The ITB Policy will continue to play a critical role in ensuring that the Canadian defence industrial base benefits from procurement. This will be particularly true in circumstances where a large contract may be issued to a foreign prime contractor. To ensure that the ITB Policy is as effective as it can be in building up Canadian industry, the Government will enact reforms to sharpen its contribution to the Canadian economy and defence industrial base.

The ITB Policy is currently estimated to contribute more than $5 billion to GDP and over 40,000 jobs annually in Canada. Seven-hundred-plus Canadian organizations are currently benefitting from active ITB projects, including more than 400 SMBs and 55 academic and research organizations.

About half of ITB commitments are directly connected to the defence contracts. These provide Canadian companies with the opportunity to partner with prime contractors to supply parts for the system Canada is buying. For the remainder, contractors make indirect commitments to help support Canada’s defence sector in other ways, such as establishing or expanding manufacturing facilities, transferring technology or expertise to Canadian firms, developing Canadian suppliers (notably SMBs), investing in R&D, and supporting STEM education initiatives.

The Government will continue to apply the ITB Policy to eligible defence and Canadian Coast Guard procurements and will update its terms to ensure new procurements deliver maximum benefits to Canada’s defence industrial base. Reforms will be made in five areas:

• Alignment with key sovereign capabilities: The ITB policy already spells out Key Industrial Capabilities (KICs) – areas where the Government wants procurements to build-up long term Canadian industrial strength. When KICs apply, bidders are scored on how well their proposed Canadian business activity supports those capabilities, and the winning commitments become contractually binding ITB obligations. Early activity in KICs areas can be banked and counted towards future ITB obligations, encouraging firms to establish meaningful partnerships and conduct R&D, even before a contract is won. The existing KICs need to be updated and aligned to Canada’s key Sovereign Capabilities. There is also scope to adjust how the ITB Policy’s “Value Proposition” requirement is scored to better support the objectives of Canada’s Defence Industrial Strategy.
• Strengthening Canadian Innovation and Industrial Capacity: Canada will modernize its approach to defence industrial benefits by introducing mechanisms that incentivize strategic investments, R&D, and IP development. Key priorities include creating a Strategic Investment Transaction to credit investments that expand industrial output and sovereign capabilities, applying enhanced multipliers for high-impact contributions, and introducing a Canadian Company Boost to reward direct work with Canadian firms-especially SMBs. These measures will foster innovation, build resilient supply chains, and position Canada as a leader in defence industrial capability.
• Supporting exports and deeper integration into allied supply chains: Reviewing the ITB Policy’s rigid rules on causality and incrementality could make it more accessible and effective for Canadian companies. By easing the eligibility criteria, firms would be able to claim exports and supply chain activities as ITB credits, reducing administrative complexity and recognizing a broader range of contributions. Such changes could encourage more Canadian businesses to participate fully in ITB projects and better align crediting to economic impact. Canada will pursue targeted flexibilities under the ITB Policy to enhance exports and supply chain activities following continued engagement with industry to understand practical challenges and co-develop solutions.
• Rewarding skills development: There is a strong argument for re-examining the incentives for skills development, particularly the multipliers for contributions to skills development and training. Revising the multiplier policy to broaden eligibility would encourage companies to invest more widely in the workforce. Increasing the Indigenous multiplier, in turn, would ensure continued strong support for Indigenous participation. Such adjustments could make the ITB Policy more effective in building needed defence-sector skills and capabilities.
• Simplifying administration: Clearer and more predictable approval processes will reduce uncertainty. Credit verification could be simplified. The definition and verification of small and mid-sized businesses could be made more practical. Finally, some ITB policies can create disproportionate administrative and financial burdens for smaller businesses. Adjusting these rules could make participation by these firms more feasible, reduce complexity, and better support their growth and innovation.

More generally, Canada’s defence industry has long argued that the current approach to ITBs is too compliance-driven, focusing narrowly on whether contractors meet contractual requirements rather than meeting the intent of the ITB policy. In modernizing the Policy, there is an important opportunity to prioritize activities that strengthen domestic capabilities, foster innovation, create sustainable jobs, support supply chains, R&D, and exports, and allow more flexibility in how value is credited. In this model, the ITB Policy would guide firms toward initiatives that maximize long-term outcomes, with success measured by jobs, skills, and exports rather than narrow compliance metrics. The Government intends to undertake reforms that strike a better balance between criteria and strategic outcomes.

Key Actions