How smarter regulations can make Canada's defence procurement more effective and efficient

Canada’s defence and security industry is a major contributor to national prosperity, generating $11.1 billion in GDP and supporting 81,800 jobs across every province and territory in 2024.¹ The sector includes approximately 538 companies, more than 90% of which are small and medium-sized enterprise (SMEs), and has grown 87% in revenue, 41% in employment, and 44% in exports since 2014.²

Canada has recently increased defence spending to 2% of GDP and announced a target of 5% of GDP by 2035.³ The release of Canada’s first Defence Industrial Strategy (DIS) in February 2026 and creation of the Defence Investment Agency (DIA) signal an unprecedented federal commitment to strengthening domestic defence capabilities.

The momentum is real, but the procurement and regulatory systems intended to support this growth have not evolved at the same pace. Canada must modernize these frameworks to ensure we can capture the full economic, industrial, and sovereign benefits of increased defence investment. 

Current regulatory and policy challenges

Despite the growth of Canada’s defence industrial base, procurement and regulatory processes remain largely rooted in generic government frameworks that are not well-suited to defence acquisition requirements.

Here are some of the key challenges:

Five recommended process, policy, and regulatory actions

1. Modernize cyber and security assurance requirements
(Foundational principle(s): Transparent and predictable, Harmonized and coordinated)

Security approvals are a critical requirement to perform sensitive defence work. Canada should streamline the regulatory and policy requirements governing supplier approval by adopting a coordinated, risk-based framework.

This framework can be implemented through the following actions:

• Recognize equivalent security programs: Establish whole-of-government reciprocity for comparable certifications, assessments, clearances, and attestations across Canadian programs (i.e. CPCSC, CSP, CGP, Personnel Screening). Expand recognition of trusted allied frameworks, including ISO/IEC, CMMC, NIST/ENISA, SOC2, FEDRAMP and align cyber accreditation guidelines of the Communications Security Establishment to support consistent, technically credible assurance.
• Apply risk-based and phased requirements: Better tailor cyber and industrial security requirements to the sensitivity of the work. Allow suppliers to complete defined requirements after contract award, provided they cannot access sensitive information, systems, facilities, or work until compliant. Use contractual safeguards and milestone-based implementation plans to protect security. Align certification requirements with procurement objectives to prevent security processes from unnecessarily restricting competition.
• Set predictable service standards: Establish and publicly report approval timelines and performance targets for cybersecurity certifications, personnel and facility clearances, controlled goods approvals, and related activities. Integrate these measures into the broader defence procurement performance framework.

Expected outcomes:

• Reduced duplication and compliance costs.
• Increased Canadian participation in the defence sector and enhanced interoperability with allies.
• Faster approvals and stronger risk-based cyber resilience.

(Foundational principle(s): Risk-based and proportionate, Harmonized and coordinated)

Canada should establish a legislated, defence-specific procurement and contracting framework to address inefficient approval handoffs, overlapping authorities, and generic government requirements that slow defence acquisition.

The Defence Investment Agency (DIA) and Bill C-31’s proposed Defence and National Security Production and Procurement Act provide a foundation by consolidating authorities, increasing financial thresholds, and introducing limited exceptions to competitive procurement.¹⁰ This should be extended through a framework administered by the DIA and tailored to the urgency, complexity, and strategic importance of each acquisition.

This can be implemented through the following actions:

• Clarify authority and accountability: Align approval pathways, financial thresholds, and decision rights between the DIA and the Minister of National Defence. Align Contracting Authority and Expenditure Authority so the DIA can execute major procurements while remaining accountable for results.
• Remove duplicative governance: Reform, reduce and/or eliminate legacy Defence Procurement Strategy requirements that create additional challenge layers for DIA-led procurements. Align approval gates and accountability structures with the DIA’s legislated mandate.
• Modernize Defence Contracting Frameworks and Vehicles: Develop defence-specific contracting frameworks, standardized acquisition procedures, templates, and contract clauses that embed innovation, R&D, iterative capability upgrades, software modernization, and technology refresh mechanisms throughout the contract lifecycle.
• Improve and streamline project risk assessments: Introduce defence-specific risk assessment methodologies that account for operational urgency, military readiness, and industrial resilience, while integrating security screening, Controlled Goods Program, and industrial security requirements into a single coordinated process.
• Enhance Digital and Technology-Enabled Procurement: Extend procurement modernization to digital, cyber, software, cloud, and other enabling technologies that increasingly underpin defence platforms and operational capabilities.

These reforms should be supported by a government-wide implementation roadmap that clearly defines ownership, milestones, reporting requirements, and accountability mechanisms to address reported concerns, including those identified by the Office of the Procurement Ombud.⁹

Expected outcomes:

• Faster and consistent procurement decisions.
• Improved transparency and accountability.
• Greater industry confidence.

3. Create a statutory defence procurement performance function focused on outcomes
(Foundational principle(s): Outcomes-focused)

Canada should establish a legislated performance management and continuous improvement function to complement process compliance. It should assess whether defence procurement delivers military capability, economic and industrial benefits, and intended lifecycle value. This would build on the DIA’s modernization objectives¹¹ and should be framed to avoid creating another approval or challenge layer.

This can be implemented through the following actions:

• Track outcomes throughout the procurement lifecycle: Compare forecasted and realized results at contract award and defined program milestones. Measures should include capability delivery, investment, Canadian employment, domestic industrial participation, exports, and supply-chain development.
• Publish performance and service standards: Issue annual reports comparing capability delivery against planned schedules and publish targets for security certifications, clearances, controlled goods approvals, and other activities affecting procurement timelines.
• Embed continuous improvement: Conduct periodic reviews (e.g., every five years) of major programs, publish lessons learned and corrective actions, and assess whether DIA-led reforms are reducing approval steps, cycle times, and administrative burden.

This function would address longstanding gaps in outcome-based accountability while strengthening transparency, institutional learning, and public confidence.¹²

Expected outcomes:

• More transparent and predictable procurement.
• Efficient and cost-effective procurement.
• Increased public confidence without adding further approval barriers.

4. Strengthen Canada’s defence industrial base and sovereign capabilities
(Foundational principle(s): Outcomes-focused, Future-oriented)

Sovereign capability is Canada’s ability to develop, sustain, control, modify, and support strategically important defence capabilities. It includes domestic production and sustainment capacity, intellectual property, supply-chain resilience, strategic control, and technological independence. The Defence Industrial Strategy identifies 10 sovereign capability areas, including aerospace, digital systems, sensors, ammunition, autonomous systems, and space technologies.¹²

Canada should establish a Sovereign Capability Framework aligned with the Defence Industrial Strategy and the DIA’s Build-Partner-Buy model.¹²

This can be implemented through the following actions:

• Define sovereign capability criteria: Establish how production capacity, sustainment, strategic control, supply-chain resilience, intellectual property, and the ability to independently evolve critical technologies will inform procurement and investment decisions.
• Provide stronger market signals: Reinvigorate and keep evergreen long-term visibility into military capability priorities and communicate industrial and technological benefit expectations early in the acquisition lifecycle, to enable practical planning by defence industry, private equity, and provincial stakeholders.
• Support domestic capacity and investment: Align strategic partnerships with priority sovereign sectors, establish domestic supply-chain expectations, and provide targeted support to SMEs.

The framework should be codified through relevant legislation, regulations, and policies and administered by the DIA in collaboration with DND, ISED, and Global Affairs Canada.

Expected outcomes:

• Stronger domestic capabilities, improved supply-chain resilience,
• Greater investment confidence
• Increased export competitiveness. 

5. Clarify DIA’s financing authorities through a Defence Industrial Finance Regulation
(Foundational principle(s): Transparent and predictable, Future-oriented)

Bill C-31 grants the DIA new broad financing and investment authorities,¹⁰ however the associated eligibility, ownership-review, approval, and performance requirements remain undefined. Canada should establish a Defence Industrial Finance Regulation governing the DIA’s use of loans, grants, guarantees, equity investments, and other financing mechanisms. The regulation would give industry a predictable framework for accessing loans, guarantees, investments, export financing, and growth capital

This can be implemented through the following actions:

• Define financing eligibility and approvals: Specify acceptable financing structures, eligible sovereign capability sectors, approval processes, and national security and foreign ownership review criteria.

• Clarify expected returns and accountability: Establish public-benefit and return-on-investment expectations, along with reporting and performance-measurement requirements.

• Expand appropriate risk-sharing mechanisms: Assess government-backed insurance, guarantees, and related mechanisms to help Canadian firms obtain coverage and financing for strategically important defence programs.

Expected outcomes:

• Encourages participation of SMEs in defence sector

• Improved access to capital and risk-mitigation tools for suppliers

• Stronger alignment between industrial financing and Canada’s defence priorities
   

Economic impact and expected outcomes

Canada has committed to achieving NATO’s target of spending 5% of GDP on defence by 2035.¹³ Meeting this commitment would require approximately $260 billion in additional defence-related spending beyond current levels. While this investment has the potential to generate significant economic, industrial, and security benefits, it will depend on Canada’s ability to efficiently translate defence spending into military capability, domestic economic activity, and long-term sovereign resilience.

By modernizing procurement governance, adopting more coordinated and risk-based security requirements, strengthening accountability, and providing clearer industrial policy signals, Canada can improve both the speed and effectiveness of defence investment. This should accelerate procurement duration timelines significantly. Germany was able to achieve a 37% reduction in timelines with a similar initiative.¹⁵

Under current conditions, we estimate that increased defence spending would generate approximately $87 billion in cumulative real GDP between 2026 and 2035 and support an average of 24,000 jobs annually over that period. These estimates reflect current procurement patterns, where approximately 53% of procurement spending flows to Canadian-based firms, while the remainder is spent outside the domestic economy.¹⁴

If procurement policy and regulatory modernization, coupled with the impact of “Buy Canadian” and the “Build–Partner–Buy” policies¹², accelerates project delivery and increases Canadian industrial participation, the economic benefits could be substantially greater. Under a scenario where reforms enable Canada to achieve the 5% spending target by 2033 rather than 2035 and increase the share of procurement spending flowing to Canadian firms from 53% to 70% by 2035, we estimate an additional $56 billion in cumulative real GDP could be generated between 2026 and 2035.

Under this scenario, cumulative real GDP impacts would increase from approximately $87 billion to $143 billion, while supporting an additional 14,000 jobs annually, on average, during the decade. Beyond economic gains, these reforms would strengthen domestic supply chains, improve export competitiveness, enhance industrial resilience, and increase Canada's ability to develop, sustain, and evolve critical defence capabilities.

While outcomes will depend on implementation timelines, project readiness, and broader economic conditions, the analysis suggests that procurement modernization is more than an administrative exercise. It is a strategic opportunity to improve military readiness, strengthen Canada’s defence industrial base, increase returns on defence investment, and enhance national sovereignty in an increasingly complex security environment.