Public Works and Government Services Canada (PWGSC) and the Department of National Defence recently announced(1) the launch of a new Defence Procurement Strategy which will overhaul Canada’s Industrial Regional Benefits (IRBs) Policy in a stated effort to better leverage military procurements to provide economic benefits to Canadian industry. Going forward, IRBs and the IRB Policy will be rebranded as Industrial and Technological Benefits (ITB).
The IRB Policy required companies bidding on certain defence and security contracts to undertake business activities in Canada valued at 100 percent of the awarded contract. The new strategy retains this reinvestment requirement but certain industrial considerations (termed “Value Propositions”) will now be rated and weighted as part of the bid evaluation process. This marks a significant change from the IRB Policy pursuant to which IRB requirements were evaluated on a pass-fail basis.
ITB’s will be applied differently, depending on the value of the procurement:
- For procurements valued at $100 million or more, value propositions will be mandatory (as part of a comprehensive ITB plan).
- For procurements valued between $20 million and $100 million, the application of value propositions will be considered on a procurement-by-procurement basis and will be applied where it is determined that the procurement has leveraging potential for the Canadian industry.
- For procurement valued at between $25,000 and $20 million, a revised Canadian Content Policy (CCP) will apply. Under the CCP, where there is “sufficient competition” procurements are limited to Canadian goods and/or services. The revised CPP will redefine “sufficient competition” to mean at least 2 eligible suppliers (from 3 eligible suppliers).(2)
Under the new strategy, companies wishing to bid on major defence and Coast Guard procurements will be required to demonstrate how their bids will support identified Key Industrial Capabilities (KICs) and other productivity drivers, including industrial and technological high-value activities, for example, “technology transfer”. Bids will be evaluated accordingly, taking into consideration also the timeframe in which value propositions will be fulfilled.
Interim KICs identified and defined by special adviser to PWGSC, Tom Jenkins, in his report Canada First: Leveraging Defence Procurement Through Key Industrial Capabilities - namely: specific needs identified by the Canadian Forces (the operational requirements perspective), success in penetrating global markets (the market opportunity perspective), and potential for new or improved products (the innovation perspective) – will serve as a framework for analyzing defence industry capabilities and potential for growth.(3) These interim KIC’s however, will be further refined into more precise market segments.
While the actual weight given to value propositions will be determined on a procurement-by-procurement basis, the government has indicated that the default weighting of ITB’s in the overall evaluation will be 10 percent. In other words, providing ITB’s in accordance with the minimum threshold set in the RFP will be mandatory, but once this criterion is met, the ITB proposal will then be scored based on the extent to which it supports the KIC’s.
Notably, companies bidding on major defence and security procurements will still be required to submit regional plans to ensure that efforts are made to balance benefits across Canada. In addition, the new Defence Procurement Strategy will impose enhanced reporting obligations for government contracts to facilitate government monitoring of the delivery of benefits to Canada.
As a first step to implementing this new Defence Procurement Strategy, the government has indicated that it will engage with defence experts and industry stakeholders, inter alia, to determine how best to apply KICs and improve economic outcomes for defence procurement. In addition, the government has committed to early engagement with industry on a procurement-specific basis to identify and develop Value Propositions that will maximize desired outcomes.
To date, official industry response has been positive, both to the substance of the new strategy and with the level of industry engagement. For example the Canadian Association of Defence and Security Industries (CADSI) has stated that the “principles of this new approach are fundamentally sound” and has congratulated the government on implementing a “paradigm shift aimed at delivering successful procurement outcomes that advantage Canada.” (4)
While it may be too early to declare the new policy a success - there remain many details to be clarified - companies that currently engage in defence and security procurement processes in Canada, or who hope to do so, are well-advised to keep a close eye on the evolution of this policy, participate in industry consultations on the new KIC’s and ensure they understand very clearly the new requirements in future solicitations.