Industry and Technology Committee on Nov. 19th, 2025

[Dominique O'Rourke, Liberal, Guelph, ON]

Thank you, Chair. I'm going to share my time with my colleague.

It's helpful to hear how urgent this defence spending is—the investments in SR and ED, the acceleration in manufacturing—and, from my perspective, how essential it is to pass the budget and then implement its measures. We are hearing that Canada is a target in a hybrid war that's unparalleled in 80 years. I think we need to hear that urgency and hear the solutions that you're bringing to us. It's interesting that the colleagues opposite are saying that we should be spending more. I tend to agree.

Mr. Langlais, I just want to come back to your comment about small and medium-sized enterprises. I'm curious if you are familiar with an American program. The Americans have a program called the WOSB, which is for women-owned or economically disadvantaged women-owned small businesses. The U.S. military has a specific procurement stream for them.

They also have what's called APEX accelerators. Are you familiar with the program? It allows for separate procurement and for women-owned businesses—or in Canada, it could be indigenous-owned businesses—to bid on smaller contracts. The big stuff continues to happen, and then, if those aren't successfully bid on, they go back to the larger pool. Are you familiar with that? Would you support that?

Would you support the concept of APEX accelerators, which help businesses procure to the defence department in the States?

[Michael Langlais]

I am generally familiar with it. You may have noticed that I borrowed some terminology from it. I am not familiar enough to speak to its details, but I believe similar programs would be beneficial in Canada, with a note of caution that we must focus on the capabilities first, given the urgency of the requirements that have been expressed and the spending that must be accomplished.

I believe that accomplishing these things in parallel is possible, but I believe that letting one hamper the other is a risk that must be carefully guarded against.

[Dominique O'Rourke, Liberal, Guelph, ON]

That's fair.

I'll give the floor to Mr. Bains.

[Parm Bains, Liberal, Richmond East—Steveston, BC]

Thank you to my colleague.

To our witnesses, thank you for joining us. I'm not sure how much time I'll have to get to everyone.

My first question is for Ms. Lambert.

There have been significant investments into quantum computing at the University of British Columbia in my home province. I wanted to get your thoughts on it. I'm not sure we talked about commercializing it. What would you recommend that government do to help scale the quantum computing sector so that we can effectively commercialize the R and D?

[Lisa Lambert]

Thank you. I also live in B.C., so I appreciate what's happening over there.

The global quantum industry was launched in British Columbia, and it was an incredible achievement. It was back in 1999, when D-Wave was founded. The global quantum software industry was also founded in Vancouver, with 1QBit, back in 2012.

A first piece to look at is that quantum technologies are much bigger than quantum computing. There's a whole platform within them. They do reinforce each other in some of their developments, so when we look at quantum research, I would really suggest that we look at quantum technologies broadly and encourage development and investment across that side of it.

There's still more work to do on the research front. I think right now some of the academics can be targeting research areas that would support the acceleration of our industry, recognizing that we're in a global race for this as well. They could be trying to get two steps ahead of where industry is. Solving some of those big challenges would be really helpful in that context if we were all pulling together towards a mission-led strategy and ensuring that research isn't trying to out-compete our own industry. That isn't happening intentionally, but if we really to put forward a national quantum strategy and pull together, I think we all need to be working from the same mission-led approach.

[Parm Bains, Liberal, Richmond East—Steveston, BC]

I'm going to go into the rise of agentic AI. Maybe I'll stick with you on this one.

We see that it's transforming the cyber-threat landscape. Can you give us an idea of how we can use quantum computing to support the public safety authorities' efforts to counter cyber-attacks?

[Lisa Lambert]

I recently co-authored an op-ed that mentioned AI, agentic AI, the emerging cyber-threats that are happening and where quantum plays into it. I'm happy to share that and follow up more on that side.

What I will say is that quantum and AI are different technologies that will converge. We are seeing a lot of emerging cyber-threats right now. With quantum computing, we will get to a point—and there are timeline predictions for this coming sooner than originally anticipated—where we're going to get to something called a cryptographically relevant quantum computer. This is going to be a device that will be able to walk through most of the conventional cryptography that we use today. This is a threat that we know is coming. We have solutions against this. Many of them were actually pioneered in Canada and are available today on that side.

What we need to do is to ensure that all of our critical infrastructure, our government systems and our private sector are quantum-safe and ready for that potential threat to come, but we need to do more than that. We also need to ensure that we're cyber-resilient on that front as well, so that if we do face an attack, we're able to quickly move to another system or have defences in place. This will help protect against potential threats like agentic AI, like quantum computing or other threats that are coming.

We need to take a posture right now. I would suggest that we should actually anticipate that we will face technical surprise so that we will be able to respond and not be dead in the water when that happens.

This is a really serious thing that we need to move on, because our entire economy is built on the backbone of the digital world. If this attack is a targeted threat, it would undercut everything.

[Parm Bains, Liberal, Richmond East—Steveston, BC]

Thank you for your time.

[The Chair, Liberal, Ben Carr]

Thank you very much, witnesses, for making yourselves available today, contributing to the insights of this study and providing us with some guidance.

Colleagues, we're going to do a strict five-minute suspension and get right back at it.

[The Chair, Liberal, Ben Carr]

Colleagues, we are going to continue with the second hour of our study here. We have two witnesses in the room with us, as well as one online.

I want to welcome, from my hometown and from the University of Manitoba, James Fergusson, senior research fellow at the Centre for Defence and Security Studies.

Welcome, Mr. Fergusson. We'll talk about home after the meeting here.

From the University of Calgary, we have Robert Huebert, professor, Centre for Military, Security and Strategic Studies, who's joining us virtually. From H2 Analytics, we have Hugo Hodgett, who is here with us today.

Witnesses, you will have up to five minutes each for introductory comments. For those in the room, if your earpiece is plugged in but is not in your ear, please place it on the sticker in front of you.

With that, we're going to get right into things. I will just confirm that those who are joining us virtually have had their earpieces and their headphones tested and verified. Thank you very much.

With that, Mr. Fergusson, you get a hometown advantage from my perspective, so you're going to go first. There are five minutes for you, sir.

[James Fergusson, Senior Research Fellow, Centre for Defence and Security Studies, University of Manitoba, As an Individual]

Thank you.

Good afternoon. While I had hoped that the government's defence industrial strategy would have been released by now, I shall direct my brief comments to some critical observations vital to a defence industrial strategy.

First, the strategy must be premised upon a detailed, systematic and empirical map of the global defence industrial environment. As Canada purchases the overwhelming majority of its major weapon systems and platforms from foreign defence primes, this environment significantly determines the possible and the optional.

Further, this environment is not monolithic. Instead, there are significant variants across defence industrial sectors—air, land, maritime, space and cyber. Thus, a single one-size-fits-all defence industrial strategy is problematic. Canada needs multiple strategies fit for the different sectors.

Second, the strategy must be premised on a realistic, systematic understanding of existing Canadian defence industrial capacity. Overall, this resides in the second tier of defence production—component or subsystem suppliers. Although evidence is limited, a significant portion is foreign-owned and, especially, American-owned. Systematic knowledge, despite attempts by government over time, is in relative short supply. Companies, for a variety of reasons, are reluctant to disclose proprietary information, compounded by the definition of what is and is not a defence company.

Nonetheless, it has long been the case that successful Canadian companies depend upon accessing the global marketplace. This is critical, especially in the context of offsets—industrial and technological benefits—in seeking primes to commit ideally 100% of contract value in Canada. In reality, however, no companies provide 100% offsets. Instead, the government employs an economic multiplier relative to investments. No company would stay in business if it signed a contract for a million dollars and then was expected to give the million dollars back to the consumer. Even so, this does translate to the establishment of prime subsidiaries in Canada and engagement with Canadian companies directly related to the defence product.

However, whether these commitments translate beyond the immediate purchase is an open question. While government does track offset commitments, serious questions should be asked whether Canadian offset programs over, say, the past 40 years provided significant returns on our defence acquisition investments and whether these investments have contributed to a sustainable defence industrial base. Unless subsidiaries in Canadian companies become fully integrated into the prime supply chain beyond the specific purchase or obtain licence to compete in the global marketplace, these companies become dependent on Canadian defence capital spending with a variety of economic and political implications.

While today, as a function of the unparalleled level of planned defence capital spending, this may prove relatively unproblematic, it won't last forever and Canada will find the capacity produced today will only be short term.

All governments seek domestic returns via offsets, which constrain global market access and to which primes must respond, which reduces their willingness to provide a global licence, especially in terms of technology transfer. In many cases, due to intellectual propriety and related corporate interests, offset commitments can simply amount to build-to-print work with little or no technology transfer. In addition, offsets significantly increase procurement costs estimated by some at roughly 20%. The degree to which these factors are present in the case of directed purchases employing the national security exemption, especially in government-to-government purchases, is a difficult question as well.

Finally, as a function of broader economic reality and the defence production sharing agreements with the United States, the Canadian defence environment is integrated with the United States defence industrial and technological base. Also—and this cannot be overstated—the U.S. remains by far the largest, most technologically sophisticated military market in the world, and this is unlikely to change dramatically over the next 10 to 20 years.

Current politics surrounding Canada's relations with the United States, along with misperceptions of U.S. defence reliability, have brought diversification back with indications, through a variety of agreements with Europe and the Asia-Pacific partners, of defence diversification. The implications of attempting to go down this path are major. Unless European and Asia-Pacific partners are willing to provide direct access to the procurement markets, the aforementioned offset dynamic will remain in place.

To conclude, one recent example of success and a model for a viable strategy is the F-35 consortium. Canadian companies involved, as long as they remain competitive per se, have obtained access to the global F-35 market of over 2500 platforms—the largest fighter production in the world.

There are numerous other considerations related to the Canadian defence industrial strategy, including overhaul and maintenance contracts and research and development investments, that need to be considered in the complicated world of defence. However, in the end, economic investment drivers should not undermine providing the Canadian Armed Forces with the best and most advanced capabilities.

I look forward to expanding on these observations and answering other questions the committee may have.

[The Chair, Liberal, Ben Carr]

Thank you, Mr. Fergusson.

Professor Hodgett, we go to you next for five minutes.

[Hugo Hodgett, Chief Executive Officer, H2 Analytics Inc.]

Good evening. Thank you, Chair and members of the committee, for inviting me.

My name is Hugo Hodgett. I am the CEO of H2 Analytics, and I am a Canadian Armed Forces veteran. H2 Analytics is an Ottawa-based technology company that has been supporting the Canadian Forces, the RCMP, federal departments and Canada's allies abroad. We've been supporting the CAF since, approximately, 2018, giving us a clear view into what accelerates and what slows the development of Canadian defence capability.

We all know that the global environment is becoming more uncertain, and many of my colleagues have talked at length about this in previous appearances. I want to focus on a topic that will provide direct recommendations that could influence the committee's recommendations against the structural barriers that are preventing Canadian defence-focused innovators from becoming globally competitive.

To build a real defence technology ecosystem in Canada, three pillars must be aligned: the innovators, the Crown and the capital providers. Today, these pillars are not aligned, creating unnecessary friction, most acutely felt by CAF end-users and by the innovators building the capabilities they need. Central to the problem, as has been pointed out time and time again, is the institutional risk aversion that's embedded within our procurement system. Small innovative firms simply cannot survive, let alone scale, when forced to navigate a drawn-out process and the Byzantine maze of rules that ultimately produce contracts of uncertain duration and value. The lack of predictability suppresses investor confidence, making capital providers hesitant to fund defence innovators. In many cases, this pushes companies towards foreign capital, where risk tolerance is higher, often resulting in intellectual property leaving Canada.

Canada has world-class talent in defence technology and is respected globally for its ability to produce novel high-impact capabilities, yet at home Canadian firms struggle to attract the capital required to scale, to mature their products and to enter export markets. If Canada intends to be a net exporter of defence technology, innovators and the Crown cannot achieve this alone. Canadian companies require both public and private capital in order to grow, commercialize IP and expand globally. What can the Crown do to encourage capital formation—with minimal additional cost, time and process—that will enable small and medium-sized businesses to take advantage of it?

The first is to prioritize a shift to multi-year contracts as the norm for early-stage innovators, giving both companies and investors the predictable revenue signals they need that the Crown intends to see procurement through. Rest assured, the Crown retains all of the capabilities it needs to cancel contracts for underperforming companies.

Second, apply national security exemptions more readily to innovation contracts, recognizing that a resilient domestic defence industrial base is itself a national security interest and warrants streamlined procurement. This will bias Canadian firms and provide much-needed revenue to Canadian innovators so that they can seek domestic rather than foreign capital.

Finally, review and modernize Treasury Board guidance on delegated and sole-source authorities, increasing the dollar thresholds and pushing decision-making as low is as practical so that military end-users can more directly influence timely procurement of the capabilities they need. Innovators and end-users are best placed to identify and fill gaps within military capabilities, and the addition of bureaucratic steps results in an invisible tax on business and a failure to feed capabilities quickly.

The overarching point is this: Innovators cannot grow and scale domestically or internationally if the Crown is not a consistent, reliable customer. When the Crown signals commitment through revenue to companies, capital flows into those companies, allowing job growth, international expansion, exports and high technology to be built in Canada. Canada already has world-class defence innovators. Our reputation abroad is strong, but it's built on the determination of innovators working around systemic friction at home. The scaffolding is in place for a robust defence technology ecosystem that delivers Canadian IP, high-skilled jobs and global influence. Innovators are doing their part. With targeted action on behalf of the Crown and properly aligned incentives for capital providers, Canada can truly build a world-class defence ecosystem.

Thank you. I look forward to your questions.

[The Chair, Liberal, Ben Carr]

Thanks very much, Mr. Hodgett.

I was wondering why you gave me a perplexed look when I called you professor and then I realized I was looking at Mr. Huebert. Congratulations on the Ph.D. that you earned here this evening.

Professor Huebert from the University of Calgary, you have not lost your Ph.D., so we'll go to you now for five minutes.

[Robert Huebert, Professor, Centre for Military, Security and Strategic Studies, University of Calgary, As an Individual]

Thank you.

I appreciate this opportunity to talk. I would also point out that I'm actually also a born-and-raised Winnipegger. In fact, Dr. Fergusson and I did our undergraduate together. That's, once again, to point out that Winnipeg element.

[The Chair, Liberal, Ben Carr]

Take as much time as you need then.

[Robert Huebert]

I figured that would happen. Thank you.

I have three major points to make in terms of the defence industrial strategy.

The first one is that, despite efforts to try to portray any form of strategy or any type of policy that the Canadian government over time has tried to develop when it comes to an industrial strategy pertaining to defence...it is an inherently political process and not a technical, economic process. You can come up with the very best design for how to allegedly streamline the process and how to ensure that the process is in fact working to the best of your ability, but it is the decision of the Prime Minister that ultimately determines how well or how badly the system ultimately works for the development of our defence capabilities.

We know of the good examples where things have in fact happened very quickly and where we've been able to receive a weapon system of very sufficient and sophisticated capability. I'm referring to the C-17 decision in terms of how fast we can actually move on decisions of defence and what it means for the obviously following defence and industrial capabilities.

For an example of where it was done very poorly, we can think about the efforts to replace the Kingfishers for the Canadian Navy, in terms of their helicopter replacement.

The second point that flows from the inherent political nature of any defence industrial strategy is the fact that almost the complete placement of this strategy is almost entirely focused on economics and not on strategic considerations. We see this again through the various examples. My colleague, Dr. Fergusson, made several references to the F-35. We can compare ourselves to the manner in which all of our Nordic allies, in fact, went through the process of making the decision for the F-35 with various types of industrial defence strategies, and that includes the Norwegians, the Finns, the Danes, the Brits and the Dutch, and the manner by which they were able to move very quickly—the Danes in particular, for example—to be able to achieve it.

If we look closely at their industrial defence strategy, despite being close to Sweden—and one would think that they would have a relationship that would be closer to them—we see that one of the driving features for their industrial strategy was strategic considerations, that is, how they had to have the best fighter for responding to what they saw as the growing Russian threat.

The third point that follows from this is, of course, that we do have examples where we've attempted to come up with a coherent defence industrial policy or something similar to it. The example that probably stands out the most is the Canadian shipbuilding strategy. That, of course, was created and finalized back in 2011. There's been a significant period of time so that we can have an evaluation of how well or how badly it has been implemented.

One of the key drivers of that industrial defence strategy was to break what was usually referred to as a boom and bust cycle in Canadian defence production. We've always understood that Canada has always had this difficulty. We tend to build and buy very large and very sophisticated defence systems all at once, which then creates all sorts of problems in terms of maintenance and their replacements. When we think about the boom and bust that the Canadian shipbuilding strategy, as an industrial defence strategy, was trying to break, it was trying to ensure that the construction of both naval and Coast Guard vessels was done on an ongoing basis.

Right now, even though the decision was made to make new icebreakers as far back as September 10, 1985, we are now building four big icebreakers all at the same time. When I say icebreakers, I'm including, of course, the two AOPS. We have one that is being built in Vancouver, and one that is going to be built in Finland and in Quebec. As a result, even though we know better, we have just determined a complete repeat of the boom and bust cycle.

Therefore, we're left with this realization that no matter how much we try to rearrange the deck chairs on the deck of the Titanic, we have to first of all realize that this is a political process. We can talk about a rational system all we want. It will determine what the Prime Minister wants to be moving on these issues.

Second of all, we cannot lose sight of the fact that ultimately, when we are buying defensive systems, we are trying to defend Canada in an increasingly dangerous international security environment. It's not about getting the best buck, I dare say. It is about ensuring that we have the best weapon systems to defend Canada and to ensure that deterrence is maintained, and if deterrence breaks down, then we are able to fight and defend Canadians, not make the best dollars.

Thank you very much.

[The Chair, Liberal, Ben Carr]

Thank you very much, witnesses, for your introductory remarks.

I will note as we go to the first line of questioning here that notwithstanding the fact that Mr. Falk is a Manitoban, I did not choose that he gets to go first.

Mr. Falk, the floor is yours for six minutes.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chair.

Thank you to all of our witnesses who have testified here in the second hour of committee.

Mr. Fergusson, I will start with you.

First of all, I'd like to just say that I'm sure Raquel Dancho is very sorry that she's not here. She was looking forward to being able to question you here at committee. She fell ill today and was unable to attend.

[James Fergusson]

Give her my best.

[Ted Falk, Conservative, Provencher, MB]

We will do that.

You previously gave testimony to the foreign affairs committee where you emphasized the importance of pragmatic, rational decision-making over emotionally driven choices. Considering the recent developments, such as the delays in the F-35 and the talks with Gripen, do you think these decisions are being based on a pragmatic basis?

[James Fergusson]

To be blunt, not at all. This is emotional, virulent nationalism in Canada, responding to statements by the President of the United States. We've gone down this path.

The F-35 purchase should have been done 15 years ago when it was started by the Harper government. Then it got derailed and it was stalled and stalled.

If you look at the fighter aircraft production environment for the Allied world and others, the F-35 was really the only choice. As my colleagues have pointed out here, you look at the list of countries that are all involved in the consortium and that is the model. We had that going, I would just add, back in the 1990s with the replacement of the Sea King, which fell apart as well and cost us companies. This is our only option.

I could go on at length as to why this would be a disastrous decision, from having two supply chains, two training chains and two sets of infrastructure that have to be equipped, maintained and spent.... That's notwithstanding exactly what the Gripen company...and by the way, it's not a Swedish company. British Aerospace now owns this company. Remember that.

Besides that, are we going to assemble it? That's what we're going to do? We're going to assemble 73...if I take 88 as the number with 15 F-35s. Are we going to assemble them here? That's what we call a screwdriver plant. There's no technology. There's no advancement—period. That's even if we go to a broader market for the Gripen, which is a market of hundreds, if that. It's not the market the F-35 is in.

There are a variety of other reasons that this has just become emotional nationalism that has been wrapped up in the diversification of general economic patterns for Canada. I would remind everyone that we've done this before. How well has it worked out for us? It hasn't. My answer is very simple. This has got to stop.

My colleague, Dr. Huebert, made this point as well. This is political beyond the realities. I'm not one who criticizes political involvement. This is taxpayers' money. The government is responsible and accountable for this. Politics have to play here, but when politics become emotional and nationalist-driven, with no insight into the reality of the marketplace, then we are heading down a path we've been on many times before. It didn't work out then and it's not going to work out now.

[Ted Falk, Conservative, Provencher, MB]

Right now, the F-35 seems to be a clear choice from an ITB perspective, with the tail assemblies being manufactured at Magellan in our home province of Manitoba. There don't seem to be a lot of ITBs associated with any other considerations.

[James Fergusson]

It's difficult to know. As far as I know, this is what's in the public domain.

Saab has offered assembly here. It's going to marry itself with Bombardier. That is an interesting question and goes back to a long history of the Bombardier relationship on these things. To assemble it is fine.

Exactly what access do we get to the market, the limited global market, for the Gripen? Besides that, what technology transfers are we going to get?

We have to remember, for all major corporations and companies, intellectual property is the key thing for them. They're not giving this away unless you're willing to pay a lot of money for it. Even then when Canadian companies that get technology transferred to them, they are not going to allow you to go on the global marketplace.

[Ted Falk, Conservative, Provencher, MB]

Can I switch gears for a moment?