Vanguard Magazine

Feb/Mar 2015

Preserving capacity, General Tom Lawson, Chief of the Defence Staff, Keys to Canadian SAR

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Page 37 of 47

T TechNOlOgIcal BENEFItS IRBs created a bridge from the research lab into the marketplace for Canadian innovators; ItBs can do the same, and with the new Value Proposition, even more. irBs and the birth of offset-enabled entrepreneurship Dr. Nat Shankar, now technology Manager for India, was Regional technology Manager, Canada for Lockheed Martin. He was responsible for developing technology relationships with universities and industry in Canada. 38 FEBRUARY/MARCH 2015 D espite the fact that Canada has enjoyed decades of growth and prosperity, and weathered the Great Recession better than most other western economies, our country has a troubling Achilles Heel. We are comparative laggards in terms of investment in research and development, and, not coincidentally, have a continued productivity gap with our biggest trading partner. Indeed, in its 2013 report, the Expert Panel on the State of Industrial R&D found that as a percentage of GDP, IR&D spending in Canada is now roughly half the U.S. level and falling. But in the face of our strong economic fundamentals, why does this matter? Be- cause the world is changing. In an increas- ingly global economy, knowledge and technology are the engines of economic success, and investments in R&D fuel them. The government of Canada has long recognized the need to use the policy levers at its disposal to stimulate invest- ments in R&D. Since spending on defence and security are big ticket items for any government, Canada, like its allies, has an offset policy in place to extract long-term economic dividends for Canada from the companies that win big contracts by making them invest an equivalent amount in industrial development and economic activity across the country. Until recently, this policy was known as the Industrial and Regional Ben- efit or IRB policy. According to Industry Canada, over the last decade, the IRB policy was applied to 72 procurements, re- sulting in commitments by winning firms to create some $25 billion of economic ac- tivity in Canada, more than half of which have been fulfilled already, with the rest scheduled to unfold as programs advance. In recognition of its high value as a catalyst, investment in R&D was highly rewarded (multiples of face value) under the IRB policy. As a result, companies in the defence and security industry invested heavily in research at Canadian universities and technology institutes across the coun- try, changing the future of many innovative Canadian researchers and entrepreneurs. Today, under the government's new Defence Procurement Strategy (DPS), the IRB policy has evolved into the In- dustrial and Technological Benefits (ITB) policy. Under this framework contractors will continue to be obliged to meet simi- lar criteria as existed under the IRB policy, including the mandatory requirement to deliver the equivalent of 100 percent of their contract values in validated Canadian economic benefits. The main shift under the DPS is the in- troduction of weighted and rated Value Propositions (VPs). Using this powerful government lever, VPs will now be assessed along with technical merit and price to de- termine winners in defence procurements. The VP requirements will oblige bidders to compete on the basis of economic value to Canada in areas such as long-term sus- tainability and growth of Canada's defence sector; supporting the growth of Canadian suppliers (including small and medium en- terprises (SMEs); enhancing innovation through R&D in Canada; and, export po- tential of Canadian-based firms. So, investment in R&D remains a priority of the ITB policy. However, by my reading of the recently released ITB Policy: Value Proposition Guide, it seems that the policy may have a somewhat narrower focus, with greater emphasis on investments that are directly tied to the Canadian defence and security sector. Indeed, it seems that com- panies will likely be able to maximize their VPs for commitments that connect to all of the categories; for example, investing in R&D that can be shown to have benefit in the defence sector, leading to strengthen- ing Canadian suppliers and with the poten- tial to influence exports. Will this lead to the same levels and qual- ity of investment in R&D? As a result of the old IRB policy, Lock- heed Martin alone has invested $32 million in Canadian universities and technology

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