New Approach — Improved Recognition of the value of Canadian Firms’ participation in Global Value Chains (GVC)

Previous Approach

There are two types of Industrial and Regional Benefits (IRB) transactions:

1. "Direct" being an IRB transaction that is entered into for performance of any part of the work under the contract with the Government of Canada, and
2. "Indirect" being a transaction that is entered into for a business activity unrelated to the performance of the contract.

On major contracts, where circumstances warrant, the IRB authority may establish mandatory minimum Direct requirements, which can vary between air, land and naval projects.

Why change?

Contractors, often Original Equipment Manufacturers (OEMs), increasingly rely on global networks of value-added partners and suppliers in order to produce their goods and/or services for sale to countries around the world. For their part, Canadian companies view access to a contractor's global value chain as a very high quality IRB activity and a critical step in their corporate and technological success. Supporting Canadian companies in accessing these global value chains is one of the long-term industrial development objectives of the IRB Policy. Therefore, Industry Canada will include provisions in the IRB Policy to credit Canadian work done on other major platforms against Direct IRB requirements, thereby incenting Contractors to add Canadian suppliers to their global value chains.

The GVC provision supports Canada's high technology companies and maintains, or increases, their participation rate in key aerospace and defence programs. Simultaneously, this policy change lowers the project risk associated with cost, schedule and performance issues, which may arise if the winning bidder is unable to meet a Direct IRB requirement on a Canadian procurement.

New Approach

Amend the IRB Policy to permit work happening in Canada related to other major GVC platforms to be counted against a Direct IRB requirement. Under this change, any and all portions of the Project's Direct requirement can be met through either the direct or the GVC work. This will allow Contractors the flexibility to meet the Direct IRB requirement.

The IRB Authority will establish mandatory minimum levels of Direct IRB requirements for each procurement. These levels will be established based on an analysis of the opportunities for Canadian participation, both on the platform being procured by Canada and similar platforms aimed at global markets. Industry Canada's analysis will include engagement with potential bidders early in the procurement process, typically through a Statement of Interest and Qualification (SOIQ) and through consultations with partner departments and industry experts.

As a guideline, the total Direct IRB requirement will be set at the highest practical level of Direct/GVC opportunities available from potential compliant bidders, based on analysis performed prior to a Request for Proposal (RFP) or sole-source award. Industry Canada will seek to maximize GVC opportunities by setting a target that is slightly higher than the largest practical Direct IRB level. The mix of Direct and/or GVC IRB activities shall be determined by the bidder based on their business considerations.

At the time of bid proposal, bidders wishing to leverage GVC to meet a direct requirement will be required to identify proposed major platforms for GVC consideration and provide details and documentation regarding how the proposed platform meets the GVC platform criteria. This practice will be similar to the current process of bidders submitting a list of eligible parties for approval.

Eligible GVC Platform

An GVC platform is a vehicle or major sub-system, used for a particular purpose or which performs a specific mission.  A GVC platform will have various stages in the supply chain which are connected by the division of production and aftermarket support among many global firms, leveraging each partner's core competencies.

To be eligible, an IRB GVC platform must:  be the same or similar (in nature and complexity) to the platform being procured by Canada under the contract; and, have the same or similar market potential (measured by estimated market value, size and/or timeframe) equal to or greater than the platform being procured by Canada.

Eligible IRB GVC platforms should also offer significant opportunities for technological advancement and growth in the level of system integration, regional and SMB participation; and, high-value and long-term activities related to acquisition and/or in-service support. 

An eligible GVC platform may be associated directly with the contractor, or with one of its Eligible Parties. 

Activities associated with GVC platforms include, but are not limited to, pre-commercialization activities (e.g. collaborative technology development and demonstration projects), production activities (e.g. definition, design, and manufacturing) and In-Service Support (ISS) activities.

As an example, an aircraft GVC may be comprised of a OEM that takes responsibility for the overall design and technology requirements of the aircraft. Major Tier 1 systems integrators are selected by the OEM and take on a risk sharing role for the development and production of the aircraft systems, such as structures, landing gear, engines, avionics, etc. Tier 1 systems integrators allocate individual work packages to Tier II and Tier III suppliers that provide parts for a major system. Once the aircraft is in service, a number of firms would be selected for ISS and after sales support. The relationship between OEM and the supply chain involves activities that are highly integrated and complex.