Socio-Economic Procurement in Aerospace & Defence

November 11, 2019

This is one of a series of articles, based on a report commissioned by the Canadian Council for Public-Private Partnerships (CCPPP).

Canada was one of the first countries to use Offsets, when Air Canada was still a Crown Corporation. Foreign vendors of passenger aircraft were required to show how their bids benefited Canada’s economy. Offsets involve activities designed to benefit the Canadian aerospace and defence industry.

  • In Direct offset, the exporter may be required to establish manufacturing facilities in the importing country or use a specified percentage of components in the product from the importer´s country.
  • In Indirect offset, the exporter may be obliged to buy goods or services from the importing country without any link to the product sold.

The word “offset” was a generic term, now called Industrial Cooperation, Industrial Benefits, or Local Participation.

The Ministry of Innovation, Science and Economic Development Canada (ISED) manages Canada’s Industrial and Technological Benefits (ITB) program. This requires bidders to provide proposals covering 100% of a contract’s value. The policy defines parameters to guide bidders on how to accomplish these requirements. Canadian and foreign companies are all required to provide offset proposals, ensuring a level playing field.

The ITB program requires companies to provide a Value Proposition, which is weighted and rated against competitive bids. A company that promises a strong a Value Proposition can score points that its competitors cannot. Creativity in designing proposals can be rewarded with 10 or more points out of 100, depending on the procurement.

Canada realizes that public procurements are an important socio-economic advancement tool. Canada’s example spread rapidly to other jurisdictions. The ways that bidding companies can meet obligations vary by country. Nordic countries, for example, value proposals that include:

  • Marketing and export development assistance;
  • Technology cooperation with resident countries;
  • Purchases of goods and services;
  • R&D cooperation
  • Subcontracting small- and medium-sized companies.

Canada has a regional development requirement; bidders commit to providing benefits in defined regions of the country. Canada is particularly interested in how bidders can involve local companies in international markets through their supply chains. Companies need to provide an export strategy as part of the bid. Canada asks bidders to provide a plan that outlines how it will deal with gender and indigenous issues, although this is not a scored item. Canada also values investments in companies and, to a limited extent, venture capital investments.

All countries value direct purchases from within their borders. In all nations, the theme is the same: how public procurement can increase the industrial base, to promote socio-economic advancement within their jurisdiction.