Major Helicopter Purchase Lands Important Work In Canada
BURLINGTON - The Boeing Company has signed an agreement with L-3 Wescam Inc. to manufacture mechanical parts in support of Boeing CH-147 Chinook cargo helicopters, including 15 purchased by the Government of Canada for the Canadian Forces.
The Boeing CH-147 Chinook aircraft is part of the government's implementation of its Canada First Defence Strategy. Due to Industrial Regional Benefits (IRB) requirements in the $1.2-billion CH-147 acquisition contract previously announced, Boeing will be re-investing at least the full contract amount into the Canadian economy, creating jobs and stimulating regional markets.
"L-3 Wescam's work in the Chinook demonstrates how Canada's IRB Policy can work with the Canada First Defence Strategy to draw significant investments to our economy and create high-quality local jobs," said Minister Tony Clement. "The projects from this contract will help advance the capabilities of Canadian aerospace companies."
At the same event, the Minister also announced a series of improvements to Canada's IRB Policy and some examples of how aerospace companies across Canada benefit from it.
The improvements to the IRB Policy will promote Canadian firms' participation in global value chains while continuing to generate maximum benefits to Canadian industry. They will attract substantive investments, global product mandates and world-leading research and development activities to Canada. The changes will also help focus IRB proposals on high-skill, high-technology areas with support for small and medium-sized businesses.
"Today's announcement is one of many examples of how the IRB Policy will improve Canadian firms' access to the global value chains of high-value products being sold in global markets," said Minister Clement. "Improvements to this policy will provide Canada with the opportunity for additional investments in our aerospace and defence sector."
The IRB Policy is an important element of the Government of Canada's overall procurement process for major defence and security purchases. It enables the government to leverage major investments in military equipment to encourage long-term industrial development and significant economic activity here in Canada. These improvements are being made in recognition of ongoing changes and opportunities resulting from the increased volume of defence procurement from the Canada First Defence Strategy.
Businesses from all regions of Canada are benefiting from this major Canada First procurement and are expected to benefit further from the government's other aerospace initiatives.
Canada's Industrial and Regional Benefits Policy
A Cornerstone of the Government's Procurement Process
The Industrial and Regional Benefits (IRB) Policy is an important element of the Government of Canada's overall procurement process for major defence and security purchases. The IRB Policy enables the Government of Canada to leverage major investments in military equipment to encourage long-term industrial development and significant economic activity here in Canada.
Industry Canada is responsible for the administration of the IRB Policy, in collaboration with the Regional Development Agencies. Industry Canada works in partnership on procurement projects with Public Works and Government Services Canada, which oversees the procurement process, and with the Department of National Defence, which establishes the technical requirements.
A key objective of Government of Canada procurement is to ensure that the right goods and services are purchased at the best possible price for the taxpayer. Sometimes, Canadian firms meet the procurement requirements and provide significant Canadian content in their goods or services. Other times, global firms provide goods and services that combine high-value Canadian content with world-class items sourced outside of Canada.
The IRB Policy does not dictate where the goods and services are purchased. Instead, it allows for the best available balance between quality and value for money, while ensuring that an equivalent amount of high-value economic stimulus is injected into the Canadian economy. IRBs help ensure that the Canadian economy in all regions benefits from procurement, regardless of the final outcome of the procurement process and which company wins the contract.
The IRB Policy strongly encourages prime contractors to select their Canadian partners based on what makes the best business sense, with the goal of generating long-term, sustainable business relationships in Canada. These strategic relationships stimulate the Canadian economy while helping to ensure a more competitive Canadian industry. The long-term focus of the IRB Policy provides Canadian companies with an opportunity to develop and apply their own strengths and competitive solutions and to take advantage of real business opportunities that will last years beyond the initial IRB commitment.
During the bidding process for a project with IRB requirements, bidders must submit an IRB proposal as part of their overall bid. The IRB proposal is a specific plan that outlines how the bidder plans to engage with Canadian companies over the life of the contract. The IRB proposal responds to several key requirements, such as providing plans for regional and small business participation, along with specifically identifying business activities being proposed. A team led by Industry Canada evaluates each IRB proposal to determine whether it satisfies the requirements of the IRB Policy.
The IRB Policy recognizes both "direct" and "indirect" types of business activities. Direct IRB are goods, services or investments that relate to the item being procured by Canada under the contract and direct global value chain work on strategic international fleets. Indirect IRB are goods, services or investments related to the contractor's other product or business lines or other approved investments that meet the established eligibility criteria. Both are measured for their Canadian content value (i.e., Canadian labour, goods and services).
The Government of Canada does not force winning bidders to do business with specific Canadian companies. The government asks them to identify and undertake high-value business opportunities in Canada that make good business sense to all parties involved.
Drivers for Updating the IRB Policy
While the existing framework works, a lot has happened since its establishment in 1986. The Canada First Defence Strategy (CFDS) is an important opportunity to secure more strategic IRB investment opportunities in Canada. The level of defence and security spending under the CFDS could reach unprecedented levels over the next 10 to 15 years. As a result, IRB obligations owed to Canada could more than double in the foreseeable future.
The aerospace and defence sector is also changing. Global value chains are now the way in which all complex products are produced. Thousands of parts go into a modern aircraft and other defence systems, and these parts come from all over the world. For most Canadian firms, the opportunity remains in how to best position themselves in these global value chains.
What this means in terms of IRBs is that our focus should be on the access Canadian firms have to the global value chain's technologically advanced suite of products being sold in world markets.
Improvements to the IRB Policy
To adapt to this new context and seize the opportunity to drive more investments in Canada's aerospace and defence sector, three series of improvements were approved by the Minister of Industry:
1. Promote Canadian firms' participation in global value chains and allow banking of IRB credits
The new approach will leverage Canada's defence procurements to provide Canadian firms with access to work on global value chains by acknowledging in some instances the value of work on foreign assets as equivalent to work on the assets purchased by Canada. Recognizing that private sector business planning and production cycles may not align with Government of Canada procurement cycles, banking of IRB credits will also be allowed in order to secure new business opportunities in a timely manner. It will provide firms with the flexibility to both accumulate a limited amount of credits related to high-value business opportunities before the contract is awarded and accumulate credits in excess of the total amount that they are obligated to provide.
2. Further attract substantive investments, global product mandates and world-leading research and development activities
To attract more strategic investments to the country, the government will require prime contractors with major IRB obligations to develop a strategic plan for achieving their IRB obligations in Canada. Theseplans are expected to lead to the development of substantive, market-leading business initiatives that would further position Canada on the world stage. More strategic and longer-term commercial relationships will also be created by phasing in, over a two-year period, the current requirement to identify IRB business transactions totalling 60 percent of total contract value at the time of contract signing.
3. Recognize the value of innovation-based business relationships
More emphasis will be put on innovation and commercialization-related activities. Currently, a percentage of a bidder's IRB proposal must align with Industry Canada's technology list, which focuses IRBs on high technology sectors. The list will be augmented to better reflect niche capabilities in Canada, as well as emerging and future needs in all aerospace and defence sectors. Support will also be provided for firms investing in research and development and commercialization-related activities in Canada, by expanding what is eligible for IRB credit to include a broader range of business and technology-development activities.
In order to provide an effective and seamless transition to these new practices, the government will be phasing in the improvements starting in the fall of 2009 through the spring of 2010.
Impact of the IRB Improvements
It is expected that the improvements will generate a series of positive results. The introduced changes will encourage more strategic relationships between major prime contractors, many of whom are world-leading technology companies, and Canadian companies both large and small, in terms of both strategic investments and subcontracting opportunities. These improvements will also better align the policy with the respective goals of client departments and support the development of Canada's industrial capability to meet future procurement needs in Canada and abroad. They will significantly strengthen the role that the IRB policy can play in enabling research, development and commercialization and in bringing new technologies to market. They will also create a more prosperous environment for the development of more valuable, enduring business relationships between global prime contractors and Canadian industry.
Sustainable, Long-Term Benefits
The IRB Policy benefits the Canadian economy by:
- securing major investments in the Canadian economy
- providing the incentive for global prime contractors to partner with leading Canadian companies
- increasing Canadian industrial competitiveness, through improved market access of advanced-technology sectors
- facilitating the entry of Canadian firms in the global supply chains of major international corporations
- developing and maintaining a capacity in Canada to deliver long-term equipment support to the Canadian Forces and other clients around the world
- promoting growth of Canada's small and medium-sized enterprises and the development of regional industrial capacity
Medium- to Heavy-Lift Helicopter Procurement
The new fleet of medium- to heavy-lift helicopters (MHLH) will take on the role of tactical insertion of platoon-strength armed troops and equipment into hostile situations. Domestically, they will allow the Canadian Forces to support first responders in disaster situations by facilitating the movement of people and supplies when transportation networks are disrupted or access to airfields by fixed-wing aircraft is not possible.
The Government of Canada approved the acquisition of the new MHLH fleet in June 2006. The following month, an Advance Contract Award Notice (ACAN) established the Boeing CH-47 Chinook as the only Western-certified aircraft in production able to deliver the capabilities required by the Canadian Forces.
Boeing was required to provide an aircraft that met the high-level mandatory requirements of the ACAN and the required Canadian configuration for flight test at 36 months after contract award. Upon successful test and evaluation of this aircraft, the delivery of an operational MHLH will begin with the final aircraft delivered no later than 60 months after a contract is awarded.
This procurement is not being undertaken to meet the government's short-term requirements in Afghanistan - this is being done through a separate process - but rather to re-equip the Canadian Forces over the longer term with its requirements for MHLHs. It was announced by the government in July 2006.