Ottawa firms see signs that defence procurement reforms are paying off

If Eliot Pence and his team had any lingering doubts about whether the federal government was serious about speeding up military procurement, those worries were laid to rest earlier this summer. The Canadian Armed Forces contacted Pence’s Kanata-based firm Dominion Dynamics in early July with an unusual request: could it build a brand-new product to […]

If Eliot Pence and his team had any lingering doubts about whether the federal government was serious about speeding up military procurement, those worries were laid to rest earlier this summer. The Canadian Armed Forces contacted Pence’s Kanata-based firm Dominion Dynamics in early July with an unusual request: could it build a brand-new product to integrate Dominion’s sensors into an existing CAF software system — and deliver it in less than a week? The answer, as it turns out, was yes. “They got us under contract, we built it in four days, we integrated it into their system, deployed it to where it needed to be deployed, it worked and then (we) got paid the next day,” Pence, the company’s founder and chief executive, said in a recent interview. “It was not easy to do in that timeframe at all.” Still, the job got done, and Dominion Dynamics got paid. And Pence, one of the leaders of Ottawa’s burgeoning defence-tech industry, came away impressed with the government’s willingness to put its money where its mouth is when it comes to dealing with contractors like him.   “It disputes all of what I’ve been told about the country,” said Pence, who launched Dominion Dynamics last year after spending most of the previous two decades as a venture capitalist and defence-tech executive in Washington, D.C. “I think the narrative is changing a little bit for me.”  Pence is one of dozens, if not hundreds, of local entrepreneurs who are hoping Canada’s pledge to meet NATO’s defence-spending benchmark of five per cent of GDP by 2035 will translate into more and bigger contract wins for their companies. Over the past year, Mark Carney’s Liberals have trumpeted the need for Canada to develop a stronger homegrown defence industry as sovereignty — especially in remote regions like the Arctic — becomes a hot-button issue. The feds have since launched a number of initiatives aimed at boosting the Canadian defence-tech ecosystem. 

The $6.6-billion Defence Industrial Strategy, for example, is designed to increase the share of military spending awarded to Canadian-owned and headquartered companies from its current mark of about 43 per cent to 70 per cent over the next few years. Meanwhile, the Liberals are expected to introduce legislation this fall to give the newly created Defence Investment Agency broad powers to bypass a procurement process that has long been criticized for being too slow and clumsy.    “They have done a lot,” Pence said of the feds. “Institutionally, they’ve changed a fair bit. They’ve spent money, and they’ve budgeted and appropriated money. I think now the question is how much of that is going to go to Canadian companies.” That question also weighs on the mind of Mike Nelson, who leads fledgling defence-tech enterprise Tactiql. Nelson’s 20-person startup specializes in software that converts data coming from sensors and other military equipment into a format compatible with a range of software applications used by personnel in the field or at command-and-control centres.  Founded in 2022, Tactiql is based at Area X.O, an R&D complex for next-generation technologies in the city’s south end. While the young firm has had plenty of support from Invest Ottawa and local defence industry leaders like Calian, which is helping Tactiql scale through its Ventures incubator program, what the company needs now is sales. And for Canadian defence-tech firms, that generally means selling to the federal government — at least to start. “Everybody in foreign markets expects you to not just sell in the Canadian market, but to be fully adopted in the Canadian market before seriously considering (buying from you),” Nelson said. “That’s what everybody else does – you find your beachhead, your stability in your home country and from there you launch into other markets … Without the ability to sell and generate recurring revenue in Canada, there is a very, very low likelihood of our survival.”

RFP, RFI postings soar 60%

The former special operations officer-turned-entrepreneur, who served nearly 15 years in the CAF before leaving the military in 2021, agrees the federal government is “doing a lot of the right things,” pointing to initiatives like the DIS as evidence of its commitment to bolstering Canada’s domestic defence ecosystem.  “I believe that they truly want to see us succeed,” Nelson told OBJ. “How do we actually translate this strategy into action that actually delivers on the goals and objectives of that strategy? There's a difference between committing money and that money actually showing up in the books to be spent.” Chris Pogue, who heads Calian’s defence and space division, sees clear signs the government is serious about getting more Canadian-built defence projects off the ground. The feds posted nearly 600 defence-related requests for information or proposals in the most recent quarter, Pogue noted, a 60 per cent increase from a year earlier. “We’re beginning to see tangible signs of this investment starting to move … and trying to understand how the market can respond,” he said in a recent interview. While Pogue expects the Defence Investment Agency to channel its energies into big-ticket projects of $100 million or more, he thinks the Defence Industrial Strategy could be a game-changer for new ventures like Tactiql that are still trying to plant their flag in the Canadian market. But for the DIS to truly work as it's intended, the feds will need to shift from issuing a “series of RFPs and RFIs to (creating) larger and larger, predictable programs that would allow the Canadian (defence industrial) capacity to be built,” he added. “It’s hard if it’s done in bits and pieces,” Pogue said of incubating a made-in-Canada defence supply chain. “It needs to come into larger-scale programs.” Just around the corner from Dominion Dynamics’s new Kanata production hub, drone manufacturer Robotics Centre is putting the finishing touches on its own factory in a 75,000-square-foot building on March Road. Now at about 60 employees, Robotics Centre is gearing up to churn out thousands of unmanned aerial vehicles a month as drones become ubiquitous on global battlefields. “That’s the space we’re in,” said the firm’s founder and CEO, Charles Barlow. “Thank God we’re not at war, but I do think we’re going to be looking at NATO countries acquiring (drones). It could explode. But even if we’re talking five or ten thousand a month, that's more than enough to keep the business running well.” The former Canadian military intelligence officer pulls no punches when it comes to the federal government’s traditional approach to procurement, describing the system as “a train wreck.” As an example, he cited the Industrial and Technological Benefits Policy, which requires companies awarded defence procurement contracts of $100 million or more to undertake business activities in Canada equal to the value of the contracts they won. The program is “pointless” for smaller firms like his, Barlow argues. “It certainly didn’t help anybody like us,” he said. “The Canadian (procurement) system that the government took over a couple of years ago was fundamentally broken. It was just a disaster.”

'Whole environment has changed'

When it comes to recent efforts to reform the system, Barlow is taking a glass-half-full stance.  The Carney government has “got the emergency crews out and they’re trying to get it fixed,” he said, pointing to the creation of the DIS and DIA as well as increased co-operation from federal trade commissioners and Canada’s embassies in countries such as Ukraine as signs of hope. While noting “there’s still not a lot of procurement going on yet,” Barlow said he’s seen a distinct shift in tone from officials at DND and Public Services and Procurement Canada. “That whole environment has fundamentally changed in the last year and a half,” he explained. “They are very genuinely asking the industry, ‘How do we ramp this up? What are we doing right? What are we doing wrong?’ We’ve had three or four military visits in the last month since we moved in (to the new facility). That’s been a big change.” Robotics Centre currently sells most of its drones to customers outside Canada. But as the trade war with the United States heats up, the company is reassessing its reliance on foreign markets — especially after the Trump administration imposed 100 per cent tariffs on imports of certain drones beginning last week. “If there’s ever been a fire lit, that’s a huge signal right there,” Steve Carkner, the firm’s chief technology officer, said. “We need help and we need it now.” Carkner is optimistic that help in the form of more DND contracts could soon be on the way. He said recent RFPs suggest the feds aren’t just paying lip service to the concept of buying Canadian. “They’re being much more careful with the wording to make sure that products that (the federal government) is buying are Canadian — that they’re not just a foreign product that somebody brings in, slaps a label on and resells.” Still, industry leaders say further reforms are needed to make Canada’s military procurement system more agile. Pogue wants the feds to issue fewer traditional contracts that force suppliers to meet a series of fixed requirements. Instead, he’d like to see PSPC and DND adopt “creative new ways” of procuring goods and services such as “relational contracting,” which sets out more general expectations that “evolve over time” in response to changing circumstances and new technologies. “Right now, we’re moving faster, and that's important,” Pogue said, adding: “Fast alone won’t get us where the DIS wants us to get to.” Pence, who has previously said he wants Dominion Dynamics to become an “ambitious, aggressive integrator of Canadian technologies,” said the onus is also partly on Canadian companies themselves to develop more products that are so good their own government can’t ignore them.  “A lot of what the Canadian companies do is (build) components of broader systems,” he explained. “And if you don’t have a broader system, the end platform, it’s very hard for the government to put money into Canadian companies. We’re trying to be that interface. We’ve got the supply chain in Canada. What we need is the government to kind of double down, and I do see evidence that that is happening for sure.” Still, other defence-tech CEOs say they need to see more proof the reforms are working before declaring them an unqualified success.  “I’m optimistic, but am I confident?” Nelson said. “I think that’s a bit of a stretch.”