This is marketing research on the Defense - Canada (Defence) industry and can include information on the background, market structure, definitions, competitors, trends and developments of Canada’s defense industry and is related to other topics such as aircraft and weapons.

Canada: The Defense Market

Table of Contents

1 Market Demand 
2 Canadian Budgets 
3 Best Prospects 
4 Key Suppliers 
5 Prospective Buyers 
6 Market Entry 
7 Market Issues & Obstacles 
8 Sources

Canada offers the most open, accessible, and transparent public sector market for U.S. goods and services outside of the United States. As the sixth highest military spending economy in NATO, the Government of Canada (GOC) is a significant purchaser of defense and security products. U.S. organizations account for the largest share of military contract awards by the GOC. In fact, Canada trades US$3.5 billion of defense and security products and technologies with the U.S. annually. Canada's spending is so substantial that it outspends the lowest 12 NATO members combined. This year, Canadian defense spending has reached the highest level since World War II with a defense budget of slightly more than US$18 billion per year. Canada's Afghanistan mission equipment and services requirements are driving demand for a wide range of products and technologies.

Market Demand

Canada First Defence Plan

The "Canada First" Defence Plan was announced in December 2005 as part of the Conservative Government's election campaign. It is designed to strengthen Canada’s national sovereignty by providing more funding in the areas of defense, security and international assistance. As a result the GOC announced upcoming procurement projects as shown in the attached link: "Canada First" Defence Procurement.

Canadian Budgets

Canada Budget 2005 provided nearly $10.4 billion in new defense funding over a period of 5 years. This funding delivers on the commitment to expand the Canadian Forces (new troops and reserves) and the operational sustainability, as well as to acquire new equipment and material. This budget provided an additional US$1 billion to the previous US$6.4 billion invested over the previous three years to enhance the safety and security of Canadians by reinforcing air and marine security, border issues, policing, emergency preparedness and response capabilities. This substantial increase in funding delivered on the Government’s commitments to meet its upcoming projects, namely:

• US$2.4 billion to expand the Canadian forces by 5,000 troops and the reserves by 3,000
• US$2.6 billion to strengthen military operations in order to improve training and operational readiness and to enhance military medical care;
• US$2.2 billion to acquire and operate new medium capacity helicopters, logistics trucks, utility aircraftand specialized facilities for JTF2.

In Budget 2006, Canada’s New Conservative Government committed to invest an additional $5.3 billion over five years in the Canadian Forces to implement the Canada First Defence Plan. Under this plan, the Government will continue to support the development of Canada’s multi-role, combat-capable defense force. The procurement of major equipment has progressed with the approval and announcement of the acquisition of joint support ships, a medium-sized logistics truck fleet, medium- to heavy-lift helicopters, as well as enhanced strategic and tactical airlift capability. The following are some of the highlights:

• $3.1 billion to the Canadian Forces over the next three years to accelerate the implementation of the Canada First defence plan.
• $80 million over two years to the Canadian Security Intelligence Service to protect Canada's national security.
• $60 million/year to ensure the environmental allowances (location/danger pay) paid to soldiers serving in Army field units are in line with those paid to Navy and Air Force personnel.
• Appoint a Veterans’ Ombudsman to ensure better services for veterans.
• Provide $19 million in 2007–08 and $20 million per year thereafter to help the Department of Veterans Affairs improve services to veterans.
• Invest $10million a year to establish five new Operational Stress Injury Clinics across Canada to help military personnel and their families deal with stress injuries.

Budget 2007 committed to making Canadian communities safer and more secure, supporting the men and women of the armed forces, including the veterans, and bringing new hope to people beyond Canadian borders through more effective international aid. The following are some of the highlights:

• $715 million to the Canadian Forces in 2007-08 to accelerate the implementation of the Canada First defence plan.
• $200 million in additional support for reconstruction and development in Afghanistan.
• $10 million per year to establish five new Operational Stress Injury Clinics to assist Canadian Forces members and veterans dealing with stress injuries related to their military service and provide improved support for their families.
• $19 million in 2007–08 and $20 million thereafter to establish a Veterans’ Ombudsman and ensure that veteran's services meet the standards set out in a new Veterans’ Bill of Rights.
• $11 million over the next two years to enhance the critical infrastructure of Canadian embassies and consulates.

Allocation of Funds According to the Budget 2007 New Initiatives For a Safer Canada

Millions of Dollars

                                                         2006-07     2007-08     2008-09     Total

Implementing the Canada First Defence Plan                             264           90        354
Keeping Canadians Secure                                               102          184        286
International Assistance                                     315                               315

Total                                                                                          955

Best Prospects

Cold/Hot lightweight combat clothing & accessories         Joint Command Systems
GPS Systems                                                Military Automated Air Traffic System
Air Surveillance/Traffic Systems                           Operational Mission Simulators
Tactical UAV                                               Target Acquisition System (JUSTAS)
Aircraft Arrestor Systems                                  Utility Transport Aircraft
RFID (Radio Frequency Identification)                      Omnibus Night Vision Capability

Major Land Projects:

Artillery – Future Indirect Fire Capability                 Armored Patrol Vehicles
Medium Trucks                                               Close Combat Vehicles

Major Air Projects

Medium to Heavy Lift Helicopter                  Chinook 47F Utility Transport Aircraft
Canadian Multi-Mission Aircraft                  Maritime Helicopter S-92
Tactical Airlift Aircraft C130J                  Fixed Wing and Search and Rescue
Joint Strike Fighter                             Strategic Airlift C-17
Joint Airborne Intelligence                      Surveillance and Reconnaissance capability
Joint uninhabited aerial vehicle surveillance target acquisition system

Major Sea Projects

Artic/Offshore Patrol Ship
Destroyer Replacement
Joint Support Ship

Key Suppliers

The Department of National Defence (DND) has developed effective working relationships with a number of Integrated Prime Vendors. As one of Canada's largest public sector organizations, DND continues to do business with a large number of international suppliers.

The following is a list of some of the larger leading suppliers, in alphabetical order, to the Department of National Defence:

• BAE Systems
• The Boeing Company
• Bombardier Inc.
• EADS Canada Inc.
• General Dynamics Corp
• Lockheed Martin Canada
• RACAL Acoustics
• Raytheon Canada Limited

Prospective Buyers

Public Works and Government Services Canada (PWGSC)

This is the government’s centralized purchasing agency responsible for overseeing federal procurement. Through PWGSC, the Canadian Government procures 17,000 different types of goods, services and construction a year, averaging 60,000 contracts with a total value in excess of US$8.5 billion annually. PWGSC handles the procurement for more than 85 federal departments and agencies, as well as contracts for major Crown projects and Special Operating Agencies. PWGSC has the highest delegation of authority of $3 million to acquire goods. PWGSC competitive contracting authority can reach up to $40 million. PWGSC's largest client department is the Department of National Defence (DND).

Note: In general, departments and agencies (such as the Department of Fisheries and Oceans (DFO) have the authority to buy on their own up to $5,000 in goods. Any contracts exceeding this amount need to be approved by the Treasury Board. PWGSC will thereafter handle the procurements. However, sixteen departments have had their delegation of authority increased to $25,000. Some such departments are Health Canada (HC), Royal Canadian Mounted Police (RCMP) and Transport Canada (TC).

Department of National Defence (DND)

The Government of Canada's (GOC) defense spending has reached the highest level since World War II with a defense budget of slightly more than US$18 billion per year. As the sixth highest military spending economy in NATO, the GOC is a significant purchaser of defense and security products, including aerospace and electronic systems (for aircraft, ships, and military vehicles), computer hardware and software, custom-manufactured and commercially-available products; informatics services; marine equipment and armament; marine inspection and technical services; communications, audio-visual and printing services; research and development services; and, science and professional services. DND has the second largest delegation of authority of $2 million to acquire goods.

Department of Fisheries and Oceans (DFO)

The Canadian Coast Guard (CCG) is a civilian fleet, which is part of the Department of Fisheries and Oceans. Its responsibility is to respond to Search and Rescue (SAR) emergencies and environmental issues; to provide services for boating safety and icebreaking; and, to provide marine navigation services, marine communications and traffic services. The Canadian Coast Guard operates all the DFO vessels. The types of products procured by this department are mainly security motion detectors, enhanced communications and video surveillance systems.

Canadian Security Intelligence Service (CSIS)

The Canadian Security Intelligence Service (CSIS) plays a major role in protecting the national security interests of Canada by investigating and reporting on threats to the security of Canada. Transport Canada (TC) Transport Canada promotes safe and secure air, marine, rail, and road transportation to all Canadians through policy development, rulemaking, and monitoring and enforcement activities. The department works in cooperation with numerous federal, provincial and municipal organizations, and agencies on transportation issues.

Public Safety Canada

Public Safety Canada (PSC), formerly known as Public Safety and Emergency Preparedness Canada - PSEPC, was created in 2003. PSC is the department that most resembles the Department of Homeland Security. PSC ensures better integration and information sharing across government in relation to national security, emergency management, law enforcement and crime preventions, corrections and border management. They have annual departmental and portfolio budget of $6 billion. It is important to note that the Department itself is not a major purchaser, however, equipment, services and goods are purchased by the five agencies that they receive support from, namely:

Canada Border Services Agency (CBSA)

Canadian Security Intelligence Service (CSIS)

Correctional Service Canada (CSC)

National Parole Board (NPB)

Royal Canadian Mounted Police (RCMP)

Market Entry

There are three principles that one should follow once the decision has been made to sell your defense products to the Canadian Federal Government.

1. MAKE YOURSELF KNOWN

Take every opportunity to market yourself to the Canadian Federal Government. If the GOC doesn't know about your organization or your technology they will not be able to award you a contract. The following are a few examples of what you can do to "make yourself known." Exhibit at trade events, in Canada, as well as in the U.S., that target the defense industry. If you submit a bid for a contract, and are unsuccessful in winning the contract, ensure that you have a briefing from the procurement official. Make certain that you are in all of the appropriate GOC databases. Market your organization to key contacts, either by email or post, in both the procurement side and the end-user side. The U.S. Commercial Service in Ottawa has many different methods of assisting companies in gaining market exposure.

2. GATHER MARKET INTELLIGENCE

In order to keep up with what is going on in the defense sector, subscribe to trade journals, newspapers, etc., so that you are aware of upcoming procurements. The time to talk to GOC end-users about upcoming requirements is before the requirement is posted on MERX. Once the opportunity is posted, you may only speak with the procurement official handling that particular project. It may also be beneficial to have a person on the "ground" to keep you up-to-date and to market your organization/technology; therefore, it would be beneficial to hire a local representative. The increase in military spending has created a greater demand for organizations providing consulting/lobbying services to organizations wanting to increase their sales to the GOC. This is considered an effective method for U.S. companies wanting to penetrate this lucrative market. The U.S. and Foreign Commercial Service in Ottawa, Canada can assist U.S. companies in finding a representative to assist in market entry.

3. IDENTIFY OPPORTUNITIES

The Canadian government’s official Internet-based electronic tendering service MERX gives subscribers access to more than 1,500 open tenders from the federal government, provincial governments, and many municipalities, school boards, universities, and hospitals that are subject to Canada’s trade agreements. Approximately 200 new tenders are posted daily. The MERX system provides U.S. suppliers with easy access and excellent opportunities to sell a wide range of products and services to Canada's public sector. The Basic Subscriber package is free of charge providing U.S. companies with access to Federal Government procurement opportunities. From there, it is possible to search, view and download tender documents at no charge. This package also includes a free delivery of Opportunity Matching results, and one free Opportunity Matching Profile that automatically searches for opportunities of interest to a company’s criteria in the profile it can create. In order to access opportunities, other than federal government opportunities, users must subscribe to one of the fee-based packages.

Market Issues & Obstacles

Selling to the GOC is not the same as selling to the USG. It is important to understand the ethodologies, the players and resources available. For example, the GOC's fiscal year is from April 1 to March 31 unlike the USG's fiscal year of October 1 to September 30. Another example is that the USG has "GSA Schedules" and the GOC has "Standing Offers". It is important for U.S. suppliers to understand these differences and treat selling to the GOC differently. The U.S. and Foreign Commercial Service in Canada assists U.S. companies in understanding these differences.

INDUSTRIAL REGIONAL BENEFITS (IRB)

This policy was created in 1986 as Canada procures most of its major defense systems internationally. Therefore, this policy is designed to ensure that companies across Canada can gain benefits from these international procurements. It also provides the incentive for U.S. suppliers to partner with Canadian companies as team players or as subcontractors. Bidders are encouraged to identify business activities that make good business sense, regardless of where they are performed in Canada. U.S. companies should understand the importance of regional economic development in Canada and the fact that the Government has established a number of economic development programs for Designated Regions of Canada.

The IRB policy is applied to selected procurements that are valued at greater than two ($2) million dollars that are NOT subject to international trade agreements, namely, the North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT)/World Trade Organization (WTO) agreements on procurement; or, the federal/provincial Agreement on Internal Trade. With regard to international trade agreements, the IRB Policy can be applied to those sectors excluded from coverage as follows:

a. defense related goods and services
b. shipbuilding and repair
c. urban transportation equipment
d. Canadian Space Agency procurement
e. communications
f. certain information processing and related telecommunications services
g. research and development

ADVANCE CONTRACT AWARD NOTICE (ACAN)

An ACAN is often times referred to as sole-source procurement. The Canadian government issues sole source contracts when they choose a supplier or contractor to fulfill a requirement without holding a competition. There are only certain circumstances when the GOC carries out procurements using this method. They are:

1) when there is a pressing emergency, e.g. If there is a real emergency, like the air-conditioning system breaks down in a hospital in the middle of summer.

2) when it is not in the public Interest to go competitive, e.g. The requirements of a national security, such as classified military or national defense project

3) when there is only one supplier or contractor, e.g. A company might be developing a prototype for a research and development project, or there may be logistical reasons that replacement parts must fit. When departments indicates that there's only one source for a procurement, PWGSC examines the procurement carefully, and publishes an ACAN notice on MERX for no less than 15 calendar days. The purpose of this is to ensure there is truly only one source for the procurement and to indicate to the supplier community that it intends to award a sole-source contract. If a supplier believes they can provide the product/service they may submit a Statement of Capabilities showing that their company can meet the requirements set out in the ACAN. If PWGSC is convinced that there is more than one supplier, they will then post it on MERX as a competitive opportunity. However, if the procurement goes unchallenged the supplier listed in the ACAN is awarded the contract.

THE NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA)

American-made products enter Canada almost entirely duty free. The North American Free Trade Agreement (NAFTA) came into force on January 1, 1994 and replaced the U.S.-Canada free trade agreement, which was implemented in 1989. The phase-out of tariffs between Canada and the United States was completed on January 1, 1998, except for tariff-rate quotas (TRQ) that Canada retains on certain supply-managed agricultural products. Canada still maintains some non-tariff barriers of concern at both the federal and provincial levels, impeding access to the Canadian market for U.S. goods and services. However, recent studies show that 99 percent of all trade passes the across the border without incident or without controversial trade restrictions. Many Canadian standards are harmonized with U.S. standards. Chapter Ten of the NAFTA provides national treatment in Canada for U.S. companies on Canadian federal government procurement contracts above the following thresholds:

• Contracts of $32,400 or more offered by a federal entity such as a Department or Agency for goods. The list of these federal entities was expanded to include Communications Canada, Transport Canada, and the Ministry of Fisheries and Oceans.
• Contracts of $84,000 or more offered by a federal entity for services.
• Contracts of $10.9 million or more offered by a federal entity for construction services.
• Contracts of $420,000 or more offered by a Crown corporation or other federal government enterprise

for goods and services. The list of these corporations includes the St. Lawrence Seaway Authority, The Royal Canadian Mint, the Canadian National Railway, Via Rail, Canada Post, and numerous others.

• Contracts of $13.4 million offered by crown corporations or federal government enterprises for constructions services.

In addition to NAFTA, the WTO Agreement on Government Procurement (WTO-AGP) applies to most federal government departments. This multilateral agreement aims to secure greater international competition. The WTO-AGP applies to the procurement of goods and services valued at $245,000 or more, and construction requirements valued at $9.4 million or more. PWGSC is responsible for ensuring conformity with Canada's trade obligations under the NAFTA and the WTO-AGP. PWGSC handles the federal government's procurement requirements in the following areas:

• architectural and engineering consulting services
• construction and maintenance services
• goods and services

In addition, the Supplier Registration Information (SRI) service is used by federal government buyers to identify potential suppliers for purchases not subject to any of the trade agreements (for which they use MERX). It is important for supplier to the GOC to be registered on the SRI.

Trade Events

SECURE Canada 2008 - September 30 - October 1, 2008 - Ottawa, Canada
Ottawa, Civic Centre, Lansdowne Park, Ottawa, Ontario
Contact: Lucy Latka, Sr. Commercial Specialist, U.S. and Foreign Commercial Service
Phone: (613) 688-5219; or by email: lucy.latka@mail.doc.gov

This event debuts as an international security exhibition catering to the security, defense and public safety sectors.

SECURE Canada provides an umbrella structure for three complementary industry exhibitions partnered in one main event. Industry segments represented include: security; defense; public safety; C4ISR and unmanned vehicle technologies. SECURE Canada 2088 features:

1) The U.S. Embassy Defense and Security Exhibition, presented by the U.S. and Foreign Commercial Service
2) TechNet North 2008, presented by AFCEA Canada
3) The AUVSI Canada Showcase, presented by AUVSI Canada

Note: SECURE Canada differentiates itself by promoting participation to domestic and foreign exhibitors and targets both the public and private sector end-user markets. This is the only show of its kind in Canada accessible to foreign exhibitors.

CANSEC 2008 - April 10 - 11, 2008 - Ottawa, Canada
Presented by The Canadian Association of Defence and Security Industries
Ottawa Congress Centre, 55 Colonel By Drive, Ottawa, Ontario
Contact: (613) 563-1984 or 1-800-450-0077

Note: Exhibiting at CANSEC is restricted to CADSI Members. Membership is open to registered, legal, private-sector companies that have established business operations in Canada and whose business interests include defence and/or security.

DEFSEC Atlantic 2008 - September 3 - 5, 2008 - Halifax, Nova Scotia
Pier 23 Cunard Centre, Halifax Nova Scotia
Contact Phone: (902) 465-2725

Note: This small regional show focuses on defense, security and aerospace sectors in the Atlantic provinces.

Sources

U.S. Department of Commerce