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‘Road to nowhere’: Local SMEs explain their struggles with federal defence procurement

November 19, 2025

According to Invest Ottawa, the nation’s capital is home to more than 190 defence companies employing over 10,000 workers. Yet many people working with local defence-tech startups say federal procurement practices make it difficult to sell into their home market.

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Foreign military officials ask Michael Nelson the same question repeatedly: "If your technology is good, why hasn't your own nation bought it?" Nelson is the founder of Ottawa-based Tactiql, which won a spot in NATO's Defence Innovation Accelerator for the North Atlantic (DIANA) program in 2024. NATO selected the quantum-secure communications company as one of 15 firms across the alliance for Phase 2 of the program. Nelson achieved this milestone before securing his first contract with the Canadian government. "In defence, everybody expects that you sell into your home nation first, because that gives you a launchpad and baseline credibility to expand into foreign markets," Nelson told OBJ. According to Invest Ottawa, the nation’s capital is home to more than 190 defence companies employing over 10,000 workers. Four NATO DIANA test centres operate in the city, while the Department of National Defence (DND), Defence Research and Development Canada and Public Services and Procurement Canada (PSPC) are headquartered here. Yet many people working with Ottawa’s defence-tech startups say federal procurement practices make it difficult to sell into their home market.

Drowning in paperwork

At Tactiql, Nelson received the company’s first federal contract in August 2023, approximately 10 months after applying through Innovative Solutions Canada (ISC), a program run by Innovation, Science and Economic Development Canada (ISED). "On average, it's probably 12 to 14 months for a contract through this program," Nelson said, describing ISC as "the only real mechanism that allows the military to buy innovative technologies from Canadian startups and SMBs." But, he said, even as a program designed for startups, ISC requires extensive work before a contract materializes. The program issues challenge calls and companies respond and compete to enter a pool. Making the pool does not guarantee a contract. "Once you're pooled, you still have to go out and find a customer," Nelson said. "And then your customer has to find somebody who can pay for it, they have to find the sponsor, they have to do the paperwork." The paperwork includes a statement of work, a security requirements checklist and Form 9200, a requisition document. DND personnel must assemble these documents and submit them to PSPC, which then drafts the contract. Nelson described the military's capacity to prepare and submit documentation as the first challenge, with the second challenge being procurement capacity at PSPC to process contracts.

‘It’s a people problem’

"The real delta here is in the capacity of the government to actually process these procurements," Nelson said. "It's a people problem. It's a skill problem in (the sense that) they don't have enough skilled people to do the job.” In its most recent budget, the federal government committed to a $9.3-billion annual increase in defence spending starting this year and provided $79.9 million over five years to support the Small and Medium Business Procurement Program to create dedicated procurement streams for Canadian SMEs. The Defence Investment Agency launched in October 2025 also promises to streamline procurement. "An investment needs to be made into the people, the capacity to facilitate the procurements of these technologies," Nelson said. "Because you can throw $10 billion at the problem, but if you don't have the capacity to pull the paperwork together and get it through the procurement process, you're not going to be able to spend that money." Caleb Walker knows the procurement system from the inside. He spent 20 years in the Canadian Army, including three deployments to Afghanistan. He ran procurement for capital projects before leaving to found his own defence company. He now runs 123 Cyber, a compliance consulting firm that helps companies navigate government procurement. Walker received a $1.2-million contract through the Innovation for Defence Excellence and Security program (IDEaS). The federal government committed $65 million annually to fund innovation and buy from startups through IDEaS. According to publicly available departmental reports, DND has not consistently met the funding levels set out for the program. Annual IDEaS updates show progress on challenge calls and prototype development, but do not identify any projects that have transitioned into broad operational use within the Canadian Armed Forces. The program continues to focus on pilots and testing rather than large-scale adoption. "We spent two-and-a-half to three years going through this whole process, working with them, trying to deliver the thing that they wanted," Walker said. "And at the end of it, nobody really followed up with us. There's no answers." As a result, Walker calls the IDEaS program "a road to nowhere."

Lack of coordination and visibility

Sem Ponnambalam, co-founder and president of Ottawa-based Xahive, points to a different challenge. She serves on World Economic Forum panels and teaches online courses on cybersecurity, AI and post-quantum cyber-governance. "For cybersecurity, where technology evolves monthly, a 12- to 18-month procurement window can actually render a solution obsolete before deployment," Ponnambalam said. "The issue isn't the standards themselves. Those are definitely necessary, no one ever questions that," she continued. "But the problem is the lack of coordination and visibility across the agencies." A file passes from PSPC to ISED and then to DND for contracting, according to Ponnambalam. "But no one really has a clear status update once it's going through those steps," she said. "For SMEs, this creates financial and operational uncertainty. The bigger enterprises can certainly wait for that long process." Ponnambalam has researched best practices in allied nations. The United Kingdom's Defence and Security Accelerator provides a unified application portal with defined timelines and progress tracking, according to her research. "This provides structure and predictability, especially for an SME, because then you can actually budget the number of people, the time that's allocated," Ponnambalam said. She advocates for Canada to require larger, prime contractors to formally partner with SMEs that hold the Controlled Goods Program certification and security clearances. "This would allow for faster mobilization on defence projects, reduce redundant security work and help SMEs contribute earlier in the innovation pipeline," she said.

Look to the provinces

Marcia Mills sees the problem from a different angle. She co-leads Fasken’s National Security Group and has spent over a decade in the federal government working on defence procurement. She says resourcing is the biggest challenge for SMEs. “We have procurements where there might be 40 amendments issued,” Mills said. “You have to be able to get to your amendment, read it, see how it changes things. You’re not recovering costs when you participate in these processes,” she added, noting that an SME’s entire bid capture team might consist of only a few people. According to Mills, the government uses phased procurement processes for very large contracts. These processes require companies to qualify before they can participate in requirements development. But the processes run for years, by which point an SME may have evolved to an entirely different existence, she said. She suggests looking closer to home for solutions. "At the provincial level, we see very complex procurements that get prepared, executed, completed and contracts awarded in a much shorter period of time," Mills said. “Provincial governments take a much more practical view of procurement, with an ability to look at the risk profile and make a decision, validate the decision and decide to move forward or not. "There are some great people working in the public service who are really trying to get things moving," Mills said. "You need a top-down flow of motivation and culture shift. There are people within the public service who are waiting for this culture shift." OBJ requested interviews with DND and PSPC for this story but did not receive a response in time for publication.