Analyzing the Defence Investment Agency Act

New legislation will empower DIA to support industry, hire outsiders, and sole source often

The Defence Investment Agency Act has been tabled, tucked into Division 16 of the government’s recent ways and means motion. This Act provides a statutory framework for the Defence Investment Agency (DIA) and makes significant changes to the Defence Production Act, to be titled the Defence and National Security Production and Procurement Act. Thanks to the Carney government’s majority, the proposed legislation should become law without too much difficulty, though we may see some tinkering here and there.

Two aspects of the bill had already been disclosed by the government: there will be a new Minister for DIA, and the Agency will now be a standalone entity in law, as opposed to a special operating agency under Public Services and Procurement Canada. In addition to these, we find legislation that’s quite ambitious in terms of the powers it grants this new Minister, and by extension to the Chief Operating Officer (CEO) who will be running the DIA at the rank of a deputy head.

My aim in this post is to highlight aspects of the legislation that I found interesting and notable. I also point to sections that are vague and should be clarified as the legislation makes its way through Parliament.

The Minister’s authorities under the bill largely align with the objectives of the government’s Defence Industrial Strategy. The Minister will have exclusive authority to “acquire defence supplies and defence services,” and to “construct defence projects”. Under the proposed new section 12 of the Defence and National Security Production and Procurement Act, the Minister shall:

(a) examine into, organize, mobilize and conserve the resources of Canada that contribute to defence supplies and their sources of supply;

(b) examine into, organize, mobilize and conserve the workforce, agencies and facilities available for the supply of defence supplies, the provision of defence services and the construction of defence projects;

(c) explore, estimate and provide for the fulfillment of the present and future needs of the Government of Canada and the community with respect to the supply of defence supplies, the provision of defence services and the construction of defence projects; and

(d) generally take steps to mobilize, conserve and coordinate all economic and industrial facilities in respect of defence supplies, defence services and defence projects and their supply, provision or construction.

In exercising these authorities, the Minister will consider:

a) the efficiency of national defence or national security procurement;

(b) the stimulation of investment in the national defence sector or national security sector;

(c) the stimulation and promotion of research, development and innovation in the national defence sector or national security sector;

(d) the possibility of joint procurement and other forms of cooperation with associated governments, as defined in section 2 of the Defence and National Security Production and Procurement Act; and

(e) the protection and acquisition of intellectual property rights.

We should note that the alignment with the DIS is most evident in these duties and considerations. They ensure that the Minister and DIA are empowered to advance the government’s defence industrial ambitions, alongside their management of defence procurement.

It also looks like the Minister might have the contract approval authority for defence projects and procurements that belongs with Treasury Board. I can’t say this with confidence but that’s my read of section 13(1) on contracts: “The Minister may, on behalf of the Government of Canada, enter into contracts for the purpose of exercising or performing the Minister’s powers, duties or functions.” Since getting contract approval through Treasury Board has led to procurement delays in the past, transferring contracting authority to the DIA Minister would be an important move, one that should speed up military acquisitions.

As a former member of the Independent Review Panel for Defence Acquisition, section 15(1) caught my eye: “The Minister may appoint advisors and establish advisory committees to advise and aid the Minister in exercising and performing the powers, duties and functions relating to production, procurement and investment in respect of national defence or national security, and may provide for their membership, duties, functions and operations.” I don’t know if this means that IRPDA itself will become advisers to the DIA Minister or remain special advisers to the Minister of National Defence, but this section suggests that we will see other boards and panels with comparable functions.

My sense is that we’ll see advisory committees on defence investment and industrial strategy at the very least. The ethical and conflict of interest limits on these advisors will be interesting to watch, too. Presumably, we won’t see executives from companies who are bidding on defence contracts sitting on these boards and panels, though recently retired executives could. As well, we could see an influx of Bay Street types on these boards and panels. That may help drive a different attitude toward defence procurement, as we’re already seeing with Doug Guzman’s approach to the Canadian Patrol Submarine Project.

Another set of important amendments to the Defence Production Act / Defence and National Security Production and Procurement Act are those dealing with procurement approaches. Competitive procurements are the default, though the Minister “may dispense with conducting a competitive procurement” if “in the Minister’s opinion” exceptions apply. I won’t list all the exceptions, but these stood out:

(a) the contract is for the purposes of addressing an urgent operational requirement;

(b) the dispensation is necessary for the purposes of (i) conducting military operations, (ii) constructing, maintaining or operating critical defence projects, or (iii) safeguarding national security;

(c) the dispensation is warranted in order to support a sector of the Canadian economy that is important to national defence or to national security, including economic security;

(d) the contract is for defence supplies or defence services that are interoperable with defence projects, defence supplies or defence services — or that are interchangeable with defence supplies or defence services — of the Government of Canada or of an associated government;

(e) the contract is in relation to sensitive technology;

(f) only one person is capable of performing the contract;

(g) the purpose of the contract is, for operational reasons, to fulfill an interim requirement for defence supplies or defence services or to ensure defence logistical capabilities on an interim basis;

(h) the contract is related to a contract referred to in paragraph (g); (i) the contract is for the purpose of research, development or innovation in relation to defence supplies or defence services; (j) the contract is for defence supplies or defence services that were the subject of funding provided by the Government of Canada for research, development or innovation;

Suffice to say, this is a long list of exceptions, one that further aligns with the aims of the DIS and the need to accelerate defence procurement. The fact that they rely on the DIA Minister’s opinion is especially noteworthy, since that seems like a low threshold and a significant grant of authority. Most of these exceptions are self-explanatory, though three of them merit additional commentary.

The ability of the government to sole source capabilities it’s funded through programs like IDEaS and BOREALIS is good to see. Empowering the Minister to support sectors that are critical to national defence and security, including economic security, is also laudable.

The exception I find most interesting is (d), the one that allows the Minister to sole source capabilities that are interoperable or interchangeable with existing Canadian capabilities or those of associated governments, which include the United Kingdom and any Commonwealth country, NATO members, NATO partner governments, European Union governments, and “any other country designated by the Governor-in-Council as being a country the defence of which is vital to the defence of Canada.”

This exception is arguably so vast that it pretty much covers any capability that doesn’t fit under the others. My initial thought was that this exception will allow Canada to sole source a bunch of additional American capability. After all, this exception is basically the logic used to sole source the P-8A. We could even style this exception the ‘P8 clause’. The more I think about it, though, I don’t see it as being uniquely about buying more American kit. If the government so chooses, it will enable Canada to sole source from NATO Europe and any other ally, including those in the Indo-Pacific, more easily. Either way, the terms interoperable and interchangeable will become far more important in sole source decisions than they already were, which is saying a lot.

To finish up with the Minister’s powers, the proposed 17(1) and 17(2) amendments to the Defence Production Act / Defence and National Security Production and Procurement Act are notable. They allow the Minister to spend from the Consolidated Revenue Fund up to $1 billion at a time. As with the contracting authority, this seems to imply that the Minister will have expenditure authority up to $1 billion, and that Treasury Board will retain expenditure authority for loans, projects, and programs above $1 billion. Since we’re dealing with Treasury Board, though, it’s hard to say for sure. They don’t give up their approvals and authority easily.

Turning to the CEO, their powers largely flow from the Minister’s. The CEO effectively acts on behalf of the Minister, so it’s normal that the emphasis is placed on ministerial authority rather than the CEO’s. This may strike defence observers as odd, given how much fanfare was tied to the appointment of Guzman, but that’s just how we do it in the Westminster system, folks.

Importantly, however, the CEO is empowered to “engage on a temporary basis the services of persons having technical or specialized knowledge of any matter relating to the Chief Executive Officer’s work to advise and assist the Chief Executive Officer in the exercise of their powers and performance of their duties and functions and, with the approval of Treasury Board, may fix and pay the remuneration and expenses of those persons.” This tells me that the CEO will be able to bring in a bunch of additional private sector people into the DIA to assist them, without having to go through regular public sector employment procedures. Indeed, the fact that their salaries can be set by the CEO with Treasury Board approval suggests that we’ll see people brought in with salaries that are closer to the private sector than the public.

I’ll conclude with a few additional observations. First, Defence Construction Canada will be moved under the authority of the DIA Minister. This makes sense given the Minister’s authority for defence infrastructure projects and such. Second, the Governor-in-Council is empowered to regulate and make orders that affect various aspects of this legislation, including parts of the Minister’s authority, so we should expect secondary legislation to provide greater clarity along the way. And thirdly, as others have noted, the DIA Minister is being granted authority over both national defence and national security projects and procurement. This fits with the broader view of what counts as defence-adjacent spending under NATO’s 5% of GDP target, and with the recognition that several sectors are critical for national security and sovereignty.