Ottawa is spending millions less on startups than it promised

The federal government’s plan to be a first buyer for Canadian startups is falling short of its goals.

Catch-up: Announced in the 2017 budget, Innovative Solutions Canada (ISC) is a program in which 21 federal departments are required to use 1% of their procurement and R&D spending on “challenges” open to Canadian companies with fewer than 500 employees.

  • Challenges are similar to traditional requests for proposals (RFPs), but instead of requesting a specific product or service, they more broadly seek solutions for a problem or opportunity.
  • There is also a stream for prototypes to be purchased and tested by government departments.
  • The program is meant to help startups and SMBs, which can struggle to compete for government RFPs against larger Canadian and multinational companies.

Yes, but: Departments had until the 2019-20 fiscal year to ramp ISC spending up to 1%, but only seven have hit that target at least once between then and 2021-22, the last year for which an annual report is available. In that time, none have met all of their obligations, collectively spending $252 million less through the program than they were supposed to.

  • Six departments met their obligations once in those three years: National Research Council, Agriculture and Agri-Food Canada, Natural Resources Canada, Environment and Climate Change Canada, Fisheries and Oceans Canada, and Health Canada.
  • ISED hit its obligations twice.
  • The Department of National Defence (DND) has the biggest annual obligation at $65 million, but it also has the biggest shortfall, totalling $173.6 million over three years.

Why it’s happening: It may be taking more time than expected for ministries to get familiar with the procurement program. Five departments met their targets in the 2021-22 fiscal year, its record high, with several others getting closer than they had in previous years.

  • But some departments just have different priorities. The Logic reported that DND was seeking to reduce its ISC obligation as it focused on an internal procurement program that is open to large and foreign firms.

Why it matters: Canada underperforms on innovation compared to other OECD countries, and ISC is becoming another example of a government program falling short of its promise to fix that.

Zoom out: In December, the government delayed the launch of the Canada Innovation Corp., which was to provide $2.6 billion over its first four years to help Canadian businesses pursue new innovations.