Abstract
This report analyzes the characteristics and performance of Canadian small and medium-sized enterprises (SMEs) that were awarded a contract from the Government of Canada between 2020 and 2023. Using data from Statistics Canada’s 2023 Survey on Financing and Growth of Small and Medium Enterprises, the analysis examines the demographic, operational, and financial characteristics of federal contractors compared with the broader SME population. Key findings indicate that federal contractors are generally larger, older, more likely to export, and more innovative. The report also highlights barriers that limit SME participation in federal procurement.
1. Introduction
Federal government procurement is a key driver of economic activity and presents important business opportunities for SMEs throughout Canada. Overall, the federal government spends approximately $37 billion per year to purchase various goods or services (including construction services).Footnote 1 SMEs across various industries provided a wide array of goods and services to federal departments and agencies, underscoring their value as economic contributors and strategic partners in public service delivery.
This report presents a comprehensive profile of SMEs engaged in federal contracting. It examines key attributes including firm size, age, industry, region, ownership demographics, financing behavior, and innovation activity. In particular, it compares these characteristics with those of the broader SME population to highlight how federal contractors differ from other firms. Through this contrast, the report identifies patterns and challenges that matter to policymakers and stakeholders seeking to strengthen SME participation in federal government procurement.
Federal contractors among SMEs tend to be larger, more experienced, and concentrated in the professional, scientific, and technical services and the wholesale trade industries. They show higher levels of export activity, innovation, and investment in intangible assets like intellectual property. These firms also pursue external financing more actively and engage in international markets, indicating a rapid growth orientation.
The remainder of this report is structured as follows:
- Section 2 presents the data source used.
- Section 3 introduces the definition of federal contractors, whose firm characteristics are described in section 4.
- In section 5, ownership characteristics are outlined.
- Section 6 presents the findings on business operation and financing activities.
- Section 7 concludes this report.
2. Data Source
The data used in this report are drawn from Statistics Canada’s 2023 Survey on Financing and Growth of Small and Medium Enterprises (SFGSME 2023). This survey was designed to gather comprehensive information on SMEs, including their financing activities, growth patterns, ownership characteristics, and innovation efforts. The survey targeted businesses with between 1 and 499 employees and annual gross revenues of $30,000 or more—this definition of SMEs is also adopted in this report. The target populationFootnote 2 included 901,516 enterprises, from which a base sample of 22,084 was selected. The resulting response rate was 52.4%.
In addition to the general population of SMEs, the survey included a targeted sub-sample of enterprises that were awarded a contract (amendment or contract above $0) from the Government of Canada between April 1, 2020, and June 30, 2023. This list of businesses was provided by Public Services and Procurement Canada (PSPC) and was sent to Statistics Canada for the purpose of oversampling. In the 2023 wave of the SFGSME, this sub-sample comprised 1,350 SMEs, with a response rate of 58.7%. For this study, “federal contractors” are defined as SMEs included in the PSPC-provided list. Throughout this report, the term “all SMEs” refers to the survey target population of enterprises as previously defined.
3. Federal Contractors
Approximately 37.8% of federal contractors reported that federal contracts accounted for 1% to 10% of their sales over the period 2021–2023, while 19.7% generated between 11% and 49% of their sales from these contracts. Notably, 17.7% derived more than half of their sales from federal contracts, indicating a high level of reliance on government procurement.Footnote 3
Federal contractors faced a range of obstacles when attempting to sell to the federal government, with close to half of the federal contractors reporting the complexity of the contracting process as the most significant barrier (Figure 1). Approximately 28% of federal contractors reported difficulties in finding contracting opportunities as an obstacle, while 25.6% of suppliers cited high costs associated with the procurement process as a barrier. Other frequently mentioned challenges include difficulty meeting federal requirements (22.5%), long delays in receiving payments (18.1%) and lack of communication (15.5%). Around 11% reported difficulties related to using the new digital contracting system, CanadaBuys.
Figure 1: Obstacles for federal contractors to sell to the federal government, 2021-2023
Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
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Figure 1 - Text version
Figure 1: Obstacles for federal contractors to sell to the federal government, 2021-2023
Caption text Obstacle Percentage Complexity of process 49.6 Difficulties in finding opportunities 28.2 High costs with the process 25.6 Difficulty meeting requirements 22.5 Long delays in receiving payment 18.1 Other 15.6 Lack of communication 15.5 Difficulty providing all services 12.5 Difficulties related to CanadaBuys 10.7 Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
4. Firm characteristics
As shown by Figure 2, federal contractors tend to be larger SMEs, with a marked underrepresentation among micro-enterprises (1–4 employees) and a strong overrepresentation in the 20–499 employee range. Around 17% of suppliers had between 100 and 499 employees, compared with 1.7% of all SMEs. Federal contractors are far less likely to be micro-enterprises (11.7%), compared with all SMEs (58.3%).
Figure 2: Distribution of federal contractors and all SMEs by firm size in 2023
Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
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Figure 2 - Text version
Figure 2: Distribution of federal contractors and all SMEs by firm size in 2023
Caption text Firm size Federal contractors All SMEs 1 to 4 employees 11.7% 58.3% 5 to 19 employees 33.7% 29.9% 20 to 99 employees 37.3% 10.1% 100 to 499 employees 17.3% 1.7% Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
Federal contractors are disproportionately older firms (Figure 3), with 60.4% having operated for more than 20 years, nearly double the share of such firms among all SMEs (32.1%). In contrast, only 0.9% of federal contractors were two years old or younger, compared with 9.4% of all SMEs. Similarly, younger and mid-aged firms (3–10 years and 11–20 years) were underrepresented among federal contractors relative to all SMEs.
Figure 3: Distribution of federal contractors and all SMEs by firm age
Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
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Figure 3 - Text version
Figure 3: Distribution of federal contractors and all SMEs by firm age
Caption text Firm age Federal contractors All SMEs Two years or younger 0.9% 9.4% 3 to 10 years old 15.7% 31.9% 11 to 20 years old 23.1% 26.7% More than 20 years old 60.4% 32.1% Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
The geographic distribution of federal contractors is similar to that of all SMEs (Figure 4). Ontario (40.1%) and Quebec (21.1%) accounted for the largest share of federal contractors. The Atlantic region is notably overrepresented among federal contractors (12.3%) compared with its SME share (5.6%). In contrast, Saskatchewan (1.5%), Alberta (8.3%) and British Columbia and the Territories (11.8%) were underrepresented among federal contractors.
Figure 4: Distribution of federal contractors and all SMEs by region
Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
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Figure 4 - Text version
Figure 4: Distribution of federal contractors and all SMEs by region
Caption text Region Federal contractors All SMEs Atlantic 12.3% 5.6% Quebec 21.1% 21.2% Ontario 40.1% 38.3% Manitoba 4.8% 3.0% Saskatchewan 1.5% 3.0% Alberta 8.3% 13.0% British Columbia and Territories 11.8% 15.9% Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
Compared with the full SME population, the distribution of industry sectors among federal contractors reveals distinctive patterns (Figure 5). Federal contractors had a notably high concentration in professional, scientific, and technical services, where they comprised 26.9%, while this sector represented only 15.1% among all SMEs. Suppliers also showed relatively higher participation in wholesale trade, accounting for 20.4% compared with 4.3% in the broader SME base, and an elevated share in manufacturing at 12.8% compared with 5.1% for all SMEs. In contrast, federal contractors were underrepresented in the primary sector, which stands at 1.1%, as well as in accommodation and food services, where they made up just 0.9%. These variations indicate that federal contracting is more common among specialized technical and trade-related industries, while it is less prevalent in sectors oriented toward raw materials and consumer services.
Figure 5: Distribution of federal contractors and all SMEs by industry sector
- Notes:
- † The primary sector is comprised of the following sectors: Agriculture, forestry, fishing and hunting (NAICS 11), and Mining and oil and gas extraction (NAICS 21).
- †† Other sectors include the following: Information and cultural Industries (NAICS 51), Real estate and rental and leasing (NAICS 53), Administrative and support, waste management and remediation services (NAICS 56), Health care and social assistance (NAICS 62), Arts, entertainment and recreation (NAICS 71).
Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
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Figure 5 - Text version
Figure 5: Distribution of federal contractors and all SMEs by industry sector
Caption text Industry Sector Federal contractors All SMEs PrimaryFootnote † 1.1% 5.6% Construction 18.6% 16.4% Manufacturing 12.8% 5.1% Wholesale trade 20.4% 4.3% Retail trade 2.9% 10.5% Transportation and warehousing 2.2% 7.4% Professional, scientific and technical services 26.9% 15.1% Accommodation and food services 0.9% 7.6% Other services 2.4% 6.5% Other sectorsFootnote †† 12.0% 21.4% Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
In 2023, about 38.4% of federal contractors reported exporting goods or services, compared with 15.1% of all SMEs (Figure 6). Moreover, 26.7% of federal contractors imported goods from outside Canada in 2023 to be used in the production of other goods in Canada compared with 8.3% for all SMEs, and 9.4% of federal contractors imported services from outside Canada compared with 2.6% for all SMEs. This suggests that federal contractors are significantly more engaged in international markets. Federal contractors are also more likely to expand to new markets in the next three year (2024-2026): 26.2% of federal contractors intended to expand sales outside of Canada and only 8.6% of all SMEs intended to do the same.
Figure 6: Percentage of federal contractors and all SMEs that exported in 2023
Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
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Figure 6 - Text version
Figure 6: Percentage of federal contractors and all SMEs that exported in 2023
Caption text Federal contractors All SMEs Exported in 2023 38.4% 15.1% Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
5. Ownership characteristics
The educational attainment of primary decision makersFootnote 4 differs notably between federal contractors and the broader SME population. Federal contractors were more likely to be led by individuals with higher education: 34.2% hold a bachelor’s degree and 29.0% had a master’s degree or higher, compared with 24.7% and 19.8%, respectively, among all SMEs (Figure 7). Conversely, decision makers with less than high school education, high school diplomas, or college/CEGEP/trade school backgrounds were less represented among federal contractors than in the general SME population.
Figure 7: Highest level of education attained by the primary decision maker
Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
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Figure 7 - Text version
Figure 7: Highest level of education attained by the primary decision maker
Caption text Level of education Federal contractors All SMEs Less than high school 2.3% 7.1% High school 11.7% 18.6% College/CEGEP/Trade School 22.8% 29.9% Bachelor's degree 34.2% 24.7% Master's degree or above 29.0% 19.8% Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
Ownership demographics show a significant gender imbalance among federal contractors (Figure 8). A substantial 80.4% of federal contractors were majority men-owned, compared with 64.9% of all SMEs. Conversely, majority women-owned businesses accounted for only 8.6% of federal contractors, while they made up 17.8% of the overall SME population. Similarly, the share of equally owned businesses—those with balanced ownership between men and women—was lower among federal contractors (11.0%) than among all SMEs (17.2%).
Figure 8: Gender of the majority business owners for federal contractors and all SMEs
Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
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Figure 8 - Text version
Figure 8: Gender of the majority business owners for federal contractors and all SMEs
Caption text Federal contractors All SMEs Majority men-owned 80.4% 64.9% Equally owned 11.0% 17.2% Majority women-owned 8.6% 17.8% Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
6. Business operation activities
Federal contractors were significantly more active than the general SME population in seeking external financing in 2023, with 69.2% requesting some form of external financing compared with 49.3% of all SMEs (Figure 9). This higher demand spans across nearly all financing types. Notably, federal contractors were more likely to have requested trade credit (48.1%), debt financing (35.2%), lease financing (13.0%), and government financing (13.7%). Equity financing remained relatively rare for both groups, though still slightly more prevalent among federal contractors (2.0%).
Figure 9: External financing requested in 2023
Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
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Figure 9 - Text version
Figure 9: External financing requested in 2023
Caption text Federal contractors All SMEs Overall external financing 69.2% 49.3% Debt financing 35.2% 25.7% Lease financing 13.0% 6.9% Trade credit financing 48.1% 27.4% Equity financing 2.0% 1.4% Government financing 13.7% 6.9% Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
Figure 10 highlights differences in sales growth performance between federal contractors and the broader SME population from 2021 to 2023. Federal contractors were less likely to report negative (12.4%) or no sales growth (8.2%), compared with 17.2% and 16.9% among all SMEs. A similar share of firms in both groups reported moderate growth between 1% and 10% (48.6% of federal contractors and 47.2% of all SMEs). However, federal contractors were more likely to experience stronger growth, with 18.3% reporting average annual sales of 11% to 19%, compared with 10.5% of all SMEs. Notably, a larger proportion of federal contractors (12.6%) achieved high sales growth (defined as over 20% annually for three consecutive years), compared with 8.2% of SMEs overall. These results suggest that firms engaged in federal contracting were more likely to outperform in sales expansion during the period.
Figure 10: Percentage of SMEs by average yearly growth sales categories, 2021-2023
Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
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Figure 10 - Text version
Figure 10: Percentage of SMEs by average yearly growth sales categories, 2021-2023
Caption text Federal contractors All SMEs Less than 0% (negative sales growth) 12.4% 17.2% 0% (no growth) 8.2% 16.9% 1% to 10% 48.6% 47.2% 11% to 19% 18.3% 10.5% 20% or more per year 12.6% 8.2% Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
Federal contractors had significantly higher levels of innovation compared with the overall population of SMEs (Figure 11). Over half (56.1%) of federal contractors reported engaging in innovation activity over the period 2021-2023, more than double the rate among all SMEs (27.1%). Similarly, 79.3% of federal contractors have adopted at least one new technology, compared with 50.9% of SMEs more broadly. The disparity is even more pronounced in intellectual property (IP) ownership: 55.2% of federal contractors hold at least one type of IP, compared with 15.4% of all SMEs. These findings show that innovation, technology adoption, and IP ownership are strongly associated with participation in federal contracting.
Figure 11: Innovation, intellectual property and new technology adoption of federal contractors and all SMEs
Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
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Figure 11 - Text version
Figure 11: Innovation, intellectual property and new technology adoption of federal contractors and all SMEs
Caption text Federal contractors All SMEs Innovation activity 56.1% 27.1% Adopted at least one new technology 79.3% 50.9% Held at least one type of intellectual property 55.2% 15.4% Source: Statistics Canada, Survey on Financing and Growth of Small and Medium Enterprises, 2023.
7. Conclusion
Federal contractors represent a distinct and dynamic segment of the Canadian SME landscape. These businesses differ markedly from the general SME population across several dimensions. They tend to be significantly larger, with a higher representation in the 20–499 employee range and were more likely to have been in operation for over 20 years. This suggests that scale and experience may confer advantages in navigating the complexities of federal procurement. Federal contractors were concentrated in the professional, scientific, and technical services and the wholesale trade sectors, and exhibited much higher rates of export activity, indicating their ability to compete in both domestic and global markets.
Federal contractors also displayed markedly higher levels of innovation and investment in intangible assets such as holding intellectual property, outpacing the broader SME population by wide margins. In terms of financing behavior, federal contractors sought external funding at higher rates and requested a mix of financial instruments, including trade credit, debt financing, and government funding. Federal contractors were more likely to be involved in international activities and to expand sales outside Canada. These characteristics point to a segment of SMEs that is more growth oriented. Nonetheless, participation in federal procurement remains limited, and challenges such as complexity of contracting process, difficulties in finding opportunities and high costs associated with the contracting process may not only present barriers to current federal contractors but also to broader SME engagement.