Industry Committee on Oct. 26th, 2016

[Desmond Gray]

That's a very good question. I'll respond in two ways. First, I'll start by responding very briefly about what BICP is doing—

[Chandra Arya, Liberal, Nepean, ON]

No, I know about BICP, but I want to know more about what you can you do for Canadian small businesses in awarding contracts that are outside the scope of all the trade agreements.

[Desmond Gray]

I understand. The answer, I guess, is to identify how the trade agreements impact and what the opportunity is.

For example, in our own department, even though we have the trade agreements, there are certain exemptions that are permitted. For example, when we have what we call a national security exception request—this is generally from DND—we can exempt or put a procurement outside of the requirements of the trade agreements. This allows us to operate—

[Chandra Arya, Liberal, Nepean, ON]

No, I understand. When you do that, why don't you formalize it in such a way that Canadian businesses benefit from it?

[Desmond Gray]

I would say that the program itself, the NSE exemption, is a formalized process in our procurement policy. There's a specific process to it, and it does permit specific requirements to be exempted from those trade agreements.

[Chandra Arya, Liberal, Nepean, ON]

Mr. Halucha, you talked about listening to the witnesses in our current study and you talked about the talent and the access to market, but I'm quite surprised that you didn't mention the lack of access to funding, both for commercialization and for start-ups in manufacturing.

In my view, that is one of the greatest impediments to developing the manufacturing sector here. During the last 10 years, BDC funded only 1,800, for an average of 180 start-ups per year in manufacturing, which is very low. With medium-sized businesses getting smaller and smaller, we need more manufacturing start-ups. I was quite surprised to see that you didn't think that was one of the things that is emerging here.

[Paul Halucha]

I didn't highlight that as much, given the brevity of my remarks, but it absolutely is of central importance. Access to capital, the ability to have capital, especially at the point of pre-commercialization to try to scale up, is a perennial problem of firms, and certainly it's on the top of the list of issues that they bring forward.

I think that's partly why the government has invested in the venture capital fund, the VCAP fund, which has resulted in a 41% increase in the number—

[Chandra Arya, Liberal, Nepean, ON]

No, no, I know about VCAP funding. It just made $350 million, which you have used to give to the fund of funds, which in turn have raised it to $1.3 billion and invested in 126 companies, but, trust me, a very small amount of that is going into manufacturing.

[Paul Halucha]

You had BDC appear last week?

[Chandra Arya, Liberal, Nepean, ON]

Yes.

[Paul Halucha]

I think they would have indicated that they have expanded the amount of capital that they have been providing to manufacturing companies.

[Chandra Arya, Liberal, Nepean, ON]

No, not from VCAP. Let's not confuse them.

[Paul Halucha]

Sorry, no, not from VCAP, just from generally BDC funding.

[Chandra Arya, Liberal, Nepean, ON]

Yes, that would be in the lending they do, the investments they do on their own in venture capital and the VCAP.

There are three different segments, and maybe, in all the three, I should say that the amount that is going into manufacturing is quite small. Even the amounts that are going in are basically going into companies that have been around for quite some time and have a good track record.

What we're talking about here is support to start-ups in manufacturing.

[Paul Halucha]

You're talking about higher-risk ventures.

[Chandra Arya, Liberal, Nepean, ON]

Yes and no. I mean both higher-risk and young commercially viable ventures. There are 180 companies—

[The Chair, Liberal, Dan Ruimy]

Mr. Arya, I'm going to have to cut you off there.

We're going to move ahead to Mr. Dreeshen.

You have seven minutes.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you very much, Mr. Chair

Thanks to our witnesses.

In previous Parliaments, I had the opportunity to be part of public accounts during the study of military procurement, and we were talking about things like F-35s. There is certainly a discussion about how Canadian companies would have been impacted by being part of that particular process, and I know that continues.

I learned a lot about full life cycles and the conflicts between what the Department of National Defence and the Auditor General would say what that should be, as well as the PBO. A lot of interesting things took place on variants of the F-35s.

Mr. Fortin, I'll start by asking you these questions, and then maybe I'll get another opportunity later to ask the other gentleman.

After the defence procurement strategy was unveiled, the Defence Analytics Institute was established as an important pillar of the defence procurement strategy, because it's difficult, if not impossible, to make good procurement decisions without that clear understanding of Canada's complex and diverse defence industrial base. the DAI was designed because there was no source, either in government, academia, or the private sector, for collecting knowledge and data on Canada's defence industrial base. I'm just wondering what is happening with the DAI today.

[Dr. Marc Fortin]

Mr. Chair, I can't answer that question. I'm responsible at National Defence for science and technology, so I don't have any dealings with that committee.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

If that's the case, then I just wonder if somebody in the department could report on the recent activities of DAI. I think it's important, because we're dealing with the industry that is associated with them, and once we know what is being done there, we can ask the question about how advising the minister in these areas would be significant.

The defence procurement strategy is a comprehensive strategy that requires many moving parts, and another part was industrial and technical benefits policy, which requires bidders to compete on the basis of the economic benefits to Canada associated with each bid and to undertake business activity in Canada equal to the value of the contracts awarded. Previously, winning bidders were selected on the basis of price and technical merit. Now the government also assesses the bidder-proposed economic value proposition to Canada. The value proposition guide is a starting point, to be reviewed and evolved over time through engagement with industry, and as government gains experience with the approach, it provides flexibility and discretion in its application.

I'm just wondering if you can tell us how that is being used today and assess the effectiveness versus the old offset model.

[Dr. Marc Fortin]

I'll ask for my colleagues to provide answers to that question. Being in charge of science and technology, I am at arm's length, to some extent, with procurement, because the advice we provide informs decision-makers on the right choices for being smart buyers, if I can use that word, and we're not directly involved in procurement.

[Paul Halucha]

I'm pleased to respond.

On the value proposition, as you know, we moved from an industrial regional benefits policy to an industrial technology benefits policy. The difference around the value proposition is that we've moved the requirement on those from whom we are procuring goods to an earlier point in the process. We're asking them to provide us with their strongest industrial benefits to Canada and then making that a weighted criterion in the determination of who wins the procurement.

The advantages are obvious. Previously it was a pass-or-fail mechanism: you could fail on your ITBs or you could pass on them, but it wasn't weighted, and there was an incentive to effectively provide just good enough ITBs. Now, with a competitive model, we've incentivized those who are seeking to get major procurements from the Government of Canada to bring forward their best value propositions to Canada. We assess that now much earlier in the process so that it's a weighted criterion in the immediate and first decision, which obviously strengthens the opportunities for Canadian businesses.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you.

Mr. Fortin, exactly what is your role, then, as the assistant deputy minister for science and technology? Perhaps you could give us a bit more of an understanding of what is expected of you, what information you've been given by the minister, and your mandate. That would perhaps help us in our discussion.

[Dr. Marc Fortin]

Absolutely.

My role is to inform the military partners—the Canadian Armed Forces, the various environments, army, navy, air force, SOFCOM, and so on—of new technology developments that might have an impact on their military capabilities.

For example, if there's a new threat of, say, a new laser or a new cyberattack tool that the Canadian Armed Forces might be affected by, my role is to inform them of those technology developments. It is also to help develop the technologies to support the development of those military capabilities, and also to inform about the technologies that are presented to the department by various companies as to the robustness of the claims that are made by those companies, the validity of those claims, the quality of the technology, the maturity of the technology, and so on. It's technology advice.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Right. From that point of view, when you see something that is required, is it the case that you may well have to go outside of the country in order to get that scientific knowledge and to go to other allied countries to advise what should happen with the department?