Industrial and Technological Benefits Policy: Frequently Asked Questions (FAQs)

1. How does ISED determine the economic benefit requirements under the ITB Policy for a given procurement?

The economic benefit requirements under the ITB Policy are included in the Value Proposition Evaluation Framework. ISED develops tailored Value Proposition requirements for each procurement to which the ITB Policy applies. ISED relies on extensive market analysis and industry engagement to develop a Value Proposition that takes advantage of the unique economic opportunities that each project offers.

For more information, see the Value Proposition Guide.

2. What are Key Industrial Capabilities?

The Government of Canada has identified 16 Key Industrial Capabilities (KICs), which are areas of emerging technology with potential for rapid growth, established industrial capabilities in Canada, and areas where domestic capacity is essential to national security. ISED will look to motivate investments into KICs through the Value Proposition requirements.

For more information on KICs, see the KICs ITB website page and the Value Proposition Guide.

3. Who is responsible for meeting ITB obligations?

Upon contract award, the winning bidder (Prime Contractor) is contractually required to meet its ITB obligations, including all Value Proposition commitments submitted as part of its bid, over the life of the contract.

4. What is an Eligible Donor?

The ITB Policy allows Prime Contractors to propose a list of major suppliers for a contract that may contribute towards the achievement of the Prime Contractor’s ITB obligation. These firms are called Eligible Donors.

ISED approves all Eligible Donors. Eligible Donors that are Canadian companies with fewer than five hundred (500) employees are required to certify to ISED that they understand their responsibilities and have the capacity to undertake obligations with respect to the contract.

For more information on Eligible Donors, see section eight of the ITB Model Terms and Conditions.

5. Does the ITB Policy require contractors to commit to more than the value of the contract?

No, the ITB Policy requires companies awarded defence procurement contracts to undertake business activity in Canada equal to the value of the contracts. It does not require Prime Contractors to put forward Value Proposition commitments that exceed this amount.

Should a Prime Contractor choose to make Value Proposition commitments that exceed the value of the contract as part of its bid, it will be contractually obligated to achieve these commitments.

6. What happens if a Contractor fails to meet an ITB obligation?

In the event a Prime Contractor defaults on its ITB obligations, one or more legal remedies may be exercised by Canada, depending on the Terms and Conditions of the contract.

For more information on legal remedies, see section 18 of the ITB Model Terms and Conditions.

Since the establishment of the Policy in 1986, no Prime Contractor has failed to meet its ITB obligations. ISED works closely with Prime Contractors to ensure they are able to deliver on their ITB obligations, including Value Proposition commitments, over the life of a contract.

For more information, ISED publishes an annual update showing the Prime Contractors’ progress in fulfilling their obligations.

7. Are there regional requirements under the ITB Policy?

Although there are no regional requirements under the ITB Policy, Prime Contractors need to present regional plans as part of their bid submission. Regional plans are important as they ensure that ITB investment opportunities associated with defence and Canadian Coast Guard procurements are available for firms, post-secondary institutions and charitable/not-for-profit organizations across all regions of Canada. Regional commitments made by Prime Contractors at the time of bid become contractually binding in the event of a contract award.

Regional Development Agencies work closely with Canadian industry to understand their capabilities and link them to potential bidders on each procurement. This helps ensure that each region of Canada benefits from defence and Canadian Coast Guard procurements.

Regional Development Agencies are also well positioned and available to work with Prime Contractors to ensure they are able to deliver on regional commitments. Prime Contractors are encouraged to be proactive in managing their suppliers across all regions of Canada and to communicate regularly with ISED on the progress toward completing their commitments. Should any potential challenges arise, which would have implications on regional commitments, Prime Contractors can contact ISED to discuss the situation.

8. What do you mean by incrementality and causality? What is the difference?

Under the ITB Policy, Prime Contractors must demonstrate that all work submitted to Canada toward the achievement of an ITB obligation must be both incremental and causal. The difference between incrementality and causality is described as follows:

  • Incrementality: Prime Contractors and Eligible Donors must demonstrate that economic activities are new to Canada, in other words, incremental to existing business operations.
  • Causality: Prime Contractors must prove that the ITB Policy was one of the factors that influenced their decision to undertake work in Canada. Contractors are encouraged to engage ISED early should they need additional information on the causality eligibility criteria prior to submitting a transaction.

A key objective of the ITB Policy is supporting the growth of Canada’s defence sector. ISED has established an aggressive growth target of 40% between 2014- 2024. ISED’s eligibility criteria of incrementality and causality under the ITB Policy supports Canada’s progress in achieving this growth target.

To better understand how ISED assesses incrementality and causality, please see our Transaction Eligibility Criteria.

9. How is a Small and Medium Business (SMB) defined under the ITB Policy?

More than 90 percent of firms in the defence industry are small and medium businesses (SMBs). They account for significant job creation in Canada and their participation in global value chains can result in significant growth potential.

Under the ITB Model Terms and Conditions, a “Small and Medium Business” or “SMB” means a Canadian Company with fewer than two hundred and fifty (250) full-time personnel as of the date of entering into a transaction.

Subsidiaries of the Prime Contractor or subsidiaries of an Eligible Donor on any contract with an ITB obligation do not qualify as an SMB. An agent or a distributor of foreign goods and services does not qualify as an SMB.

10. Is a Canadian company still considered an SMB if it wins a contract or agrees to be an Eligible Donor?

Yes. Being a Prime Contractor or Eligible Donor does not disqualify a Canadian company from being an SMB.

As per the definition of SMB, Canadian subsidiaries of the Prime Contractor or subsidiaries of an Eligible Donor on any contract with an ITB obligation do not qualify as an SMB.

11. How do multipliers work under the ITB Policy?

Under the ITB Policy, highly valued investments in research and development (R&D) in consortiums; with Canadian post-secondary institutions; with small and medium-sized businesses; and contributions to skills development and training for Indigenous Peoples may be credited at a multiplied value.

The amount of the multiplier is dependent on the type of investment and can range from a multiple of five to a multiple of nine. For example, an eligible R&D investment of $100,000 with a post-secondary institution may receive a credit of $500,000 towards an ITB obligation.

For further information on the types of transactions that qualify for multipliers, see Section 7 of the Model Terms and Conditions.

12. How does pooling of credits work under the ITB Policy?

Pooling provides Prime Contractors with the flexibility to divide a large transaction into separate pieces and apply each piece to different projects. In doing so, it encourages companies to make large-scale, high value investments in Canada.

For example, a Prime Contractor may split an eligible $100 million transaction and use $50 million toward an ITB obligation on project A, and the other $50 million to satisfy the ITB obligation on project B.

For further information on pooling and the conditions for its use, see the Guidelines for Pooling.

13. Are investments into Canada’s Innovation Superclusters eligible for credit under the ITB Policy?

Yes, an investment in a Supercluster may be eligible for credit under the ITB Policy. A company that has an ITB obligation and is considering an investment into a Supercluster should engage ISED early to discuss their planned investment. Eligibility and crediting will be determined on a case-by-case basis subject to the ITB Model Terms and Conditions.

Please note that in keeping with the ITB Policy’s eligibility criteria for causality and incrementality, initial private-sector investment commitments made by industry to establish a Supercluster are not eligible for credit under the ITB Policy. Subsequent private-sector investments into a Supercluster will be assessed as outlined above.

14. I have a question that is not covered here.

We are happy to help! Please contact the ITB Branch directly for any other questions regarding the ITB Policy. You can also find more details on the Policy in the ITB Model Terms and Conditions.