Introduction to Defence Procurement in Canada: From IRBs to ITBs.

March 23rd 2016

Introduction to Defence Procurement in Canada

● What is an offset?● National security exemption● Canada’s program

○ Players involved○ From IRBs to ITBs○ The Value Proposition○ When does it apply○ What’s in it for me/ how to get involved

What is an offset?

● Defence offsets exist around the globe and vary from country to country.

● They are meant to spur and maintain industrial and high tech growth in the country where the procurement is being undertaken

● Primarily focused on military goods and procurement.

What is an offset continued.

Offset or offsets is generally connected with the sales of infrastructural and/or "big ticket" items, both defense and non-defense, to foreign governments, which require the seller to provide some reciprocal economic benefit to the country. - Global Offset and Countertrade Association (GOCA)

Commonly referred to as: industrial participation, industrial cooperation, regional or industrial benefits.

In Canada they’re called: Industrial Regional Benefits (old), Industrial Technological Benefits (new).

National Security Exceptions

● Offsets run contrary to most free trade agreements, but national security exceptions are often built in to allow for offset agreements.

● Allow for governments to maintain important/ critical capabilities in country.

● Avoid trade disputes eg. Softwood lumber

National Security ExceptionsThe national security exception (NSE) provided for in the North American Free Trade Agreement (NAFTA), the World Trade Organization Agreement on Government Procurement (WTO-AGP), the Canada-Chile Free Trade Agreement (CCFTA) and the Agreement on Internal Trade (AIT) allow Canada to exclude a procurement from some or all of the obligations of the relevant trade agreement(s), where Canada considers it necessary to do so in order to protect its national security interests specified in the text of the NSE. The purpose of the NSE must ensure that parties to the agreements are not required in any way to compromise these interests through application of the obligations of the trade agreements. - Buyandsell.gc.ca

Short History of Canada’s Offset Policy

● Pass/Fail● Regionally Diverse● SME minimum of 15%● Commit to 100% CCV (Canadian

Content Value) of contract value● 5% EPTL (Enhanced Priority

Technology List)

Players Involved

Canada has a number of players involved in the procurement process. ● Government/ Politicians● DND● Public Services and Procurement Canada (formerly

PWGSC)● Innovation, Science, and Economic Development

(formerly Industry Canada)● Regional Development Agencies● Industry● Industry Associations

Problems with the IRB policy

● Pass/ Fail evaluation criteria did little to ensure plans were feasible

● Lacked teeth - penalties for not fulfilling your IRBs were not strong enough

● Focused too much on regional balance

The way forward - Industrial Technological Benefits (ITBs)

● Change was made in February 2014● Represents a focus on to companies that

will be best for Canada and Canadian jobs.

“Simply put, we will do business with companies who bring jobs to Canada”

Minister Diane Finley,Minister of PWGSC,

October 17, 2013

ITBs and Value Proposition

● Represents a shift from IRB policy (scoring on pass/fail basis) to Industrial and Technological Benefits (ITB), with a Value Proposition.

● Focus on Value Proposition as a weighted, rated, and required element of bids.

● Standard weighting of 10% of the total evalutation of the bid - have seen some up to 20%

ITB and Value Proposition Continued● Favours actions that reflect:

○ Investments that strengthen Canadian market segments.

○ Investments that support enhanced productivity.

○ Broader Industrial and Technological high-value activities, such as technology transfer.

● Timing of fulfilling Value Proposition commitments will also be considered (ie. favours upfront).

When does it apply?

● The ITB Policy, including the Value Proposition, will apply to all eligible defence procurements over $100 million and to all eligible Canadian Coast Guard procurements over $100 million and for which the National Security Exception applies.

● All eligible defence procurements with contract values between $20-100 million will be reviewed for the use of Value Propositions.

● Have seen in on one contract below $20 million

What’s in it for me/ how to get involved.

● Huge opportunities to get into the global value chains of Prime Contractors

● Estimated spend of over $400 billion in the next two decades - Canada First Defence Strategy

● 15% minimum required for ITB obligation● Export potential - Primes get additional

points for helping SMEs to export

Ways to get involved

● Trade associations - WCDIA● Regional Development Agencies - Western

Economic Diversification Canada● Trade shows - CANSEC & WestDef● Industry Canada - IRB/ITB Managers● OMX - Free to Register & Connect with

Primes