Industry and Technology Committee on Oct. 22nd, 2025

[Gabriel Ste-Marie, Bloc, Joliette—Manawan, QC]

I want to hear your thoughts on how the defence and civilian sectors complement each other in the aerospace industry, and on the need for predictability and procurement timelines for military contracts.

[Mike Greenley]

I'm sorry. I missed it because the volume is so off.

I can't hear the interpretation. I apologize.

[The Chair, Liberal, Ben Carr]

Mr. Ste‑Marie, would you like to ask another witness any questions?

[Gabriel Ste-Marie, Bloc, Joliette—Manawan, QC]

I can submit my written questions to the clerk, who will pass them on to Mr. Greenley. I have many more questions for the other witnesses.

[The Chair, Liberal, Ben Carr]

I can give you some time, if we find a solution.

Mr. Greenley, just to explain, I'm just going to afford Mr. Ste-Marie the opportunity to pose questions to other witnesses. We're going to try to fix the interpretation issue, and if we can't resolve it, we will get his questions to you in writing and ask for you to submit responses to the committee.

Mr. Ste‑Marie, you have the floor.

[Gabriel Ste-Marie, Bloc, Joliette—Manawan, QC]

Thank you, Mr. Chair.

My next questions are for Mr. Smith and Mr. Lombardi, if they can hear the interpreter at a suitable volume.

As part of this study, witnesses told us that many emerging defence technologies come from civilian start‑ups or small and medium‑sized businesses. Their innovation cycles are much faster than the cycles of traditional defence procurement systems.

How should things be restructured? In your opinion, what type of support do these companies need in order to integrate military and civilian technologies into the defence supply chain? Would this involve financial, technical or regulatory support?

Mr. Smith, you can respond first.

Mr. Lombardi, you can then add to the response.

[Michael Smith]

Thank you for the question. It's a mixed bag insofar as the private sector is the wellspring of innovation in the 21st century. It has flipped on its head the innovation model that existed in the 20th century and gave us the Internet, GPS and digital cameras, so the innovation doesn't really need support. It's happening every single day in the private sector.

As previous witnesses have alluded to, the biggest challenge is crossing the valley of death that exists as a result of sclerotic procurement—an exquisitely designed system for the 20th century and completely unfit for task in the 21st. As I alluded to in my testimony, there are the three elements of any ecosystem—competency, capital and customers. Canada has competency in spades. The customer will maybe one day fix itself—we hope so. In the meantime, the thing that bridges that gap is the capital to simply keep the lights on, to allow them to iterate and continue to iterate so that, when the customer is ready, the product is fit for task, reflective of the modern operational environment and just ready to go.

I will die on the hill that capital will solve a lot of these problems.

[Gabriel Ste-Marie, Bloc, Joliette—Manawan, QC]

Thank you.

Do you have anything to add, Mr. Lombardi? I have one minute left.

[Matthew Lombardi]

There are some quick fixes, and then there are some more strategic “systems change” answers to your question, Mr. Ste-Marie.

On the quick fixes, you know, it's almost like the Hippocratic oath that doctors take of “First, do no harm.” The first thing I would ask is a simple change to the DND IDEaS program, which has so far proven itself wholly insufficient in so many cases.

I'll give you an example. If you look at the challenge sandboxes in the U.K. or the United States that try to get homegrown start-ups to test their technologies and are their versions of DND IDEaS, you'll see that if you win one of those challenges in the U.K. or the United States, you are automatically plugged in to a procurement stream. That is how it's supposed to work.

In Canada, if you win an IDEaS challenge, not only does it grant less money and take more time, but in many cases you are in fact prohibited from going into a procurement stream. That is almost Kafkaesque, in that it achieves the opposite of the goal that it's meant to achieve and does not align with best practices in any other NATO country. Addressing that would be a quick fix.

For another quick fix, there seems to be a cultural issue. In some of the qualitative results that we turned up in our survey, we turned up horror stories from Canadian SMEs, and I'll give you an illustrative example. I've heard a version of this story seven or eight times.

An entrepreneur who does light manufacturing out of Kitchener-Waterloo in Ontario called me and said that they'd made a heat sink or a cold plate, a little device that ends up going into a light armoured vehicle. In the past it's gone into a CF-18. They sell only into the NATO supply chain.

This entrepreneur told me that over the course of 18 years, he has been debanked not once, not twice, but three times by a tier one Canadian bank. Why? It wasn't because he's doing anything illegal but because there's a stigma around defence, a perfectly legal industry, and some local banker just decided to act on their own and debank this individual and not provide him credit. He got the letter saying that they need his money out of his account in 30 days.

There's a cultural issue here too, and as my learned colleague Mr. Smith alluded to earlier, hopefully unlocking capital from the BDCs and the EDCs will help free up the Canadian banks to feel better about lending to perfectly legal industries.

Then on the systems change side, again there are a couple of things, like the DIU model in the United States and the NSSIF model in the U.K. These are off-the-shelf models to help make sure that even when we're doing targeted procurement of massive foreign systems, we're still using that to do aggressive licensing of technical data in direct support of domestic innovation when we have to buy foreign systems like submarines.

The last thing I would say is that there has to be an element of borrowing off-the-shelf best practices. We need to push procurement authority way down to the command level, and I think this riffs off Mr. Greenley's point earlier about restructuring. In the countries that do this best in the NATO alliance, not every procurement decision is made at a centralized level. You can set a threshold—call it $200 million illustratively—and say that a commander is able to bring a start-up on base and test it out, and if there's a solution that's 80% there at 25% the cost, they can buy it tomorrow.

Yes, that will lead to some duplicative buying, but that trade-off is worth it to get the capabilities into the hands of the Canadian Armed Forces much more quickly.

[Gabriel Ste-Marie, Bloc, Joliette—Manawan, QC]

Thank you.

[The Chair, Liberal, Ben Carr]

Thank you, Mr. Ste‑Marie.

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

[Ted Falk, Conservative, Provencher, MB]

Thank you to all of our witnesses for joining us here today. I appreciate your testimony. It's very interesting and informative.

Mr. Smith, thank you for your service, first of all.

You used the term “dual-use” several times in your presentation. Can you expand on what you mean by “dual-use”?

[Michael Smith]

Yes, of course. It's a term we hear bandied about a lot, so I'll give you my definition from my experience over the last few years.

At the simplest, it is technology that has application in both the commercial and the defence and security realms.

[Ted Falk, Conservative, Provencher, MB]

Thank you. That's very nice and concise. I appreciate that. That will be helpful.

Back in August of this year, in a periodical called the Ottawa Citizen, you stated that the Canadian defence procurement agency “will fail if it is run by the same risk-averse decision-makers previously charged with defence procurement” and that “a new mandate alone will not transform the system if those executing it remain tethered to the same institutional caution.”

What specific changes do you see need to happen in leadership culture and decision-making processes to make this a successful agency?

[Michael Smith]

I'm glad you read that article. That's someone other than my parents, so thank you for the question.

I was saying earlier that we live in risky times, and when you live in risky times, you have to take risks. To my earlier point, we have designed this exquisite system in which we haven't mitigated risk but have essentially eliminated risk. Risk elimination and risk mitigation are two different things.

Of course, the Crown should mitigate risk to the greatest degree possible in procurement, but that can't come at the expense, as Mr. Lombardi was saying, of arriving too late. It's creating a culture that is mission-aligned and well meaning, one in which the answer is going to be yes, subject to some certain constraints.

It's very difficult to prescribe how one fixes culture, but there has been a perverse, almost inverse, reward relationship for getting to zero risk. Now we have to flip that on its head. I think that's going to come from top cover, where well-intentioned risk-taking is rewarded, even if it's not perfect.

[Ted Falk, Conservative, Provencher, MB]

Thank you.

In World War II, Canada produced 16,000 aircraft in a short time. We used 116,000 people in the workforce to accomplish that.

In our industrial complex today, we don't need the same type of aircraft, but for that day and age, it was complicated as well. If you have done a gap analysis in the industrial sector, are there gaps right now that we should be addressing so that if the need would arise, we would be able to do something similar today?

[Michael Smith]

I will preface this answer by saying that I am not an expert on Canada's industrial base capacity.

That said, I know there are pockets of world-renowned manufacturing in this country, but to reinforce my earlier testimony, I would advise more broadly that the government should be concerned with securing the inputs into the supply chains necessary for the 21st century. In so doing, you will secure the inputs into the supply chain for your defence industrial base.

When we talk about rare earth elements, if we are only looking for rare earth elements for defence, we are missing the point, because every single thing that we are going to need in the 21st century that is relevant is going to have an input of rare earth elements. That's because AI is not going to simply be on our phones; it is going to enter the world through robotics. If that robot is my personal support worker or if I weaponize it, that's a choice to be made, but it is the exact same manufacturing process and input that is necessary.

That also ties back to this idea of dual use. A spoon is a weapon, depending on how you use it.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Smith.

Mr. Lombardi, you stated previously that we have excessive regulation in our procurement processes. Could you quickly elaborate on that and suggest regulations that we need to chop?

[Matthew Lombardi]

Sure. I think I previously discussed the security clearance bottleneck that certainly needs to be resolved. I think some of the other things around pushing procurement authority down not one, not two, but several levels have been covered by Mr. Smith and myself.

The other thing that I think is a very big barrier to SMEs is this cycle of Canadian companies leaving Canada. They are not leaving because they have any shortage of technical barriers. As our survey showed, a defence market isn't a market if companies are considering leaving Canada purely for sales and capital reasons and not because of technical or talent barriers. That's a blessing that this country has. In other countries, companies leave because they can't find talent. That never happens in Canada.

Without reforming the procurement pathway and the engagement strategies of SMEs and start-ups, we risk not only capability gaps in national defence but also economic leakage to other markets, and not just allied markets, unfortunately. I would say that at the risk of losing innovators, we have to close some of the knowledge gaps around procurement and security policies. We have to close this tremendous barrier around security clearances. These have to be expedited, so that people have the opportunity to bid on contracts.

We have to make sure that our dual-use innovators are in situations where Canada is not forced to.... In situations such as submarines, for example, we don't have our national strategy, and Canada is going to be buying some kit from foreign suppliers, which is okay. NATO is a market, and we won't make and deliver everything, but we will contribute to it.

However, when we do have to do targeted procurement and use exceptions where necessary, we have to make sure to aggressively license the technical data back to Canada and provide direct supports for domestic innovation, such as freeing up ITBs, which we previously talked about, and making the eligibility criteria a little bit wider so that some of these foreign primes who do have outstanding ITB obligations actually have more of an opportunity to support Canadian innovators. It's not just by trying to find a way to get them into their supply chain, which is the optimal way to do it, but also by providing dollars of hard support.

[The Chair, Liberal, Ben Carr]

Thank you, Mr. Falk.

Mr. Bardeesy, go ahead for five minutes.

[Karim Bardeesy, Liberal, Taiaiako'n—Parkdale—High Park, ON]

Thank you. I'll start with a question for Mr. Lombardi and then I'll bring in some of the others.

Mr. Lombardi, just so that I'm clear on your testimony, you are encouraging that the overall dollar spend in defence procurement should shift more towards software and away from hardware, and from higher cost per unit hardware to lower cost per unit hardware. Am I understanding that correctly?

[Matthew Lombardi]

If I were to summarize my five minutes, Mr. Bardeesy, it would be that it is about building the most of a given thing that is good enough and not necessarily building the most capable and impressive single thing.

[Karim Bardeesy, Liberal, Taiaiako'n—Parkdale—High Park, ON]

Thank you.

I have a question to all the panellists around women's participation in the defence economy, whether it's women-owned businesses or women workers in the sector.

Do you have any insights that you could bring to bear, from your own experience in the sector or from the research, on how we could increase women's economic opportunities through this potential defence industrial policy?

[Mike Greenley]

From my perspective, a defence industrial policy would be no different from any other industrial policy.

Diversity and inclusion occur as part of our business practices. MDA Space is recognized as a “Women Lead Here” company by The Globe and Mail. We track various members of our population, whether that's for gender or cultural diversity, and we work all the time on improving that as we go forward. I think it's no different from what it is in any other business area. Defence can do that. We have demonstrated it in defence and space. We state the need and we do it.

[Karim Bardeesy, Liberal, Taiaiako'n—Parkdale—High Park, ON]

In the last panel, Ms. Cianfarani alluded to a desire to get specific investments and specific procurements at the technology level that can help lay the track that we want for the involvement of Canadian sectors.

The defence industrial strategy document or proposal will probably not get to that level of specificity. What is the work, then, that needs to be done after we issue the broad policy document to get to the kind of specificity that will prime the kinds of investments that you're looking to see made?