Everything you wanted to know about Canadian Industrial Offsets (ITB/VP) but were afraid to ask

1. Everything you wanted to know aboutCanadian Industrial Offsets(ITB/VP)but were afraid to ask

2. Background • Canada has been an innovator in Industrial Offset Policy, dating back to Korean War (1950, DPA) • The IRB/ITB Policy we currently have was born in 1986, and has morphed through various stages • In principle, the Policy is simple, when Canada engages in a “strategic” procurement (normally Defence related, >$20M value), it expects an equivalent return to Canada • Like most things, the Devil (and the hidden advantage) is in the details

3. Important Concepts & References • Canada's strategic Defence expenditures are normally mapped out in a formal White Paper. The current one (Strong, Secure, Engaged) can be found at: http://dgpaapp.forces.gc.ca/en/canada-defence-policy/index.asp • The job of ensuring Canada obtains equitable benefit from thisspending belongs to ISED, and their rules can be found at: https://www.ic.gc.ca/eic/site/086.nsf/eng/home • The role of ensuring such procurement and associated Offsets are legally and financially sound rests with PSPC, thus if you seek to benefit from ITB/VP Policy, be aware of this triad structure, and be familiar with the referenced documents

4. Strong, Secure, Engaged (DPS) in a nut-shell • Delivering the right equipment to the Canadian Armed Forces and the Canadian Coast Guard in a timely manner: • Ensuring early and continuous industry and client engagement in the procurement process; • Starting in June 2014, publishing an annual Defence Acquisition Guide that outlines National Defence (DND) procurement priorities; and • Establishing within DND an independent, third-party challenge for military requirements.

5. Strong, Secure, Engaged (DPS) in a nut-shell • Leveraging our purchases of defence equipment to create jobs and economic growth in Canada: • Using a weighted and rated Value Proposition, to assess bids for Defence and major Canadian Coast Guard procurements; • Implementing an Export Strategy to support international sales opportunities and participation in global value chains; • Identifying and applying Key Industrial Capabilities (KICs) to inform potential economic benefits of individual procurements so that they meet the CAF’s needs & increase the competitiveness of Canadian firms in the global marketplace; and • Establishing an independent, third-party Defence Analytics Institute which will provide expert analysis to support the objectives of the DPS and its evaluation.

6. How do ITB/VP's work? • Objectives • Support the long-term sustainability and growth of Canada’s defence sector • Support the growth of prime contractors and suppliers in Canada, including small and medium-sized enterprises in all regions of the country • Enhance innovation through Research and Development in Canada • Increase the export potential of Canadian-based firms • Application • All eligible DND/CCG procurements over $100 million ($20M option)

7. ITB/VP, Some Important Concepts • Industrial & Technological Benefit (ITB) • A mandatory obligation to conduct certain business in Canada. A simple Pass/Fail • Value Proposition (VP) • A selection of ITB parameters considered to be of significance to this procurement. These are “weighted and rated” and contribute to the overall scoring of the bidders proposal. This is where the games are played.

8. ITB/VP, Some Important Concepts • Transaction (and type) • Investment Framework (IF) • Strategic Plan • Banking and Pooling • Key Industrial Capabilities (KICs) • Canadian Content Value (CCV) • Eligible Party

9. What are ITB/VP's goals? • Improves economic outcomes for companies in Canada from defence procurement: • Ensures that defence equipment purchases create greater economic opportunities by promoting a sustainable, innovative & globally competitive Canadian defence industry. • Transforms Industrial & Regional Benefits (IRBs) into Industrial & Technological Benefits (ITBs). • Gives the Government more flexibility to improve economic outcomes from defence procurement projects. • Rated & Weighted Value Propositions (VP) for defence & major Canadian Coast Guard procurement projects. • Bidders will be motivated to put forward their best industrial plan for Canada, as these plans will be scored on the quality of their Value Propositions.

10. Maximizing SMB/Academia ITB/VP benefit • Why should SMBs and Academia care? • There is a mandatory SMB set-aside • The Value Proposition (VP) is rated & weighted • The VP formula always contains parameters of SMB and Academia interest: • Collaborative R&D • Source and Skills Development • Global Value Chains • Therefore smart Prime bidders now see ITB/VP savy, informed and agile Academia & SMBs as important assets, rather than irritants

11. Maximizing SMB/Academia ITB/VP benefit • Important / Essential things to do: • Take the time to understand the ITB program, inclusive of the jargon, Primes will be impressed • Have your own Value Proposition that spells out what differentiates you from the pack • Track programs as they move through the approval cycle, know who the potential bidders are. Get your stuff in front of them at every opportunity. Chasing an ITB/VP slot after the RFP has issued is too late • Know who are your local MPs. Brief them on your objectives. Ensure Prime bidders know you are able to push those buttons

12. Maximizing SMB/Academia ITB/VP benefit • Other Common Sense Stuff: • Once an RFP issues, get a copy and read it • Pay particular attention to the VP weighting (nominally 20%), SMB set-aside (nominally 15%), and the VP calculation formula • Study the VP formula, and figure out how your company can impact the parameters it contains. Add that to your own Value Proposition • Know who the Prime Offset Managers are, and use every reasonable opportunity to present this case. Repetition is not rude in this circumstance

13. Maximizing SMB/Academia ITB/VP benefit • Things to avoid doing: • Showing up to a Trade Event/B2B and asking a Prime's rep to explain what they do, and what opportunities there are for you. You must do your homework, be informed, and tell them what you can do on their program • Locking yourself into any exclusive deal, unless you are certain-sure it is a one horse race • Waffle or lie when asked what your Canadian Content Value (CCV) is • Act as if you think the ITB/VP is some form of SMB Entitlement Program • Engage in negative marketing

14. Maximizing SMB/Academia ITB/VP benefit Valuable Tools: • Your own Value Proposition • This comes in many formats, but the key, foundation document is the “Elevator Speech”. A simple, one-pager, that in bullet form, says: • The esence of who you are • What discriminates you from the rest • Why that is important to the End User • How a Prime Contractor benefits from dealing with you • What benefits accrue to Canada by choosing you • Should be easy, eh? Many struggle with this • Once established, everyone who interacts with clients, government, media, etc, should have it committed to memory, and stick to it

15. Maximizing SMB/Academia ITB/VP benefit • Valuable Tools: • Processes and Methods that match the Prime’s • Preparing a winning ITB/VP Proposal, and then managing its contract execution is a lot of work for the Prime, with significant penalties if it gets screwed up. • Suppliers who understand the ITB/VP process, and present their source materials in Proposal and Annual Report ready formats are worth their weight in gold. Be golden • Review the ITB Transaction Sheet. It is several pages of promises the Prime is making, that will become contractually binding, if he wins

16. Maximizing SMB/Academia ITB/VP benefit • Valuable Tools: • Manage your Public Image • Make sure that your web-site is current, accurate, and attractive. It is stop #1 for any Prime building his ITB/VP chain. SMBs and Academia are horrible at this • Don't be cheap in having a sensible, focused presence in the Trade Media, it does work • Similarly, Primes expect you to be visible at Trade Shows, ideally with themes that mesh with their interests • This also applies to Government sponsored events, be there, even if you have heard the story before

17. Maximizing SMB/Academia ITB/VP benefit • Attracting Investment • The ITB/VP provides Primes strong incentive to make eligible investments in Academia and SMBs • If you fit that description, pay attention, Key features: • A Prime can invest in a technology development and receive an ITB credit equal the future sales he enables by doing so • Alternately, the Prime help sponsor in R, D & E programs,for which he receives a pre-determined (x4-9) multiplier on his contribution • Whatever investment the Prime makes, it must be in the form of a “gift”, where he has no repayment rights, nor does he receive any equity, or IP rights related to the work. It is truly Free Money

18. Summary • The foregoing maps out why you should be interested in ITB/VP • However, obtaining those benefits takes time and effort • One 30-minute briefing will not get you there. This takes regular and sustained attention. If you do not have the time, find someone who does • Academia and SMBs who pay attention do well, it has nothing to do with luck • As a start, the following check-list may help you

19. A Simple Check-List • Read the ITB/VP, and understand it • Ensure your profile matches the ITB/VP focus • Make sure you web presence and public image reflects same • Monitor all GoC procurements, so you know when ITB/VP procurements are on the street • Present your case to all bidders, in a format that matches ITB/VP requirements • Understand this is a long haul process, stamina wins out • If you get a negative answer, you just asked the wrong question, try it again in a different format, never, never, never give up

20. What comes Next? • Who knows, as Industrial Offsets exist at the Government's discretion • However, both major parties have maintained (and strengthened) them over the years • The ITB/VP version is new(ish), and reached after extensive consultation with Industry (SMB set-aside and VP were the innovations) • General consensus is favorable on these changes, with a mood to strengthen the VP • However, don't forget, GoC made these rules, and it can waive them (e.g. FMS, Urgent and Pressing Req, .....)