Terms and conditions

1. Authority

The National Defence Act, the Defence Production Act

Our North Strong and Free defence policy update

Canada Strong

2. Purpose and program objectives

The purpose of the Canadian Defence Industry Resilience (CDIR) program is to support the defence of Canada and safety of Canadians, by providing targeted support to Canadian businesses to increase their production capacity for defence related goods, equipment, services and materials. The program will support Canadian businesses, such as Centres of Excellence in the Munitions Supply Program (MSP), in expanding their defence production capacity for ammunition and explosives, including components and materials, and in support of the Canadian ammunition supply chain. The program responds to a lack of favourable financial capital available to the Canadian Defence Industry. Secondary benefits may include the creation of skilled jobs for Canadian workers for the long term and generate economic benefits for Canadian communities.

The objectives of the program are to:

• support Canadian defence industry to expand production capability and capacity of goods and services, component parts and raw material, including critical minerals, important to the sovereign industry
• support Centres of Excellence, such as those in the Munitions Supply Program (MSP) to:
  • expand domestic production capacity, and support the defence of Canada
  • improve sovereign industry supply chain resiliency for component parts and raw material, including critical minerals

3. Link to departmental and other government objectives

The CDIR program directly supports and aligns with the Government’s commitment to “protect Canadian sovereignty and keep Canadians safe by strengthening the Canadian Armed Forces, securing our borders, and reinforcing law enforcement”.

The program indirectly supports the Departmental Results Framework and Program Inventory Core Responsibilities of the Department of National Defence (DND) and Canadian Armed Forces (CAF). Within the Core Responsibilities of “Operations” and “Ready Forces”, CDIR will support and contribute to DND programs, such as Canada maintaining its relationships with allies and partners as well as ensuring the availability of critical defence capabilities and materiel required to meet readiness requirements.

4. Expected results and key performance indicators

5. Eligibility

For the purposes of these Terms and Conditions, an “Applicant” is defined as a corporation that submits an application for funding. An “Eligible Recipient” is an Applicant that is eligible to receive funding.

5.1 Eligible recipients

Eligible recipients are corporations incorporated pursuant to the laws of Canada proposing to carry on business in Canada or a General or Limited Partnership established pursuant to the laws of Canada proposing to carry on business in Canada, undertaking activities, as generally described in Section 6.2.

5.2 Eligible activities

Eligible activities include proposals to invest in scopes of work that:

• enhance existing and introducing new production capabilities
• maintain Canadian companies as defence goods Centres of Excellence
• support activities such as:
  • supply chain improvements
  • increased Canadianization
  • maintaining surge capacity
  • sustaining production readiness
  • new capabilities design and construction (equipment and infrastructure)
  • existing capability sustainment / site modernizations (equipment and infrastructure)
  • Centre of Excellence maintenance / workforce retention
• introduction of existing defence goods designs into the domestic industry
• advanced development and commercialization (industry intellectual property)
• federal / provincial policy driven improvements
• readiness to produce program (industry owned)
• increase Canadian content in existing supply chains
• build and consolidate Canadian expertise (ex., expertise may reside in other government departments, academia, industry, etc.)
• design, engineering, or other developmental / planning work in support of the above activities or to further develop a proposal
• increasing availability of domestic sources of key materials, supplies, minerals in production, through expanded production, refinement, extraction or other related activities

5.3 Eligible expenditures

Eligible expenditures are those incurred by the recipient and which are necessary and reasonable to carry out the eligible activities to which they relate, as outlined in the project’s statement of work in the contribution agreement or related amendments. Eligible expenditures will be limited to non-recurring costs that are specifically related to the project:

• direct labour
• subcontracts and consultants
• direct materials and equipment
• overhead (corporate costs)
  • the maximum amount of eligible costs which can be dedicated to overhead is set at 30%
• legal, accounting and consulting fees in connection with obtaining patents or other statutory protection for project intellectual property
• other incremental costs directly related to the project and the objectives defined in the contribution agreement
• travel costs
• web hosting and other telecommunications / IT services
• training for project-specific skills
• intellectual property legal costs
• construction equipment
• land, buildings and infrastructure
• the costs of obtaining licenses or intellectual property necessary for the successful completion of the project

Costs associated with land, buildings and infrastructure must be necessary and reasonable to carry out the eligible activities to which they relate. Costs associated with land will need to be specifically approved by DND and negotiations will need to include a plan, acceptable to DND, for the life of the land beyond the term of the contribution agreement. Examples of eligible land and infrastructure costs include the construction of new or the expansion of existing facilities, the development of industrial landscapes and testing facilities, and investments in modern infrastructure. Such costs must be non-recurring, and the Government will have no obligation to provide additional funding to support land and infrastructure costs beyond what was negotiated and provided in the contribution agreement should there be a cost overrun associated with the project. Treasury Board approval is required prior to negotiating support for land.

On a case-by-case basis, the program may consider supporting retroactive reimbursement of eligible costs a recipient incurred prior to the signing of the contribution agreement but not earlier than the date on which an application has been submitted. Retroactively eligible costs shall not exceed 20% of total eligible expenditures.

The program will not be obliged to pay incurred costs in the event an application is rejected or a contribution agreement is not executed by both parties.

Limits for costs occurring outside of Canada will be negotiated with recipients on a case-by-case basis.

5.4 Ineligible expenditures

Certain expenditures are not eligible for reimbursement, regardless of whether they are responsibly and properly incurred by a recipient in the performance of the projects.

Ineligible expenditures will include:

a. allowance for interest on invested capital, bonds, debentures, bank or other loans together with related bond discounts and finance charges

b. legal, accounting and consulting fees in connection with financial reorganization, security issues, capital stock issues, obtaining of licenses and prosecution of claims against the Minister

c. losses on investments, bad debts and expenses for the collection charges

d. losses on other projects or contracts

e. federal and provincial income taxes, goods and services taxes, excess profit taxes or surtaxes and/or special expenses in connection with those taxes

f. provisions for contingencies

g. premiums for life insurance on the lives of officers and/or directors where proceeds accrue to the recipient

h. amortization of unrealized appreciation of assets

i. depreciation of assets paid for by the Minister

j. fines and penalties

k. expenses and depreciation of excess facilities

l. unreasonable compensation for officers and employees

m. product development or improvement expenses not associated with the work being performed under the project

n. advertising, except reasonable advertising of an industrial or institutional character placed in trade, technical or professional journals for the dissemination of information for the industry or institution

o. entertainment expenses

p. donations

q. notwithstanding any other provision of this Agreement, no profits derived from the execution, performance, or outcome of this Agreement shall be distributed to, claimed by, or otherwise made available to:

1. the contracting entity

2. any of its subsidiaries, whether wholly or partially owned

3. any sister companies under common ownership or control

4. any affiliates or entities under the same ultimate holding company

5. dues and other memberships other than regular trade and professional associations

r. extraordinary or abnormal fees for professional advice in regard to technical, administrative or accounting matters, unless approval from the Minister is obtained

s. selling and marketing expenses associated with the products or services or both being developed under the agreement

6. Determining the amount of the agreement

6.1 Method to determine the amount of funding

The amount of an agreement will be based on the identified need in the applicant’s proposal, after review by DND. If accepted, DND would indicate the available funding to support the applicant and the funding profile it is committing to the applicant, in consideration of the following sub sections.

6.2 Maximum amount payable

The maximum amount payable per project is $700,000,000.

6.3 Stacking provisions and other government assistance

An eligible recipient will be required to inform the Department of any other government (federal, provincial, territorial, municipal) financial assistance it has received or requested for the eligible project prior to a recommendation being made to the Minister / Department to approve a contribution. Furthermore, contribution agreements will impose upon the recipient a continuing disclosure to advise the Department if it receives further government assistance in respect of the eligible costs supported by the contribution.

Contribution agreements will provide for the right of the Department to either reduce the amount of the contribution in an amount equivalent to any amount over the stacking limit, or require an eligible recipient to repay the excess amount, which amount would constitute a debt due to the Crown and would be recovered as such.

The combined level of assistance from all government (federal, provincial, territorial, municipal) financial assistance sources will be up to 100 percent of eligible costs.

7. Applicant requirements

Proposals may be solicited through national, directed, or targeted calls for proposals, unsolicited and/or via a continuous intake model. Where applicants are sought via national, directed, or targeted calls for proposals, the call may combine steps 1 and 2 below by providing sufficient information to potential applicants to provide a complete proposal, and if the proposals are sufficiently mature. Under an unsolicited and/or continuous intake model, the program will work with potential Applicants to understand the proposal being advanced alongside its value to Canada and relevance to defence needs; these proposals will generally be sequenced through steps 1 and 2 below.

Applicants will be required to submit sufficient information for the Minister of National Defence to assess the applicant and its project proposal against assessment criteria as set out in Section 9 of these Terms and Conditions. Information to be requested from the applicant would include information necessary to meet the objectives outlined below.

7.1 Step One: Applicants will be required to submit a high-level overview (“step one overview”) of their proposal and how it meets the objectives of the program, accompanied with current and/or past corporate information to allow an initial assessment of their basic corporate capability to complete the project.

7.2 Step Two: If the submitted step one overview information is consistent with program objectives and demonstrates corporate capability to complete the project, applicants may then be invited to submit additional information (as detailed in the program guidelines) for step two of the application process. This may include, but need not be limited to:

7.2.1 Organizational information such as:

• description of the applicant (e.g., legal structure, ownership, management, business experience, past and forecasted financial statements for the years covered by the project, technical team, etc.)
• demonstration of how the applicant meets the eligibility criteria
• assurance that the applicant is in good standing with regard to all federal, provincial, territorial and municipal laws and regulations
• corporate documents as the Minister deems necessary (e.g. articles of incorporation, corporate by-laws and related instruments)
• affirmation that any person, including any consultant or in-house lobbyist who lobbies on its behalf, to obtain funding under the program, and who is required to be registered pursuant to the Lobbying Act, is registered pursuant to the Act
• affirmation that the applicant has not, and neither has any person on its behalf, engaged or employed any person (other than an employee) for the purposes of obtaining funding; and paid, or agreed to pay that person, a commission, contingency or success fee or any other consideration (whether monetary or otherwise) that is dependent upon the applicant receiving funding
• assurance that any former public servant, who derives benefit from the contribution agreement, will be in compliance with the Values and Ethics Code for the Public Service, the Values and Ethics Code for the Public Sector, and the Policy on Conflict of Interest and Post-Employment
• assurance that any former public officer holder, who derives benefit from the contribution agreement, will be in compliance with the Conflict of Interest Act
• assurance that no member of the House of Commons or Senate will benefit from the contribution agreement
• attestation from key executives indicating that any contributions from the program will not be included in the evaluation of, nor be used for, executive performance pay

7.2.2 Project information such as:

• a project proposal, as well as major activity areas including the project’s scope and objective, workplan and budget, key project milestones, risks, commercialization plan, and planned repayment schedule (if applicable)
• the forecasted total cost (eligible and ineligible costs) of the project, and details of financing
• the forecasted benefits
• information on federal, provincial, territorial and municipal assistance or tax credit, sought, received or likely to be received for the project; and
• a description of how the project and the applicant will meet the assessment criteria detailed in Section 9 of these Terms and Conditions

8. Assessment criteria

Assessment process

8.1 Step one criteria

Eligible recipients will first be required to demonstrate that proposed projects meet the program objectives by submitting a high-level project overview, the requirements of which will be provided in the program guidelines. A basic capability to undertake the outlined project is to be demonstrated.

Capacity to achieve stated objectives (due diligence)

The proposed project will be evaluated to assess the capacity and experience of the applicant to execute the proposed project, to achieve the stated objective and to better position Canada to have a robust and dynamic defence industry which can respond to future threats, emergencies, or defence requirements. Factors taken into consideration may include management and workforce capability, corporate technical capability, financial stability and capacity, and market risk.

8.2 Step two criteria

Subject to meeting the above provisions, eligible recipients will be required to develop and submit a detailed proposal, the requirements of which will be provided in the program guidelines.

The program will accept applications on a continuous basis. However, the program may choose to do calls for proposals and fund one or several projects with single recipients as a result.

Applications will be assessed to identify those that demonstrate substantial national security benefits. The applicant will need to demonstrate benefits for national security, which may include benefits such as, but not limited to:

• support the supply chain of provision of a key materiel or munition
• support Canadian capacity for rapid production of an urgent operational requirement; and/or
• sustain a key ammunition capability or capacity (i.e., strategic munition supply) within Canada

Secondary consideration may be made for other benefits on a case-by-case basis:

Innovation benefits

• The proposed project’s expected contribution towards the enhancement or development of new industrial or technological innovations. Assessment factors could include: potential spillover benefits, creation of intellectual property, impact on productivity of the new technology, etc.

Economic benefits

• The proposed project’s forecasted impact on the growth of Canadian firms, clusters and supply chains, as well as its expected benefits for Canada’s workforce. Assessment factors could include: number of jobs created, number of high-paying jobs, project-related revenue growth, etc.
• The proposed project has positive impact on local, regional, national or international economies. These may include shorter-term benefits such as employment, or longer-term benefits such as better positioning Canada to be economically resilient to future threats and strategically position itself in global supply chains.
• The proposed project addresses market needs and/or improves Canada’s position to access products / services of importance, including in alignment with the Defence Industry Strategy (to be developed).

Public benefits

• The project’s expected contribution to the broader public, including inclusive business and hiring practices (e.g., gender balance), investment in skills and training, and environmental best practices. Assessment would consider the degree to which the applicant demonstrates that the project is expected to generate social, environmental, health, security or other benefits to Canada. Assessment factors could include: project-related environmental benefits, investment in local communities and project-related impact on Indigenous communities.

Following a preliminary assessment by subject matter experts, the program may leverage interdepartmental or other available experts (e.g., available on contract to the program) to support review of the technical and/or business value of proposals. A financial due diligence assessment will also be carried out with respect to projects. A Project Review Board will review proposals and recommend projects to the approval authority, which may include advice from other departments (i.e., Innovation, Science and Economic Development Canada, Environment and Climate Change Canada, Employment and Skills Development Canada).

9. Monitoring and reporting

Recipients will be required to submit periodic reports, annual financial statements, project status updates and reports of project benefits. This information will be used to track the performance and progress of eligible activities against agreement objectives.

After completion of eligible activities, recipients may be required to submit period reports on project benefits including fulfilment of specific commitments, to enable the Minister to evaluate the effectiveness of the contributions, and any other documents as requested by the Minister. The reporting will enable the Minister to carry out the post-disbursement monitoring as per the contribution agreement and evaluate the effectiveness of the contribution.

Financial statements will either be audited or in a form acceptable to the Minister and as indicated in the contribution agreement.

The reporting information will be required over the following periods:

1. Eligible recipients of repayable contributions will be required to submit annual reporting until all contribution agreement conditions, including repayment provisions, have been completed.
2. Eligible recipients of non-repayable contributions will be required to submit reporting as determined by the Minister, with a provision for a period of five years after payment of the final claim.

This information will enable the Minister to evaluate the longer-term benefits of the project and the effectiveness of the contribution.

The level and type of reporting will be risk-based and align with project and program assessment requirements.

10. Method of payment to the recipient

Payments to a recipient will generally be made on the basis of documented claims for reimbursement of actual eligible costs incurred which, in the opinion of the Minister, are reasonable, to be submitted by the recipient not more frequently than monthly. Each claim must be substantiated by such documents as are required by the Minister. Claims shall be certified by an officer of the recipient or by such other person that is satisfactory to the Minister.

Payments may also be considered based on the achievement of pre-determined performance expectations or milestones, which will be included in contribution agreements.

Recipients may also be provided with advance payments in consideration of an assessment of the risk level, when the recipient’s forecast cash flow is required in advance to support delivery of the project. The recipient will provide evidence satisfactory to the Minister of all eligible expenditures that have been incurred and paid, usually on a quarterly basis that follows an advance.

The Minister may ask that any claim for payment be certified by the recipient’s external auditors or by auditors of his or her choice. The Minister may request at any time that the recipient provide satisfactory evidence to demonstrate that all eligible costs claimed have been paid.

11. Repayable contributions

The program may make conditionally repayable contributions or non-repayable contributions.

Agreements with not-for-profit organizations will be non-repayable.

In accordance with the Treasury Board Policy on Transfer Payments, repayable contributions will be conditionally and/or unconditionally repayable or a combination of both.

Non-repayable contributions may be provided to for profit organizations, where the benefits of the supported activities are to the benefit of Canada and safety of Canadians. In these situations, concurrence from the Treasury Board of Canada Secretariat is required in advance of negotiation or signing of a contribution agreement.

The repayment of contributions will respect the Treasury Board Policy on Transfer Payments.

Where agreements primarily produce benefits to other countries (i.e., foreign sales), a conditional repayment clause may be considered. Conditionally repayable agreements may also be used with for-profit organizations where the agreement would significantly increase the profitability of the organization.

Repayment terms, including date of commencement, repayment schedule and termination date, will be negotiated with companies on a case-by-case basis, and will be based on an assessment of the nature and risk of the project, corporate considerations, provincial considerations, compliance risk to the repayment terms and benefits to Canada.

Repayment schedules will be established with the objectives of normally initiating repayments as soon as possible, two years after the completion of the project or two years after the conditions being met, and of normally achieving repayments within 10 years after completion of the project. Payments will generally be required on a quarterly, or annual basis.

Repayable contributions, when appropriate, shall take a conditional form. Repayment is normally to a maximum of 100% of the nominal value of the contribution paid and over a fixed period of time. The amount of the repayment will be determined based on the factors that trigger repayment – for example, repayments based on foreign sales would be limited by the profit generated on those foreign sales. Repayments will be performance based and reflect a risk sharing approach under which the amount repaid may be below the nominal contribution amount. Conditional repayments should be based on measures that are clear and easily verifiable such as provided for in regular external reporting by the recipient (i.e., confirmation of foreign sales) or readily verifiable in an audit.

Determining the use of conditional repayable agreements and the time period for repayment, will take a risk based approach and take into account a number of factors such as the recipient’s and sector’s business conditions, potential high growth results which could accelerate or increase payments to the Crown, product life cycle, ability of the recipient to comply with repayment terms, future recipient requirements to obtain growth capital, trade agreement considerations and/or the achievement of benefit objectives.

DND will monitor all provisions of the contribution agreements including those relevant to repayments. All contribution agreements may include provisions requiring eligible recipients to submit annual information updates on projected and actual repayments. All contribution agreements will include provisions allowing the Minister to publicly disclose the amount of each repayment made by the recipient at the time it is due or paid or at any time thereafter. If the recipient fails or neglects to file the requisite documentation to establish the amount due at the appropriate time, the Minister will have the authority to publicly release the projected repayment amount.

12. Official languages

Communications with the public and delivery of services will be in both official languages, in accordance with the Official Languages Act (OLA). All the documents developed by the program will be published in both official languages. The Program will also contribute to Section 41 of the OLA, as it will encourage official language minority communities to participate fully to the program, if, when, and as applicable.

13. Intellectual property

The Crown will not have an ownership interest in the project intellectual property nor will the Crown acquire new rights in background intellectual property by virtue solely of having provided the contribution. Rights attributed to the Crown in any other way including under the Public Servants Inventions Act are not in any way affected by this agreement. Recipients must own the background intellectual property or hold sufficient background intellectual property rights to permit their eligible activities to be carried out. Additionally, they must hold sufficient rights to permit them to exploit the intellectual property resulting from their eligible activities.

Recipients shall take appropriate steps to protect the intellectual property resulting from activities supported through the program. Recipients may be required by the Minister to provide information regarding their intellectual property strategy related to the eligible activities.

Funding agreements may require that recipients grant the Government of Canada a nonexclusive licence to the Intellectual Property resulting from activities funded, including for the purpose of conducting research and development, policy development, or to publicly share program results and impacts.