Challenge Stream for government

The Challenge Stream is a competitive research and development (R&D) program stream, designed to solve internal departmental operational issues and/or to fill a gap in the marketplace in line with your department's mission and mandate by leveraging the ingenuity of Canadian small businesses.

How? By developing innovative novel solutions, products, technologies or services through challenges.

If your department is facing issues and where there aren't commercially available solutions in the marketplace that meet your needs, consider using the Challenge Stream. This stream enables you to:

  • Articulate the issues facing your department
  • Set the key requirements of the solution
  • Enable the funding of early-stage research and development (R&D) that results in a solution to address your challenge
  • Take calculated risks by funding the development of a solution in a phased go/no-go process
  • Go from proof of feasibility to prototype to commercialization and potential acquisition.   

Our process is designed to support the development of early-stage, pre-commercial innovations by Canadian small businesses that respond to challenges issued by federal government organizations.

Challenge Stream objectives

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  • Development and adaptation of technological innovation in Canada
  • Grow Canadian companies
  • Encourage participation from underrepresented groups
  • Provide departments and agencies with opportunities to develop new capabilities
  • Greater business-research collaboration

What's a challenge?

At its core, a challenge is a problem. A problem facing a department where a commercially available solution doesn't exist or existing technologies don't go far enough to address the problem. A challenge is articulated by a federal department or agency that is then publicly posted on the ISC website and where small businesses compete for funding to develop solutions that respond to the challenge.

Solution development

A solution is developed by passing through the Challenge Stream's phases. This is a competitive process that advances R&D required to get the solution ready for use by departments and agencies in their operations, fill a marketplace gap and accelerate the solution's journey to achieving commercialization. Find open and closed funding opportunities.

Phase 1: Proof of feasibility

Phase 1 is about demonstrating the scientific, technical and commercial merit of a solution by developing a proof of feasibility report. During this phase, a challenge sponsoring department is looking to understand if the science behind a solution is sound and that the technical specifications will result in something that could work.

Departments select the solutions from businesses it feels are the most promising. On average, two companies are selected for Phase 1 awards however, departments are free to fund more. Proposals must satisfy the requirements of the challenge and be within Technology Readiness Level (TRL) 1-6 (inclusive). A Phase 1 award is meant to advance a solution on the TRL scale but not beyond the end of TRL 6.

Businesses that demonstrate successful completion of Phase 1 may be invited to submit a proposal for Phase 2. The program does not allow companies to skip Phase 1. Departments may choose to stop the challenge here and not move forward with a Phase 2 award for various reasons such as the company has not addressed all the requirements articulated in the challenge, the scientific and technical risk is too high, the company does not have the internal resources or skill sets to advance the R&D.

Phase 2: Prototype development

Phase 2 continues the R&D effort from the end of Phase 1 with the goal of developing a working prototype ready for commercialization up to the end of TRL 9.  Entry into Phase 2 is solely limited to small businesses who have demonstrated successful completion of Phase 1 and who pass the evaluation process. In practice, the program typically sees one company advance to Phase 2 from those that entered at Phase 1.

The program recently added program enhancements. For solutions that successfully conclude Phase 2 and meet the needs of the challenge sponsoring department, there is the opportunity for a commercial acquisition by the sponsoring department in Phase 3 as long as the challenge was funded through R&D contracts. The program is also working to create a transition for solutions that are between TRLs 7-9 at the end of Phase 2 to benefit from the program's Testing Stream.

Phase 3: Pathway to commercialization

This phase is meant to support the purchase of solutions that have been developed through contracts by federal departments and agencies. Only solutions that have reached the end of TRL 9 and that have been awarded a Phase 1 and Phase 2 contract, could be acquired through Phase 3. Note: This option will be applicable to challenges launched under Call for Proposals 003 (Call 003) and future Challenge Stream Calls for Proposals.  

Consult similar programs from around the world:

To get the most from the Challenge Stream you will need the following:

  • Dedicated time: Departments must set aside time to develop a challenge, answer questions from potential applicants, evaluate proposals, select winning proposals, and follow the projects in Phase 1 and Phase 2 requires a commitment. The time commitment also depends on the nature of the challenge and whether the financial instrument being used is a grant or a contract. Ensure your management is supportive of a challenge and prepared to give you the required time to be fully immersed in the ISC process.
  • Technical expertise and knowledge: Developing an ISC challenge, evaluating proposals and following the R&D requires having technical expertise in the subject area of interest. You or other subject matter experts within your department will need to have this expertise to:
    • answer technical questions from applicants
    • evaluate proposals
    • engage with eligible businesses when discussing their project plans.
  • Funding: Each challenge sponsoring department is responsible for funding projects in Phases 1 and 2 and potentially purchasing the solution in Phase 3. Ensure your department is prepared to deploy funds prior to developing a challenge. The ISC point of contact within your department will be able to help you determine funding options.

I want to issue an ISC challenge, what do I do next?

Any federal department or agency can use the Challenge Stream. As a first step, reach out to your department/agency ISC point of contact to let them know you are considering a challenge. If you don't know who that is, send us an email at Your point of contact will be able to tell you if there is a specific internal process that must be followed. They will also be able to tell you if your department has R&D funds available for a challenge.

Challenge process

From writing a challenge, to seeking proposals, to awarding of contracts or grants, the Challenge Stream has a distinct process.

Pre-posting period

This is where a challenge is articulated and reviewed prior to release. Not all challenges submitted for review will be considered for publishing. The goal of this process is to ensure that the challenge is clearly written, that the requirements are properly articulated and that there are no commercially available solutions in the marketplace that address the challenge. ISED and NRC IRAP will be involved in the review of challenges using grants as the financial instrument while PSPC will be included when contracts are used.

How to create a challenge

The following are guidelines to help your organization frame the problem behind your ISC challenge.

Identifying the core issues
  • What's broken or needs changing?
  • What are your current barriers?
  • What is preventing change?
Potential breakthroughs
  • What do you plan on transforming through ISC?
  • Is there a specific aspect to how your organization does its business that needs transformation?
Impact on your organization
  • What do you envision as the intended impact on your organization after the successful completion of the challenge?
  • If applicable, which group within your organization would "own" this challenge and benefit most from successful outcome?
Business participation
  • Are you trying to open the field up as wide as possible or are you trying to encourage certain businesses to respond to your challenge? Aim for the former!
  • Under ISC, only for-profit businesses with less than 500 employees are eligible to participate. However, there are opportunities for businesses to partner with other organizations (e.g., large multi-national corporations, other small businesses, universities, colleges, social enterprises, not-for-profits) to develop their solutions.
Try to elevator pitch the challenge problem
  • Think about trying to describe your challenge in fewer than 20 words or to someone unfamiliar with the topic.

Guidelines on developing a challenge

Get access to the portal

First things first, you will need to get access to the Innovative Solutions Canada Portal in order to submit your challenge. Contact your departmental ISC Coordinator for more information. The portal was specifically made for departments to work on challenges, receive proposals from businesses, technical evaluation and much more.

Get started

A Challenge Statement has four components:

  1. Problem statement
  2. Essential outcomes (mandatory)
  3. Additional outcomes (nice to have)
  4. Background and context

Each component is explained below.

Problem statement

This describes the underlying problem that a challenge is trying to address and its magnitude or degree of difficulty.

Tips for a good problem statement
  • Identify a clear problem
  • Try to capture or quantify the magnitude of the problems
  • Avoid starting with the solution

Essential outcomes (mandatory)

These are the essential requirements that the solution must address.

Tips for identifying essential outcomes
  • Where possible try to identify requirements that are quantifiable. This will help evaluators assess proposals. For example: instead of saying "a light hand held device" write "a hand held device that weighs less than 100 grams."
  • Don't be afraid to push the envelope and set ambitious requirements.
  • Avoid describing how the solution should do something, instead focus on what it should do.

Additional outcomes

These are features of a solution that are not essential, but would be nice-to-have. A solution that doesn't address these outcomes could still pass the evaluation process. However, proposals that address additional outcomes could receive extra points during the evaluation process. The three tips for identifying essential (mandatory) outcomes can also be applied to writing additional outcomes.

Background and context

This describes the background and context to your problem.

This section may include:

  • Elaborating on what is currently being done to address the problem but is not working and why (e.g., labour intensive, costly, energy inefficient, time consuming, etc.).
  • Links to relevant reports published by the department/agency or partners (links must be publicly available).
  • Information on what is the state-of-the-art of existing technologies related to your problem.
  • Whether the government has made commitments to address the problem.
  • Potential leadership opportunities for Canada if other international jurisdictions are facing the same problem.

Pre-Phase 1

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  • Posting
  • Market and outreach
  • Challenge closing
  • Evaluate

Posting period

Once the challenge is open and released on the ISC website it typically stays open anywhere from 4-6 weeks. During this period be prepared to:

  • Answer technical questions from interested applicants and bidders. The ISC Secretariat will respond to questions on the program but anything directly related to challenge or its requirements must be answered by the sponsoring department. Ensure you have the technical expertise to answer questions. Answers should be provided within 48 hours of receiving a question. All questions and answers are posted on the ISC website for grant challenges and Buy and Sell for contract challenges.
  • Familiarize yourself with all the steps involved in the Phase 1 process. If your challenge is using contracts, read the Phase 1 contract challenges timeline to learn about your role and responsibilities. If your challenge is using a grant, read the Phase 1 grant challenges timeline to learn about your roles and responsibilities.
  • Recruit subject matter experts to evaluate proposals. Subject matter experts are typically within the organization and have been consulted on and/or involved in the challenge being released. Ensure they have the right expertise to evaluate proposals. The ISC Secretariat will provide training for your evaluators. Training materials can be found here. In the event that the sponsoring department does not have access to enough subject matter expert to evaluate proposals, contact the ISC Secretariat to discuss a way forward.


Once the challenge closes the ISC Secretariat will screen the proposals and send them to the sponsoring department and NRC IRAP. PSPC will screen proposals responding to contract challenges while ISED will screen proposals responding to grant funded challenges. Proposals will be assessed in accordance with the entire requirement and the evaluation criteria. Proposals will either be placed in a pool of qualified bidders/ applicants or may be rejected, if the application was non-compliant. All Phase 1 evaluations are completed within the ISC portal.

Selection committee

The sponsoring department will organize and hold a selection committee meeting. The committee will review all proposals that passed the technical evaluation and make selection(s) using template provided by PSPC if it is a contract challenge. The timeline is dependent how quickly the sponsoring department can organize the meeting. ISC Secretariat will then perform a program eligibility verification.

Phase 1 – Proof of feasibility

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  • Award
  • Develop
  • Submit
  • Evaluate


Once the evaluations are completed your organization will select proposals for award. For contract challenges the sponsoring department will need to write the Statement of Work (SOW) and assign a Technical Authority to the file. In addition, the following documents will be required from the sponsoring department such as:

Once the SOW is approved by PSPC, contract negotiations will begin between PSPC and the bidders identified for Phase 1 awards. Phase 1 work will begin once the contract is awarded.

For grant funded challenges, it is the responsibility of the sponsoring department to perform its own due diligence on the companies short listed during the selection process as well as agreeing on the terms of the project plan to be included in the funding agreement. Once the grant agreement is signed by the sponsoring department and the funding recipient, the Phase 1 work will commence. Please note that the ISC Secretariat can support you in the collection of documents for the purposes of the due diligence process. This can include requesting articles of incorporation, financial statements and other information as required.

At the end of Phase 1 the awarded companies will submit their final Phase 1 reports. Those reports will be reviewed by the challenge sponsoring departments at which point a decision will be made whether or not to proceed to Phase 2. For challenges released between 2017 and 2019, the R&D must have at least reached TRL 3 by the conclusion of Phase 1. For challenges released after January 2020 the minimum TRL requirement was removed.

For contract-based challenges the sponsoring departments will notify PSPC whether they want to invite the successful suppliers to submit a proposal for Phase 2 or if they do not want to proceed with Phase 2. PSPC will send a Phase 2 Request for Proposal (RFP) to the selected companies.

For grant-based challenges the sponsoring department must notify ISED whether or not it wishes to proceed with Phase 2. The ISC Secretariat at ISED is responsible for sending Phase 2 RFPs.

Phase 2 – Prototype development

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  • Award
  • Develop
  • Submit
  • Evaluate


Once the Phase 2 RFP closes the ISC Secretariat will screen the proposals and send them to the sponsoring department and NRC IRAP. PSPC will screen proposals responding to contract challenges while ISED will screen proposals responding to grant funded challenges. At the moment Phase 2 evaluations are not completed on the ISC portal.


Once the evaluations are completed your organization will select proposals for award. For contract challenges the sponsoring department will need to write the Phase 2 Statement of Work (SOW). Once the SOW is approved by PSPC, contract negotiations will begin between PSPC and the bidders identified for Phase 2 awards. Phase 2 work will begin once the contract is awarded.

For grant funded challenges, it is the responsibility of the sponsoring department to conduct any due diligence and undertaking any internal governance to confirm funding and selection of the company(ies). In addition, the sponsoring department will draft the funding agreement with the applicants selected for an award. Once the grant agreement is signed by the sponsoring department and the funding recipient, the Phase 2 can commence.


At the end of Phase 2 the awarded companies will submit their final Phase 2 reports. At this point a decision will be made by the sponsoring department on whether the solution is ready to enter Phase 3. Note that Phase 3 is available to companies that have received Phase 2 contracts.

Note: Phase 3 is only available for challenges released to address departmental operational needs (i.e. contract-based challenges) – not grant-based challenges.

At this time, the process for entry into Phase 3 is under development by PSPC in consultation with ISED. Once this process is completed, details will be posted. In broad terms the sponsoring department will have a set timeframe to purchase or acquire the solution once it has qualified into Phase 3. Only solutions developed through contracts will be able to enter Phase 3. For more information on Phase 3 contact the ISC Secretariat.

Phase 3 – Pathway to commercialization

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Is the market ready?

  • Yes – arrow up towards phase three
  • No – arrow down towards Testing stream. Testing Stream: The solution may be eligible for further R&D and testing in the Testing Stream

Phase 3:
Market-ready and beyond TRL 9
The innovator can sell directly to any federal organization for up to 3 years without further competition
(this process is only applicable to contract based challenges)

At this time the process for entry into Phase 3 is under development by PSPC in consultation with ISED. Once this process is completed details will be posted. In broad terms the sponsoring department will have a set timeframe to purchase or acquire the solution once it has qualified into Phase 3. Only solutions developed through contracts will be able to enter Phase 3. For more information on Phase 3 contact the ISC Secretariat.

Key participants

The key participants involved in a challenge are: the sponsoring department, the ISC Secretariat, and the small businesses that submit proposals and perform the R&D in Phases 1 and 2. A summary of their roles are identified below.

Challenge Sponsoring Department: Responsible for the developing a challenge, answering technical questions from small businesses, evaluating proposals, identifying and selecting winning proposals at each phase, preparing project plans (for grant funded challenges) and statements of work (for contract funded challenges), and funding awards and monitoring work in Phase 1 and 2 and potential acquisition in Phase 3.

ISC Secretariat: Is comprised of staff from Innovation, Science and Economic Development Canada (ISED). ISED retains the overall program authority for ISC. From providing feedback to departments writing challenges to training evaluators, ISED staff are there to help you navigate through the entire Challenge Stream process.

The ISC Secretariat is supported by two important implementation partners:

  • Public Services and Procurement Canada (PSPC) is the government's central purchasing agent and retains the authority for R&D procurement. PSPC oversees the entire procurement process for challenges funded through contracts. They will provide guidance and direction to challenge sponsoring departments throughout the procurement process.
  • National Research Council of Canada's Industrial Research Assistance Program (NRC IRAP) is one of Canada's leading innovation assistance programs for small and medium-sized businesses. IRAP will assign technical experts – called Industrial Technology Advisors (ITAs) – to review challenges before they are published and to evaluate proposals submitted in response to challenges.

Small businesses: Responsible for submitting proposals and performing the R&D in Phase 1 and 2. Eligible small businesses must meet the following requirements:

  • For profit and incorporated in Canada
  • Conduct R&D activities in Canada
  • 499 or few full time equivalent (FTE) employees
  • Pay 50% of annual wages, salaries and fees to employees working in Canada
  • Have 50% or more full-time employees located in Canada
  • 50% or more of senior executives must live in Canada

Note: The program takes into account and includes affiliated businesses, such as parent companies and subsidiaries that are either in or outside of Canada. Under the Challenge Stream, an "affiliate" relationship exists in the following situations:

  • An affiliate is a corporation that is a subsidiary of another corporation
  • If a corporation has two subsidiary corporations, the two subsidiaries are affiliates of each other; or
  • If two corporations are controlled by the same individual or business, the two corporations are also affiliates of each other.

A subsidiary is understood to be a business which has more than 50% of its ordinary shares or voting power owned by another business or individual.

Funding resources

Funding resources for challenges must come directly from the department issuing the challenge. 21 federal departments are specifically mandated to spend a specific portion of their resources annually on the Challenge Stream. See if your department is listed below.

  • Department of National Defence (DND) 
  • Health Canada (HC)
  • Public Service and Procurement Canada (PSPC)
  • Correctional Service of Canada (CSC)
  • Shared Services Canada (SSC)
  • Canada Border Services Agency (CBSA)
  • National Research Council Canada (NRC)
  • Canadian Space Agency (CSA) 
  • Agriculture and Agri-Food Canada (AAFC)
  • Public Health Agency of Canada (PHAC)
  • Natural Resources Canada (NRCan) 
  • Indigenous Services Canada (ISC)
  • Employment and Social Development Canada (ESDC) 
  • Global Affairs Canada (GAC) 
  • Royal Canadian Mounted Police (RCMP) 
  • Transport Canada (TC)
  • Environment and Climate Change Canada (ECCC)
  • Innovation, Science and Economic Development Canada (ISED)
  • Fisheries and Oceans Canada (DFO) and the Canadian Coast Guard (CCG)
  • Canadian Food Inspection Agency (CFIA)
  • Crown-Indigenous Relations and Northern Affairs Canada (CIRNAC)

If your department is not listed, contact us to see how you can use the Challenge Stream.

How was my department's ISC Challenge Stream financial commitment determined?

In 2017 the government mandated that 20 departments and agencies annually set aside funds roughly equivalent to 1% of their combined expenditures on procurement and intramural R&D (using fiscal year 2015-16 as the base for calculations) for the Challenge Stream. Those set asides can only be used to fund R&D in phases 1 and 2 of the program. If a department wishes to make a commercial acquisition of a solution in phase 3, then it will need to find additional resources for that purchase.

If you are interested in developing an ISC challenge contact your department's designated ISC Account Executive by writing to

What are the financial instruments used to fund projects in Phase 1 and Phase 2?

Departments can use either R&D procurement contracts or grants to fund the development of solutions in Phases 1 and 2. However, there are specific situations when to use a contract or a grant. These instruments cannot be used interchangeably or for convenience. Contribution agreements cannot be used as financial instruments in the program as these are not consistent with international best practices.

How will I know which financial instrument to use?

Two types of challenges

1. Contracts enhance operational capabilities

Using AI to better manage space assets


Beyond line of sight communication


Ergonomics of night vision goggles

2. Grants address market gaps

Recycling of plastic construction waste


Enhancing the safety of vulnerable road users


Improving film food packaging

R&D procurement contracts: Contracts should be used when a department or agency is seeking a solution to an internal operational problem and where it would like to purchase the solution (assuming the solution works).

An example: you work for an agency responsible for testing food that enters Canada. The problem your organization faces is that existing testing equipment takes days to diagnose food that might be contaminated with bacteria. Existing commercial solutions do not provide faster test results. In this case you could issue a challenge seeking the development of a rapid testing solution that detects bacteria in minutes instead of days. Since your agency would use and directly benefit from the solution, the appropriate financial instrument is a contract.

Any department or agency can use R&D contracts.

Grants: Grants are used when a federal department or agency wishes to address a broader problem in the marketplace aligned to its specific mission and mandate. The distinction between a grant and a contract is that under the grant, solutions are not intended for purchase or acquisition by the federal departments or agencies issuing a challenge.

An example: you work for a department that has a mandate to minimize pollution in Canada's environment. The department knows that a significant source of pollution is unrecyclable construction waste materials ending up in landfills. The department issues a challenge seeking new solutions to improve the recyclability of those materials. In this instance, the department does not want to acquire the solution, however, the successful development of a solution will advance its mission to minimize pollution in Canada's environment.

To use an ISC grant your department or agency must have appropriate authorities. 13 departments have the authority to use ISC grants, they are:

  • Innovation, Science and Economic Development Canada (ISED)
  • National Research Council of Canada (NRCC)
  • Agriculture and Agri-Food Canada (AAFC)
  • Natural Resources Canada (NRCan)
  • Environment and Climate Change Canada (ECCC)
  • Fisheries and Oceans Canada (DFO)
  • Canadian Space Agency (CSA)
  • Public Health Agency of Canada (PHAC)
  • Canadian Food Inspection Agency (CFIA)
  • Transport Canada (TC)
  • Health Canada (HC)
  • Indigenous Services Canada (DISC)
  • Crown-Indigenous Relations and Northern Affairs Canada (CIRNA)