, high-value investments in Canada, the government is changing the pooling policy to:

• decrease the threshold for a pooled activity from $100 million to $50 million;
• allow all prime contractors to pool transactions; and
• allow banked transactions to be pooled.

Encouraging investment in SMEs

The Investment Framework encourages prime contractors to invest in SMEs' research and development as well as commercialization undertakings in Canada by crediting their investments in SMEs at multiples of their face value.

To encourage prime contractors to give work to SMEs and enhance their participation in supply chains, the government is changing the ITB Policy's Investment Framework to:

• increase the cap on investments in SMEs that qualify for multipliers under the Investment Framework from 5 percent to 25 percent of contract value;
• permit bidders to submit Investment Framework transactions at bid time as part of their value propositions; and
• streamline the Investment Framework application process.

Reducing red tape

All proposed investments in Canada under the ITB Policy must meet eligibility criteria to be credited against a contractor's ITB obligation.

Contractors must also report annually to Industry Canada on their progress in meeting their obligations under the Industrial and Regional Benefits (IRB) Policy and ITB Policy. Clarifying what documentary evidence is required to demonstrate that an investment meets incrementality and causality eligibility criteria, as well as electronic reporting, will significantly reduce the administrative burden of the program.

To ease this burden, the government will:

• provide a simple incremental checklist and causality certification form, giving companies guidance, reducing uncertainty and speeding up decision making;
• provide contractors with an electronic template for annual reporting, clarifying the information required and streamlining reporting; and
• put in place a six-month departmental service standard for undertaking due diligence in verifying transactions and awarding credits.

Increasing accountability and transparency

To increase transparency and enable Canadian companies to more easily identify opportunities with prime contractors, Industry Canada will report annually on contractors' progress in meeting their IRB and ITB obligations while respecting commercial confidentiality. This will include the size of a prime contractor's IRB/ITB obligation, the amount fulfilled, the amount for which plans have been identified, the outstanding obligation and the company's contact information.

The terms and conditions of the ITB Policy have been adjusted to reflect these changes and will be included in future requests for proposals. In addition, Industry Canada is undertaking an administrative review of the terms and conditions to further streamline and simplify the policy. An updated version of the model contract will be posted on the Industry Canada website in the fall.