Backgrounder Article from
Value Proposition and Industrial and Technological Benefits
Improving economic outcomes for companies in Canada from defence procurement
The Government of Canada has committed to ensuring that purchases of military equipment create greater economic opportunities by promoting a sustainable, innovative and globally competitive Canadian defence industry. The Government has developed the Defence Procurement Strategy to meet this objective.
Under the Defence Procurement Strategy, Industrial and Regional Benefits (IRBs) will be transformed into Industrial and Technological Benefits (ITBs). This is a significant change which will give the Government more flexibility to improve economic outcomes from defence procurement projects.
A core element of the new approach is rated and weighted Value Propositions (VP) for defence and major Canadian Coast Guard procurement projects. Bidders will be motivated to put forward their best industrial plan for Canada, as these plans will be scored on the quality of their Value Propositions. In other words, industrial considerations will factor into determining which bidding firm wins the contract. When applied, the default weighting of the Value Propositions in the overall evaluation will be 10%. The actual percentage will be determined on a procurement-by-procurement basis. In addition, where the Government chooses to specify a targeted, desired industrial outcome, Mandatory Requirements will be used, as appropriate.
Key Industrial Capabilities, or KICs, as originally identified by Tom Jenkins in his report Canada First: Leveraging Defence Procurement Through Key Industrial Capabilities, will be a significant factor in the rating and weighting of Value Propositions. The KIC criteria proposed in this report (Canadian Armed Forces' need, innovation and export potential) will serve as a framework for analyzing Canadian defence industrial capabilities and their potential for growth. This analysis will continue to be refined and be informed by consultation with stakeholders. The Government will continue to engage with defence experts and stakeholders to identify how best to apply KICs and improve economic outcomes from defence procurement.
Value Proposition ratings will favour actions that lead to improved economic outcomes through:
- investments that strengthen Canadian KICs;
- investments that support enhanced productivity in Canadian firms; and
- broader industrial and technological high-value activities, such as a "technology transfer."
The timing of fulfilling Value Proposition commitments will also be a consideration in the evaluation.
The use and composition of Value Propositions will be identified on a procurement-by-procurement basis:
- procurements valued between $25,000 and $20 million will be assessed for their economic potential, and the revised Canadian Content Policy will be applied to realize this potential;
- procurements valued at $20 million and above will be reviewed for the application of a Value Proposition; and
- procurements valued at $100 million or more will require a Value Proposition as part of a comprehensive ITB plan.
Bidders will still be required to submit regional plans to ensure efforts are made to balance benefits across all regions of Canada. As well, the requirement remains to reinvest work into Canada equivalent to 100% of the contract value. Given that a company's ITB plan could contribute to the success of its overall bid, enhanced reporting requirements will be included in contracts to ensure that the Government can monitor the delivery of benefits to Canada.
Early and extensive industry engagement, along with sound analytics and knowledge of the defence sector and its capabilities, will allow the Government to provide clearer direction on the objectives and benefits being sought from a procurement project. In turn, this will support the long-term sustainability and growth of Canada's defence and security industrial sectors.