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Challenges of Applying the ITB Policy to Defence Infrastructure Procurements

Historically, Canada’s Industrial and Technological Benefits (ITB) Policy, governed by Innovation, Science and Economic Development Canada (ISED), has been applied to defence acquisitions managed by the Assistant Deputy Minister of Materiel (ADM Mat) at the Department of National Defence (DND). This has usually excluded infrastructure and IM/IT defence-related acquisitions. However, recent indications from ISED suggest a paradigm shift, with the ITB Policy now encompassing infrastructure and IM/IT defence procurements. This move expands the scope and applicability of the ITB Policy to a much broader range of procurements. While there are challenges related to applying the policy to both infrastructure and IM/IT procurements, this article focuses specifically on the leading challenges associated with applying the ITB Policy on infrastructure procurements:

1. Eligibility Criteria Conundrum: The primary challenge with applying the ITB Policy on infrastructure procurements lies in aligning traditional infrastructure activities, like construction, with the ITB Policy’s “level of technology” eligibility criterion. This criterion assesses the degree of innovation and/or advanced technology involved in the activities being proposed. Historically (and still to this day), any transactions or activities related to the construction of buildings or other infrastructure have not been approved for credit under this policy criterion. For example, if a company plans to set up a cyber lab in Canada that will be used for research on cyber technologies, the tools used within the lab to conduct the research would be considered for ITB credit, but the construction costs of the building itself would not be eligible for credit.

The fact that most infrastructure activity is ineligible for ITB credit means this sector of the economy has had little, if any, dealings with the ITB Policy. Not only have infrastructure companies never held obligations, they have also never been recipients of ITB transactions. Consequently, this sector of the economy faces a steep learning curve when it comes to ITB Policy rules, commitments, and management processes if they are to be successful in bidding and delivering on ITB obligations. This lack of experience places excessive risk of ITB non-compliance on these contracts moving forward.

2. Banking Activities Dilemma: Another challenge related to the application of the ITB Policy on infrastructure procurements is tied to the use of the ITB Bank. The ITB Bank allows companies to accumulate ITB credits for future procurements. It helps bidders position themselves favourably before the release of an RFP. However, the current ITB Bank does not allow companies to bank infrastructure-related activities. They are considered ineligible under the “level of technology” eligibility criteria. The definition of “level of technology” in the Banking regulations states, “Banked transactions shall involve an advanced level of technology, with applications in Canadian advanced technology industries.” While this definition is open to interpretation, it is our experience that ISED will reject infrastructure transactions based on this definition. This limitation hinders pre-bid preparation and strategic planning for infrastructure companies, precluding them from leveraging their past or ongoing infrastructure activities to gain an advantage in the bidding process. This limitation also sets up a two-tiered system within the ITB Policy – those companies that can bank ITB activities and those that cannot.

The lack of clarity and inability to bank activities may lead to hesitancy or unpreparedness among companies bidding on infrastructure defence projects. This may result in fewer bids, lower quality bids, or higher bid prices as companies factor in the uncertainty and risk associated with the ITB Policy. Alternatively, some companies may opt out of bidding altogether, reducing the competitiveness and diversity of the market.

To address these challenges and facilitate a smooth transition into the new policy landscape, we propose the following solutions for ISED:

  1. Revised Eligibility Criteria: ISED could consider changing the ‘Level of Technology’ criteria to be more inclusive of infrastructure-related activities. This could be done by allowing some flexibility in the evaluation process, which considers the different characteristics and outcomes of infrastructure activities.
  2. Transitional Banking Policies: ISED could also implement transitional policies within the ITB Bank to allow the accumulation and use of credits for infrastructure activities during this policy shift phase. This would enable companies to bank their infrastructure activities and use them for future procurements. This would also create a level playing field for all bidders and encourage more participation and competition in the market. ISED could also monitor and evaluate the impact of these policies on the ITB Bank and adjust them accordingly over time.
  3. Maintain the status quo: ISED may decide not to apply the ITB Policy to new kinds of defence procurement if the benefits are not worth the risks. This could be a good option considering the current work demands of ISED staff, the existing size of the ITB portfolio, and the potential growth of that portfolio without the expansion to new types of defence procurement.

Integrating ITB requirements into infrastructure defence procurements marks a significant policy evolution, bringing with it opportunities and challenges for the defence procurement ecosystem. Addressing these challenges and adapting to this new landscape requires a collaborative approach, clear guidance, and aligned policy adjustments.