2024 Reports 8 to 12 of the Auditor General of Canada to the Parliament of Canada
Report 10—Industrial and Technological Benefits
At a Glance
The Industrial and Technological Benefits Policy applies to defence procurements over $100 million with some exceptions and may be applied to defence procurements between $20 million and $100 million. Industrial and technological benefits form part of the bidding process that determines who is awarded major defence contracts. While the policy states that an equal amount of an awarded contract’s value is to be invested back into the Canadian economy by a contractor, we found 10 procurements out of 60 over $100 million where either the policy was not applied or the investment in the economy was less than 100% of the awarded contract’s value.
Innovation, Science and Economic Development Canada—responsible for administering the Industrial and Technological Benefits Policy—was unable to demonstrate that the policy met its objectives, which included supporting the long‑term viability and growth of the defence industry. Delays in procurement process negotiations and additional costs stemming from contractors managing their industrial and technological benefits obligations conflicted with the goal of the Defence Procurement Strategy to deliver the right equipment to the Canadian Armed Forces in a timely manner.
We found that Innovation, Science and Economic Development Canada lacked some elements to ensure sound administration of the policy, such as clear rules and guidance on how to apply the policy and good tracking of contract obligations, economic benefits, and job creation.
Key facts and findings
- From 2014 to 2023, 99 contracts worth at least $39 billion were awarded that included industrial and regional benefit and industrial and technological benefit obligations of more than $36 billion.
- Innovation, Science and Economic Development Canada did not have clear rules and guidance for applying the Industrial and Technological Benefits Policy.
- For the 60 eligible procurements over $100 million that we identified, 2 procurements had industrial and technological benefits commitments that were less than 100% of the contract value and 8 procurements had no obligations.
- Both the specific benefits and the full costs of the Industrial and Technological Benefits Policy were unknown.
Why we did this audit
- Applying the Industrial and Technological Benefits Policy can result in billions of dollars of business activities.
- Public funds need to be used economically, effectively, and efficiently to achieve results.
- When the policy applies to defence spending, business activities take place in Canada’s economy by the contractor in various areas.
Highlights of our recommendations
- Innovation, Science and Economic Development Canada should update and clarify the Industrial and Technological Benefits Policy and guidelines to include information about scope, application, and documentation requirements to support the consistent application of the policy to defence procurements.
- To help identify where improvements could be made in the process to verify industrial and technological benefits obligations, Innovation, Science and Economic Development Canada should review its service standards and how it calculates its performance against them.
Please see the Link opens a PDF file in a new browser windowfull report to read our complete findings, analysis, recommendations and the audited organizations’ responses.
Exhibit highlights
Decision tree on the applicability of the Industrial and Technological Benefits Policy to defence procurements
Note: Procurements for the Canadian Coast Guard also follow this decision tree, but this audit did not include Industrial and Technological Benefits Policy contracts involving the Canadian Coast Guard.
Source: Based on information from Innovation, Science and Economic Development Canada
Text version
This flow chart shows 2 streams of defence procurement values and whether the Industrial and Technological Benefits Policy applies.
First stream
Value of the procurement is between $20 million and $100 million:
The procurement is reviewed for possible application of the policy.
- Decision to not apply the policy.
- Or, decision to apply the policy
- Company awarded the procurement contract must undertake business activities in Canada generally equal to the value of the contract.
Second stream
Defence procurements with a value over $100 million:
The procurement is not subject to trade agreements.
- The policy must be applied.
- Company awarded the procurement contract must undertake business activities in Canada generally equal to the value of the contract.
The procurement is subject to trade agreements.
- A national security exception has been invoked.
- The policy must be applied.
- Company awarded the procurement contract must undertake business activities in Canada generally equal to the value of the contract.
If the procurement is subject to trade agreements but a national security exception has not been invoked, the policy does not apply.
Details of industrial and technological benefits samples (2014 to 2023)
| Sample information | Industrial and Technological Benefits Policy applied | Industrial and Technological Benefits Policy not applied |
|---|---|---|
| Number of procurements valued between $20 million and $100 million examined | 3 | 6 |
| Number of procurements valued at more than $100 million examined | 7 | 4Footnote * |
| Total contract value of procurements examined | $2 billion | $1.5 billion |
The Industrial and Technological Benefits Policy’s short-term performance indicators used targets that were at or below the baseline or did not align with the measurement
| Indicator | Baseline (2021) | Target |
|---|---|---|
| Percentage of small and medium-sized businesses that benefit from procurements with a value proposition | Prime contractors involved small and medium-sized businesses in fulfilling 15.1% of their overall obligations | Prime contractors involve small and medium-sized businesses in fulfilling at least 15% of their overall obligations |
| Number of investments in skills development under the Industrial and Technological Benefits Policy | 6 commitments in skills development and training | Over 5 commitments in skills development and training |
| Number of post-secondary and research institutions that benefit from the policy | 33 post-secondary and research institutions benefiting from active projects | Over 30 post-secondary and research institutions benefiting from active projects |
Source: Based on information from Innovation, Science and Economic Development Canada
Related information
Entities
Tabling date
- 2 December 2024