Video vision system testing

Canada’s Industrial and Technological Benefits Policy delivers major value-adding incentives for defence and security industry suppliers at home and worldwide

Macfab is ideally positioned to collaborate with global firms looking to gain access to Canada’s upcoming defence- and security-related procurement opportunities.

As part of a new Defence Procurement Strategy launched by the Canadian government in 2014, significant changes have been introduced in the manner that new contracts are awarded. The Canadian Government’s fundamental goal remains the same: to ensure that defence and security sector specific needs are met efficiently and cost effectively. What's different is that they have updated the former Industrial and Regional Benefit’s Policy (IRB) to show greater benefit for the Canadian economy through the new Industrial and Technological Benefits policy.

More specifically, the policy also adds further new measures aimed at directly improving Canada’s industrial base. Most of the major players in defence and security (OEMs and Tier One manufacturers) are headquartered outside Canada. A key focus of the ITB policy is its requirement for greater participation by Canadian small- and medium-size enterprises (SMEs), which comprise the majority of our domestic businesses.

This of course is good news for Canadian businesses, including Macfab. But the policy also provides other prerequisites – and attractive incentives – that are designed to encourage global manufacturers to build meaningful relationships with Canadian suppliers. The goal here is to have such relationships in place before the procurement contracts are announced, not just afterward. This new incentive is the basis of the ITB policy’s Value Proposition (VP), which is now an evaluation criterion during the procurement policy. In very general terms, the VP portion of any bid is the bidder’s outlined plan showing how they will include as much Canadian content as possible in their manufacturing process.

Macfab assesses the challenges and opportunities

Macfab is well established as both a developer and manufacturer of high-precision prototypes, components and sub-assemblies. As such, the company is ideally positioned to collaborate with global firms looking to gain access to Canada’s upcoming defence- and security-related procurement opportunities. To this end, Macfab is actively pursuing new partnering opportunities in several of its specialized product component areas, including trace analysis and detection, night vision systems, guidance systems, and other niche applications.

According to Talmon Firestone, founding partner of AOi, a Canadian trade consulting firm, the key to Macfab’s success in these pursuits will be in applying the ITB policy to best advantage. “The ITB policy provides both an incentive and a requirement that foreign-owned companies do business with Canadians, because they now have to demonstrate that they have a Canadian supply chain in place. Furthermore, 15% of the contract value must flow directly to Canadian-owned SMEs. What this means to companies like Macfab is that they are now in a position where they can help these companies meet their ITB-mandated requirements. These are opportunities that, under Canada’s previous policy, were not as strongly incentivized.”

In a classic example of its collaborative R&D with high-tech manufacturers, Macfab worked more than two years with its OEM customer to develop an ion emitter (right) operating at kilovolt levels, used in trace analysis and detection devices. The result was a significant improvement in product performance and a new competitive edge in global markets.

Precision instrument component R&D

Business (development) as usual

For most Canadian SMEs, what’s needed is some basic business development work, Talmon Firestone suggests. “It starts simply with getting known in these industries, establishing a credible presence, and starting to network. From there, it becomes a matter of keeping abreast of upcoming procurements, and then proactively seeking out good prospective bidding partners to work with.

“The good news is that the ITB policy really is a win-win situation. The bidding company is now qualified to bid on the project, and also receives offset credit for the money spent with its Canadian suppliers. Even better, in cases where there is R&D involved, those credits are a multiple of the the actual dollar value. The benefits to Canadian companies are also two-fold. They get to participate in projects they might not otherwise see, and they also have an opportunity to build on these relationships over the long term, beyond the scope of the initial procurement contract.”

ITB 101: a primer on Canada’s new rules for global defence contractors

Because of the large-scale nature of projects such as those in the defence and security sectors, many countries apply various criteria for foreign bidders to ensure that their domestic economy also gets a fair share of the pie. Typically, in vying for the contract, global contractors offer to establish a local subsidiary; often, the contractor might also propose to work with other foreign-owned companies that have a Canadian operation. To the extent that such arrangements contribute to the local economy, bidders earn credits, known as direct and indirect “offsets.”

What’s important to keep in mind is that since the 2014 update to the ITB policy, bidders on Canadian defence procurements are now evaluated not only on the price and technical merit of their bids, but also on the Value Proposition, or offset plan. The VP is the key that ensures Canadian content in these large defence projects.

In Canada, this process was managed previously under the government’s Industrial Regional Benefits (IRB) Policy. One of the major differences in the new Defence Procurement Strategy is its ITB Policy, which adds important additional criteria beyond the more familiar “made in Canada” approach. In what the ITB policy refers to the bidder’s Value Proposition – that is, what the bidder proposes to bring to the table – the following evaluation criteria must be addressed:

  • Value to the economic development of Canada’s defence sector
  • Contribution to the development of the Canadian supplier base
  • Contribution to Canadian technology R&D, i.e., via industry and/or academic research
  • Future export potential of Canadian-produced defence technologies and products

To learn more about the ITB Policy, click here.