7.2 – Defence Procurement

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The Industrial and Technological Benefits (ITB) Policy

Under the Western Economic Diversification Act, WD is mandated to support the government’s policies and programs related to industrial benefits. The Industrial and Technological Benefits (ITB) policy requires that companies awarded Government of Canada defence procurement contracts or Coast Guard procurement contracts over $100 million in value reinvest the value of the contract in the Canadian economy. For instance, a company awarded a $300 million contract must undertake the equivalent of $300 million in business activity in Canada.

Companies can do this by purchasing goods and services to fulfill the contract from Canadian businesses, or, in the event a good or service must be purchased outside of Canada, reinvesting the value of the purchase into Canada through areas such as post-secondary institutions or research and development activities.

As a result of the policy, total ITB-related investment in Canada has been approximately $47 billion since its inception in 1986, and is estimated to contribute more than $4.7 billion to Canadian gross domestic product (GDP) annually.^{Footnote 1} These investments align with WD’s objectives by enhancing economic growth, research and development activity, and skilled job creation. For example:

• small and medium-sized enterprises (SMEs) benefit significantly from the ITB policy, as there are specific provisions for their inclusion. As a result, more than 90% of the firms in the Canadian defence industry are SMEs, and they account for 24% of defence industry sales, 32% of employment, 25% of research and development (R&D) and over 15% of exports.
• the proportion of science, technology, engineering, and mathematics (STEM) occupations within the defence industry is three times higher than that of the manufacturing industry, and the R&D intensity was close to 4.5 times that of the Canadian manufacturing average.^{Footnote 2}

Over the next 20 years, over $100 billion is earmarked for defence procurement in Canada.^{Footnote 3} The initial purchase of Canada’s jet fighters alone will cost at least $15 billion, not including related long-term fleet maintenance spending that will last for decades. On account of the ITB Policy, defence-related procurement contracts will present considerable investment possibilities for western Canada.

ITB Investment Breakdown for Western Canada

ITB-related investments in western Canada are concentrated in aerospace (40%), marine (36%), and land-based (24%) activities. The top three regional defence industry employers concentrate on naval vessel maintenance repair and overhaul (MRO), aircraft MRO, and naval shipbuilding and conversions.

WD’s Role

WD, like the other Regional Development Agencies, works to attract ITB-related investments to the West. WD advances the ITB policy by advocating for, and connecting western Canadian businesses, post-secondary, and research institutions with companies that have ITB obligations.

WD does this by:

• informing stakeholders of defence procurement opportunities and how to participate in them;
• conducting supplier development for those contractors with ITB obligations, including tours of western Canadian companies;
• organizing business-to-business meetings;
• creating a western Canadian presence at domestic and international industry engagement events; and,
• participating in the ITB-related evaluation of bids for defence and Coast Guard contracts.

WD’s work on ITB is present in all western provinces. The department focuses its efforts primarily on companies in the aerospace, marine and land defence sectors, and is growing its role in the expanding cyber security field.

Western Canada has a considerable number of innovative companies with capabilities relevant to the defence industry, but geography can pose challenges for bringing western goods and services to market. For example, military equipment tends to be large and complex with numerous components making up the final product, so prime contractors seek sub-contracted supply chain partners to help manage portions of their contracts. Obtaining these partnerships has been difficult for western Canadian businesses given the expanse of western Canada and the distance from many prime contractors and larger tier suppliers. WD works to close this gap.

In 2019, after a two-year hiatus, WD re-introduced the Western Innovation Forum. The Forum is a conference-style event that provides an opportunity for western companies to meet one-on-one with major defence companies. This year, it reached maximum registration at 350 participants. WD organized over 250 business-to-business meetings between major defence contactors and western Canadian participants. The next Western Innovation Forum will be in Vancouver, British Columbia, on March 5th, 2020. This event is vital to drawing prime contractor attention and investment to western Canada, where they may be unfamiliar with the regional business and institutional capabilities.

Impact in Western Canada

The WD ITB Team provides hundreds of companies, research centres, and training institutions with ITB advice and connections. An example of this includes working to connect Dumur Industries of White City, Saskatchewan, with international defence company Mack Defence. Mack won a major Canadian Armed Forces contract to build military trucks in 2015 that is expected generate work until at least 2020. Mack fulfilled a portion of the related ITB investment obligations by choosing Dumur to build 150 armoured protection cabs for the vehicles. In this case, WD advocacy efforts led to a business partnership between a small western business and an international defence contractor.

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