August 8, 2012
Title: Canada’s IRB program “inadequate” says industry group
Sub-title: Policy paper says changes said needed to existing structure.
Canada’s industrial and regional benefits program is “inadequate” and is not being provided the broad government policy support it needs. As a result, the system discourages defence companies from bidding on major contracts and thus “will not produce its intended results.” So says a recent policy paper prepared by the Canadian Association of Defence and Security Industries and submitted the country’s industry minister late last month, based on a survey of 34 defence sector players.
The industrial and regional benefits and offsets issue is a particularly hot one, as Canada, one of the first countries to introduce these types of programs, is in the midst of more than CAD $50 billion in major upgrades in land, sea and air force hardware. This has brought on a slew of international and domestic players lining up to get in on the action.
However much of that money risks could be wasted says the paper. “Unless the IRB program offers a more positive, progressive, competitive policy environment and more practical, business-friendly management policies, it will not achieve the government’s objective of maximizing jobs, developing unique technological innovations and creating maximum economic activity in Canada from defence and security spending,” the report says.
For example according to one Canadian defence company surveyed, “the existing rules provide little incentive for foreign IRB obligors to do more than the bare minimum,” because there are no provision in the policy to address additional IRB credits as a transferrable commodity.
The paper makes a number of recommendations to improve the existing regime, last updated in 2009. The new proposals call for increased government support for the IRB program from such agencies as the Business Development Bank of Canada, the Export Development Canada and the Canadian Commercial Corporation; sped up approval for major procurements at the options analysis phase and the inclusion of points related to the bidder’s IRB proposal in major procurements.
The report also suggests that government processes be reformed to help speed IRB implementation through measures such as empowering managers to make more decisions, increasing the role of Industry Canada to make the process more business-development friendly and scaling back bureaucratic processes.
Promoting more openness and accountability, though increased consultations with industry and regularly publishing evaluations of the economics benefits of existing programs would also help, the report says.
According to Tim Page, CADSI’s president, Canada has a considerable incentive to optimize its procurement policies, due to the industry’s considerable financial impact on the overall economy. For example for every $1 billion earned by Canadian defence firms, the country’s gross domestic product expands by $710 million, export revenues expand by an additional $1 billion and 18,000 jobs are created or sustained.
According to Alan Williams, a former assistant deputy minister in charge of materials at the Department of National Defence, initiatives such as CADSI’s provide considerable help to decision-makers. “They can say things that individual companies can’t for fear of hurting their chances of booking new deals,” says Williams, who recently published his second book on military procurement Canada, Democracy and the F-35, about the boondoggle in the Joint Strike Fighter procurement process.
That said, Williams believes that the proposals do not go far enough to promote the development of local industry. “Canada needs a real 21rst century defence policy,” says Williams. “Right now, the only complete systems we make here are ammunition and ship hulls. We need to target specific sector such as trucks, weapons systems, or aerospace, where we will focus our efforts – as other countries have done to great effect.
Industry Canada did not respond to a request for comment on the proposals.
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