To fix Canada’s economy, we must fix the government procurement mess
Following a historic election, the new Canadian government must steer an economy under pressure from trade tensions, lagging productivity and recession fears. It holds one powerful tool to spark innovation, support local companies and build competitiveness: procurement.
Federal government purchasing amounts to approximately $37-billion annually, representing about 3.7 per cent of GDP. Much of that money flows to foreign incumbents, bypassing Canadian-made innovation and idle domestic capacity.
Canadian companies, especially in high-growth sectors such as AI and "clean-tech" may qualify for the occasional contract, but rigid RFPs (requests for proposals), outdated criteria and risk-averse decision-makers favour established suppliers. Companies that do not fit the bureaucratic mould are shut out.
The creation of this new portfolio – Transformation, Public Works and Procurement – signals how seriously the Carney government views the need to modernize how it spends. Joël Lightbound, its inaugural minister, now oversees more than $22-billion in annual federal spending.
Meanwhile, some leading local government leaders, such as Toronto, have already recognized they need to implement robust strategic buying rules that require a “Buy Canada First”approach. Toronto Mayor Olivia Chow recently tasked staff to review the city’s procurement policies to prioritize local goods and services and restrict big foreign companies from bidding on city contracts.
That’s a welcome start, but better policy is needed to aid and align federal, provincial, and municipal procurement processes to ensure that small- to medium-sized Canadian businesses, including those in high-growth industries, can not only be on the same playing field with their larger competitors but win those contracts as well.
Reducing barriers so that more Canadian companies – particularly startups and SMEs – can quality to bid, and shifting toward procurement policies that focus on real-world outcomes instead of rigid checklists, would help unlock economic growth and innovation. AI and "clean-tech" ventures that reduce environmental impacts should be central to Canada’s growth strategy.
Flash Forest illustrates what is at stake. The Vancouver start-up uses drones to plant trees faster and cheaper than traditional crews can. Expecting to help Ottawa plant two billion trees by 2031, it spent nearly $1-million on data and seed supply. Yet its bid was rejected for not fitting precise specifications, even as the program falls behind schedule. Being told to “come back in three years” is a luxury most start-ups cannot afford; many move to the United States instead.
This risk-averse mindset is common. In the U.S., risk is seen as a necessary part of innovation; Canada often pays attention only after ideas succeed abroad. Other countries use procurement to drive economic and environmental goals. The Netherlands advanced the circular economy by contracting Philips to provide “lighting as a service” at Schiphol Airport, paying for how much light they need rather than the number of bulbs.
Canada can adopt a similar outcomes-based approach. Ottawa proved during COVID-19 that it can streamline procurement quickly. Now it must do so again. Engaging Canadian companies from the moment a proposal is announced and investing in platforms that turn innovation into tangible results will build a resilient economy.
That starts with rethinking how we evaluate bids. Rather than prescribing solutions, departments should define the outcomes they need, such as replanting fire-damaged forests at speed, and allow suppliers to compete on impact, not familiarity.
We also need to open the playing field to emerging companies. Prequalifying SMEs that pass technical screens would help them bid without years of red tape. This is especially important in sectors where Canada is already investing in R&D, including "cleantech", AI and biotech.
Finally, Ottawa must deliver on its commitment to introduce a Small Business Innovation and Procurement Act. Requiring federal departments to source at least 20 per cent of contracts from SMEs, including 1 per cent from high-potential startups and companies in the innovation ecosystem, would send a strong demand signal to entrepreneurs and investors. Transparent reporting and targeted support systems can ensure this policy translates into real results.
These changes are not handouts. They are a chance for the government to buy the best available solutions, while keeping intellectual property, talent, and scale-up growth in Canada.
If we fail to act, we’ll keep exporting our best ideas and importing products we could have built at home. But if we get this right, Canada can anchor the next generation of world-class companies. And they’ll do it not with subsidies, but with the help of the government’s everyday purchasing power.
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