ITB Offset Management

CDR recently spoke with Stephanie Batstone and Leigha Cotton, Managing Partners at NyRad, a professional services firm specializing in defence procurement, to get their opinion on how they believe Canada’s ITB policy can be improved.

BY JAMES CARELESS

Canada’s Defence offset policy, known as the Industrial and Technological Benefits (ITB) Policy, leverages large defence procurements in order to boost Canada’s domestic defence industry and create highly skilled jobs.

            Steered by managing partners Stephanie Batstone and Leigha Cotton, NyRad is renowned for its ability to guide companies through the complex world of Canadian defence offsets.

            “ITBs are our business, and we pride ourselves on the number of procurements and resulting contracts we support and have supported over the years,” said Batstone. “We’ve been a part of almost every major defence procurement where Value Proposition (VP) has applied. Our level of visibility into emerging ITB trends, evolving management complexities and industry challenges is unmatched.”

ITB MANAGEMENT IS EVOLVING

ITB management has traditionally involved hiring consultants to advise internal program managers who are responsible for ITB execution. However, with the increasing complexity of today’s offset obligations and the financial risk tied to non-compliance, advice alone is no longer sufficient. This is why companies are now seeking external support from subject matter experts like NyRad who can augment their internal management and assist in day-to-day execution activities.

“At NyRad, we offer outsourced and co-sourced engagement models to a diverse range of clients, from large multinationals requiring capacity to first-time ITB obligors needing tactical day-to-day support,” Cotton told CDR. “We’re being integrated into project teams in a way that blurs the lines between internal and external resourcing.”

            Today, NyRad is supporting the execution of over $5 billion in ITB offset obligations on behalf of its clients. To do this, NyRad uses a team of offset professionals equipped to provide hands-on management services. These services include everything from contract negotiation support to stakeholder management to transaction development.

“In light of Canada’s evolving procurement landscape, we find our list of services evolving in order to align with new and emerging client needs,” said Batstone. “We find ourselves, for example, being integrated into our clients’ negotiation teams. And whether it’s negotiating terms on a sole source contract or preparing an unsolicited proposal, the need for ITB expertise has never been stronger”. 

WAYS TO IMPROVE ITBs

The Office of the Auditor General (OAG) of Canada recently audited Canada’s ITB Policy, to assess its application, effectiveness, and impact on defence procurements. In doing so, the OAG audit identified areas of inconsistency, lack of transparency, and inadequate measurement of economic benefits.

Since NyRad specializes in ITBs, CDR asked Batstone and Cotton about the OAG’s audit, and what they think should be done to improve Canada’s ITB Policy.

“While our experiences support the OAG findings, there are areas where we wish the report would have gone a bit further,” Cotton said. “For example, we were disappointed that the OAG did not publish findings on the inconsistencies that exist on the execution side of things. The cost of managing the inconsistent application of the Policy is one of the leading complaints amongst industry stakeholders and often the single biggest factor in program management cost overruns.”

            “Meanwhile, based on our expertise, we see key opportunities to improve the ITB Policy and its application both from a strategic and tactical perspective.”

RECOMMENDATIONS

For Canada’s consideration (in keeping with the nature of the OAG Report), the two presented the following tactical recommendations: • Invest in capacity building and training for all stakeholders involved in the policy’s implementation. Consistent training will help reduce inconsistencies in application and reduce management costs. • Foster a culture of transparency and accountability. Document intent where ITB Terms and Conditions may be unclear. This will help build trust between government and industry and allow for public scrutiny and input, driving further policy improvements. • Establish a robust feedback loop and regularly gather input on the policy’s effectiveness and areas for improvement from all stakeholders in the ITB enterprise, including contractors, consultants, and industry associations. The increase in need for external support suggests it’s more than just the contractually obligated that have important feedback to share. • Implement a system for ongoing monitoring, evaluation, oversight, and governance. This involves setting up clear metrics and performance indicators to track the policy’s impact over time, but it also means implementing a proper escalation process to ensure timely and efficient resolution of issues.

NyRad has more ideas about ways to improve Canada’s ITB Policy. In general, “we need to fundamentally shift the way we think about ITBs,” said Cotton. “We ought to think ‘bigger’ when we talk about how best to leverage offsets in today’s geopolitical context and augment the policy accordingly.”

            Turning to specifics, Batsone recommended that Industry, Science, and Economic Development Canada (ISED, which administers the ITB Policy) “should be provided the autonomy to function more like a team of economic development officers and less like regulators,” she told CDR. “Currently, ITB compliance can overshadow broader economic objectives, limiting the Policy’s ability to drive meaningful industry growth.”

            NyRad would also like the ITB Policy to be revised regularly to keep up with new technologies and market conditions. As well, “economic potential must be evaluated on a procurement-by-procurement basis,” said Cotton. “Not all contracts present the same opportunity or strategic value, particularly as Canada increases sole-source acquisitions. A commitment to a 50% offset in an area of high economic and technological importance can often deliver greater long-term benefits than a 100% offset where the impact is minimal or poorly understood.”

            Furthermore, the ITB Policy should be structured to support — not penalize — Canadian businesses, especially Canadian exporters and small and medium-sized businesses (SMBs). “Currently, export activity from Canadian businesses is often dismissed by ISED as ‘business as usual’ while foreign firms with minimal or no Canadian presence often receive full credit for relatively minor supply chain activity in the country,” Batstone said.

            The bottom line: “We need to free ourselves of the ideological stance that ITB offsets are free: They’re not,” concluded Cotton. “But that’s okay. We simply need to decide what they’re worth, especially in light of the broader economic goal where defence capability is at the forefront.”

James Careless is CDR’s Ottawa Bureau Chief