Industrial and Technological Benefits Policy: Value Proposition

Following the launch of the Value Proposition Guide, Industry Canada undertook outreach across Canada to present the Guide and respond to questions.

This presentation will be utilized at each session.  It provides an overview of the Guide and details how the Guide will play an integral role in meeting the objectives of the Defence Procurement Strategy.

Canada has a strong and diverse defence industry

  • 650 companies across Canada
  • $9.4 billion/year in revenues
  • $6 billion/year in Gross Domestic Product (GDP)

Industry Canada economic modeling estimates based on Statistics Canada economic impact multipliers normalised to employment, 2013; and the Canadian Commercial Aerospace, Defence, Commercial and Civil Marine and Industrial Security Sector Survey 2011, Statistics Canada and Industry Canada, 2013. * GDP include direct, indirect, and induced impact.

Figure 1: Sales by Defence Sector Activity and Canadian Defence Sector FTEs by Region

Sales by Defence Sector Activity and Canadian Defence Sector FTEs by Region (the long description is located below the image)
Long description for figure 1
Table for figure 1: Sales by defence sector activity
Defence Sector Sales
Military Aerospace and Space 24%
Troop Support and Other Defence 14%
Munitions and Weapons 5%
Combat Vehicles 29%
CAISR (excluding Naval) 13%
Naval 15%
Table for figure 1: Canadian Defence Sector FTEs by Region
Region FTEs
Ontario 46%
Western and Northern Canada 17%
Atlantic Canada 9%
Quebec 28%

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A strong defence sector fuels economic growth

  • Over $250 million/year in R&D with defence applications
  • More than 65,000 full-time workers
    • average salary is 60 percent higher than industrial average
    • one–third of workforce is in highly skilled innovation related occupations
  • Exports account for 49 percent of sales

Industry Canada economic modeling estimates based on Statistics Canada economic impact multipliers normalised to employment, 2013; and the Canadian Commercial Aerospace, Defence, Commercial and Civil Marine and Industrial Security Sector Survey 2011, Statistics Canada and Industry Canada, 2013. * Jobs include direct, indirect, and induced impact.

Figure 2: Canadian Defence Sector Exports by Market

Canadian Defence Sector Exports by Market (the long description is located below the image)
Long description for figure 2
Table for figure 2: Canadian Defence Sector Exports by Market
Defence Sector Exports
U.S. Government 42%
U.S. Sectors 20%
UK 5%
Europe (Excluding the UK) 8%
All Other 25%

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Countries lever defence spending to promote economic development

  • The end customer for most company defence sales is Government.
  • Many countries around the world have adopted offset policies to:
    • develop a capable, ready, and cost-effective defence industry
    • create jobs and growth
  • Canada formalized its offset policy in 1986—the Industrial and Regional Benefits (IRB) Policy.
  • Between 1986-2014, the IRB Policy was Canada’s main tool for leveraging economic benefit from defence procurement.

IRB Policy

  • Contractors are required to undertake business activities in Canada equal to 100 percent of the contract value.
  • High-value investments are motivated through multipliers.
  • Provides access to global supply chains and creates long-term business relationships.
  • The IRB Portfolio includes:
    • 40 defence contractors
    • 70 procurement contracts
    • $24 billion in obligations
      • $13 billion are fulfilled,
      • $9 billion are identified, and
      • $2 billion to be identified and fulfilled by 2038.

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Major defence spending plans open up major new leveraging opportunities

  • Canada’s National Shipbuilding Procurement Strategy aims to create a sustainable shipbuilding industry in Canada.
  • Canada’s armed forces also expects to renew its aerospace and land systems capabilities, including through large-scale procurements.
  • Defence Acquisition Guide identifies potential defence capability requirements of the Canadian Armed Forces over the next 20 years.
Picture of Guides identifiying potential defence capability requirements of the Canadian Armed Forces over the next 20 years

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Canada’s Defence Procurement Strategy

  • Announced in February 2014, by the Ministers of:
    • Public Works and Government Services
    • National Defence
    • Industry
  • Goals:
    • Deliver the right equipment to the Canadian Armed Forces and the Canadian Coast Guard in a timely manner.
    • Leverage purchases of defence equipment and services to create jobs and economic growth in Canada.
    • Streamline the defence procurement process.

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ITB Policy

  • Minister of Industry announced the new ITB Policy on December 19, 2014.
  • Four objectives:
    • Support the long-term sustainability and growth of Canada’s defence sector.
    • Support the growth of prime contractors and suppliers in Canada, including small and medium-sized enterprises in all regions of the country.
    • Enhance innovation through R&D in Canada.
    • Increase the export potential of Canadian-based firms.
  • Backed by an aggressive 40 percent growth target over ten years against which progress will be measured, starting in 2015-16.

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The ITB Policy will be broadly applied

  • The ITB Policy will apply to procurements contracted after the launch of the Defence Procurement Strategy on February 4, 2014, including:
    • all eligible defence procurements over $100 million;
    • all eligible Canadian Coast Guard procurements over $100 million and for which the National Security Exception applies; and
    • all eligible defence procurements with contract values between $20–$100 million will be reviewed for the use of Value Propositions.

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The Value Proposition (VP)

  • Winning bidders are now selected on the basis of price, technical merit and their Value Proposition.
  • The VP includes bidder’s commitments to undertake work and invest in Canada and will generally account for 10 percent of the overall score.
  • Companies awarded procurement contracts must undertake business activity in Canada equal to the value of the contract.
Value Proposition
  • Commitments/activities proposed at bid time.
  • Rated and weighted during bid evaluation.
Outstanding Obligation
  • Activities identified after contract award.
  • Brings identified activities up to 100 percent of contract value.

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Evaluation Criteria

Defence Sector
  • Work in Canada specific to the procurement
  • May include work in Canada’s defence sector
Canadian Supplier Development
  • Work undertaken by suppliers in Canada
  • Work undertaken by SME suppliers in Canada
R&D
  • R&D undertaken in Canada
  • R&D in Canadian post-secondary institutions
Exports
  • Strategy to export the procured product from Canada
  • May include incremental exports in any sector

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The VP Guide is a flexible framework

On a procurement-by-procurement basis, there is flexibility to:

Framework
increase/decrease the weight of the VP

Informed by:

industry
engagement

research and
analysis

3rd party experts

weigh criteria differently
apply all or some of the criteria
add additional criteria
apply mandatory requirements
develop different rating grids

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Guiding Principles

  • Encourage high-value investment in Canada with lasting impact.
  • Increase the competiveness of the defence sector.
  • Maximize opportunities for broader-based economic growth in Canada.
  • Generate strong competition among bidders.
  • Achieve the three objectives of the Defence Procurement Strategy.
  • Strive for administrative simplicity and efficiency.

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Enhanced accountability, transparency and efficiency

  • Enhanced accountability –
    • through the use of stronger performance guarantees
  • Enhanced transparency –
    • through public reporting on results
  • Enhanced efficiency –
    • through a review and streamlining of ITB administrative and policy features

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The ITB Policy a powerful investment attraction tool for Canada

  • The ITB Policy will ensure that the purchase of defence equipment and services results in:
    • economic growth
    • innovation
    • success in export markets
    • high-quality jobs for Canadians
  • It will encourage companies to establish or grow their presence in Canada and strengthen their Canadian supply chains.
  • The VP Guide will evolve as Canada gains experience with an approach that provides flexibility and discretion in its application.
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