Industry Committee on Oct. 26th, 2016

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Fair enough.

[Paul Halucha]

Taking actions in Canada that precipitate counteractions in other jurisdictions....

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

You just mentioned these massive sums of money that the Americans put in, and they put it right there in these trade agreements. From soup to nuts, it's national security for them, so they're busy doing it. Our European partners do it. Should we be shy to do it? I understand you're saying that we have to be careful, but do we do nothing?

Maybe all three of you could answer that.

[Desmond Gray]

I would follow up on the comment. It's interesting. It's a very timely comment, I think.

One of the things we've been doing recently, as part of our review of our Build in Canada innovation program, is working with our colleagues in ISED and NRC to look at how we can expand this program and make it more effective exactly in the ways I think you're talking about.

For example, we have gone down to the United States. DARPA was mentioned, and it's a great example of a very innovative program. SBIR, the Small Business Innovation Research program in the United States, which has been around for almost 40 years, has become a huge engine of economic growth. How do they do that? They're investing. They have basically created a set-aside program for 11 federal departments in the United States. An act of Congress requires the top 11 federal U.S. departments to set aside 2.5% of their R and D budget—the last few years it's been 2.5%; next year it will be 3.2%—and in the United States that's $150 billion. They are making significant investments in what we call early-stage, phase I, and phase II R and D.

This is all being done in support of the programs and the mandates of these 11 departments. They have to actually invest in their programs. The strength of their program is that they've created a very small infrastructure. The actual decision-making.... I think the challenge function was mentioned a little while ago. This is exactly how many of those departments do it. They post public challenges to get innovative ideas to come in from right across the United States from academia and from all the different institutions.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

That's from both academia and small business.

[Desmond Gray]

Absolutely.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

But they are driving that to their....

[Desmond Gray]

You're absolutely correct.

One of the key characteristics of SBIR is that it's a phase one and phase two process. It goes from what is called TRL 1, Technological Readiness Level, at the very beginning, the first phase, which allows an investment of up to US$150,000 usually for about six months, and if that then is evaluated and found to be effective, they will then decide to invest on the second phase, which could be up to another two years and up to $1.5 million.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

So they're inching their way up, and no one—

[Desmond Gray]

They're bringing their way forward.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

—and no one's going to scream blue murder if some little company gets a $150,000 contract—

[Desmond Gray]

No.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

—but then they can weed them out when they see this one now has something—

[Desmond Gray]

Correct.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

—and we're going to bet heavily on it.

[Desmond Gray]

Absolutely right.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

What stops us from doing that here?

[Desmond Gray]

First of all, we're looking at this program with our colleagues at ISED and NRC. We've been examining the benefits and the opportunities, and that work continues. I think it's fair to say that as we look forward, we are looking at ways and considering options. For example, in the American model, as they evolve it through phase one and phase two, next year they'll probably spend somewhere around $3 billion in this program. They're constantly measuring their results to make sure it's valid.

They had to go back to Congress in 2010. It had been a long time since they had been reviewed, and when they went back to Congress, because of the detailed analytics they had done, Congress not only said they would recapitalize the program but directed them to get more money. Clearly, they see a lot of benefits.

The opportunity coming out of that from phase one to phase two is around the pre-commercial point, and of course, as you talked about, in Canada and the United States it's what they call the valley of death between the R and D investment and bringing it to market. This is where venture capitalists and angel investors see high risk and are looking for something that is truly marketable and ready to go forward.

The Americans have produced a program by leveraging their public procurement to achieve this kind of R and D investment, and a key characteristic of this requirement is that it must have a commercial component. In other words, it can't just be pure R and D. It must be able to move forward.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

And that's all the SBIR program that you're—

[Desmond Gray]

That's the SBIR.

[Frank Baylis, Liberal, Pierrefonds—Dollard, QC]

Would it be possible for you to provide in writing a summary of the big themes of this program? You can submit it to the clerk. Would it also be possible that you might provide some ideas of how we might use something similar?

I'm of the school of thought that if it's a good idea, take it. Why reinvent the wheel if this thing seems to be working very well for them?

We've heard time and time again about problems of procurement from small and large companies, quite frankly, that have come before us. We're here to help Canadian companies, pure and simple. As long as we can do it within the rules and we can find best practices elsewhere, I think it's an opportunity for us.

Can you do that?

[Desmond Gray]

Yes, we can. We'll work with our colleagues in ISED who have been very active and are very strong supporters with us and NRC, and I'm sure we can bring forward a submission to the committee.

[Paul Halucha]

We'll do it as well just from perspective of firms, again going back to the consultations that the minister held on the innovation agenda this summer.

One of the key considerations that came forward was the importance of that first sale. Having the government as a buyer provided advantages to Canadian firms when they were seeking foreign contracts. I think it's absolutely critical. We heard from almost every type of industry, from small companies in high tech to larger, more established firms, that if you weren't selling to your own government, it becomes a real challenge in terms of breaking into foreign markets. From our perspective, that's a really key advantage of such a program.

[The Chair, Liberal, Dan Ruimy]

Thank you.

Before we move on to Mr. Lobb, we have Jeff Waring, and if I have this right, you're senior director, industrial technology...

[Jeff Waring, Senior Director, Industrial Technological Benefits Branch, Industry Sector, Department of Industry]

I'm with the industrial technological benefits branch at industry sector with Paul Halucha at the innovation, science and economic development department.