NyRAD

By: Leigha Cotton, Managing Partner, NyRad

May 25, 2026

Over this series, Stephanie Batstone and I have argued that Canada’s Industrial and Technological Benefits (ITB) Policy remains an important tool for leveraging defence procurement to strengthen Canada’s economy and defence industrial base. The issue is not whether Canada should continue to require economic benefit from major defence contracts. It should.

The issue is whether the current framework is structured, implemented, and administered in a way that delivers the outcomes Canada now says it wants: sovereign capability, domestic production, resilient supply chains, workforce growth, innovation, and Canadian-controlled intellectual property.

Canada is at a critical moment. Defence spending is increasing. The Defence Industrial Strategy has set a more ambitious direction. Industry is prepared to invest. But if ITB reform is going to support that ambition, Canada must move beyond simply tweaking the existing system.

The previous articles in this series examined the rising cost of offsets, the underused potential of multipliers, the importance of implementation, and the operational barriers that slow approvals and credit recognition. Taken together, they point to the same conclusion: ITB reform cannot be limited to policy language. It must change what the system rewards, how decisions are made, and how quickly strategic investments are recognized.

The System Needs to Reward Strategic Value

Canada’s ITB Policy is built around a simple principle: contractors awarded major defence contracts should undertake business activity in Canada equal to the value of the contract. That principle remains important.

But over time, the framework has become increasingly rigid, costly, and compliance-driven. The Value Proposition framework was intended to encourage bidders to bring forward meaningful industrial strategies. In practice, it has increasingly evolved into a prescriptive regime of mandatory commitments, detailed subcategories, and restrictive crediting rules. The result is that bidders are often pushed toward similar compliance strategies rather than encouraged to propose the highest-value industrial outcomes for Canada.

This matters because not all ITB activity creates the same value. Routine purchases from Canadian suppliers may be easier to document and approve, but they do not necessarily build long-term capability. By contrast, R&D, technology transfer, production expansion, workforce development and Canadian-controlled IP generation are often more complex, more expensive, and harder to fit into existing transaction categories.

The current system can therefore reward administrative simplicity over strategic value.

This is where both the ITB Authority and the crediting framework become critical. If Canada wants the ITB Policy to support the Defence Industrial Strategy, the Authority cannot function only as a compliance gatekeeper. It must also function as an economic development partner — one that is empowered to recognize strategic value, work with industry to shape credible opportunities, apply the rules in service of Canada’s broader industrial objectives, and reward the behaviours Canada wants to see.

That requires more than updated guidance. It requires a different posture.

When industry brings forward an investment that could build Canadian capability, expand production capacity, support technology transfer, create Canadian-owned IP, strengthen a Canadian supplier, or develop the workforce, the first question should not be: “Why might this be ineligible?” The first question should be: “Does this advance Canada’s defence industrial priorities, and if so, how can the framework enable it while maintaining appropriate oversight?”

Multipliers and enhanced crediting should be central to that approach. Properly designed, multipliers can lower the cost of offset obligations while directing investment toward the activities Canada values most. That is not an “easy way out.” It is the point of a multiplier. If Canada wants investment in sovereign capability, domestic production, Canadian-controlled IP, technology transfer, workforce development, and innovative Canadian SMBs, the ITB framework should make those investments attractive.

Instead, Canada treats multipliers cautiously, limiting their usefulness through caps, delayed credit recognition, narrow applicability, and restrictive eligibility rules. That approach weakens one of the most effective tools the government has to shape industry behaviour.

One of the clearest examples is the treatment of Canadian companies investing in themselves.

The Defence Industrial Strategy emphasizes innovation, domestic production, Canadian-controlled IP, and sovereign capability. These objectives cannot be achieved unless Canadian firms are encouraged to invest in their own R&D, production infrastructure, workforce, and proprietary technologies.

Yet under the current ITB framework, these investments are often difficult to recognize.

The first barrier is causality. Canadian companies that invest in their own capability are frequently told that their investments are not eligible because they would have happened regardless of the ITB Policy. In other words, the fact that a Canadian company is already committed to building capability in Canada can be used as a reason to deny credit for the very activity Canada says it wants to encourage.

The second barrier is valuation. Even where internal R&D or capability-building activity is accepted, there is no clear transaction type for internal R&D conducted by a Canadian company. As a result, companies may be forced to treat the activity as an internal purchase of R&D services, with credit awarded only for the eligible Canadian Content Value associated with the work. A company may spend millions developing Canadian-owned technology, but receive credit for only a fraction of the investment.

There is no multiplier. There may not even be full recognition of the amount spent. In practical terms, this can operate like a negative multiplier on Canadian innovation.

That is the wrong policy signal.

Canada needs to incentivize the behaviour it wants to see. If the objective is to attract investment into sovereign capability, Canadian-controlled IP, domestic production, workforce development, and industrial capacity, then the ITB Policy should actively reward those investments. Multipliers, enhanced crediting, full recognition of investment value, and clearer transaction pathways should be used deliberately to steer industry toward the outcomes Canada says it wants.

The central problem ITB reform must solve is not simply that the rules need updating. It is that the system needs to incentivize the outcomes Canada says it wants: capability, capacity, innovation, resilience, and Canadian-controlled IP.

Operational Reform Is Not Optional

Operational reform may sound administrative, but it is central to whether the ITB Policy works.

Companies cannot make investment decisions on timelines that do not reflect the pace of business. Yet ISED’s service standard for transaction approvals and credit award is six months, and in practice it often takes far longer.

This creates real commercial risk.

Consider a company seeking early guidance on whether a proposed investment will be eligible for ITB credit. It may submit a term sheet and wait months for feedback. During that time, the commercial opportunity keeps moving. A Canadian partner may need a decision. A bank may require documentation. Internal approvals may expire. Pricing or project timelines may change.

If the company moves ahead, it may later be told that the term sheet was not complete enough to preserve timing, even where the missing information had no material bearing on the investment decision. If it waits, the opportunity may be lost. If it skips the term sheet and submits a fuller transaction sheet to advance the approval process, the company may be told that it should have submitted a term sheet first.

At this point, the system is no longer focused on whether the investment benefits Canada. It is focused on how the opportunity was communicated to the ITB Authority.

The approval process should not make companies choose between preserving a commercial opportunity and preserving procedural eligibility. If Canada wants industry to bring forward meaningful investments, the process must be timely, transparent, and commercially realistic.

Verification creates a similar problem. Companies submit annual ITB reports within 60 days of the reporting period, often after a resource-intensive internal process involving finance, supply chain, human resources, and senior executives. They may then wait six to nine months or longer for ISED to verify claims and award credits. This can create backlogs of unverified claims and affect the accuracy of obligation management.

The timing matters because ITB risk only comes off a company’s books when credit is awarded. It is not enough that the investment has been made, the supplier has been paid, or the activity has been completed. Until ISED awards the credit, the obligation remains open.

When verification takes months or years, companies are forced to carry completed activity as unresolved ITB risk long after the economic benefit has already been delivered. That affects internal risk assessments, program financials, corporate reporting, and future bid pricing. Companies price risk. If credits take years to be awarded, that cost eventually appears in bids and in the overall cost of doing business in Canada.

Slow verification does not just frustrate industry. It makes Canadian offsets more expensive.

Canada can maintain accountability without allowing credit to remain trapped in verification. Recipient certifications, clearer verification standards, more authority for desk officers, reduced review of low-risk transactions, and more transparent decision timelines would all improve the system without weakening oversight.

The Real Test

The real test of ITB reform is not whether Canada can refine the mechanics of the policy, but whether it can make the policy deliver the outcomes Canada needs.

Do ITB activities expand Canadian production capacity? Do they create Canadian-owned IP? Do they help Canadian firms become stronger suppliers? Do they support technology transfer, workforce development, sustainment capability, and long-term industrial resilience? Do they reduce dependence on foreign suppliers in areas where sovereign capability matters?

If the answer is yes, the policy is working.

If the answer is no — if the system produces technically compliant activity without lasting industrial value — then Canada will have missed the opportunity created by increased defence spending and the Defence Industrial Strategy.

Canada should continue to demand economic benefit from defence procurement. But it should design the ITB Policy to reward the outcomes it actually wants. That means better incentives, faster decisions, clearer rules, stronger implementation, and a culture focused on capability rather than compliance.

A modern ITB Policy should be rigorous, but not rigid. It should maintain accountability, but not confuse process with outcomes. It should recognize that companies will seek efficient ways to meet their obligations, and it should use that reality to direct investment toward the capabilities Canada needs most.

The question for ITB reform is not whether Canada can count credits. It is whether those credits build something of lasting economic value.