Innovation Canada: A Call to Action

Filling the GapsBox 7.1 Use of Procurement to Support SME InnovationThe US Small Business Innovation Research (SBIR) program mandates, by legislation, thatfederal agencies with more than $100 million annually in external R&D contracts set aside2.5 percent for small businesses. This translates into annual expenditures of $2–3 billion,with the Department of Defense and National Institutes of Health (NIH) as the largest users.The program provides fully funded contracts for phase I proof of principle studies ($150 000over six months) and for phase II R&D ($1 million over two years). Phase III is fundedthrough conventional services, with just under half of projects reaching the marketplacefor either government or business uses.The implementation of SBIR varies widely in practice among US federal agencies, dependingon their individual motivation for conducting intramural R&D. For some like the NIH, theSBIR set-aside is mainly a source of R&D funding. For others, like Defense and Energy, theset-asides are used for the actual first-user procurement of products developed with SBIRfunding assistance.The success of SBIR has inspired similar programs in countries such as Japan, Australia, theUK, Sweden, Finland, South Korea and the Netherlands. In the UK, the Small BusinessResearch Initiative (SBRI) was launched in 2001 and is today administered by the TechnologyStrategy Board — the UK equivalent of the Industrial Research and Innovation Council (IRIC)proposed by the Panel in Chapter 5 (Recommendation 1.1). Like SBIR in the US, theprogram provides fully funded development contracts between SMEs and governmentdepartments, but on a voluntary basis, not mandatory as in the US.Industrial and Regional Benefits (IRB) policysuggest a new recognition of opportunities.The use of procurement to stimulate innovationhas been a long-standing practice in othercountries, particularly the US, with its enormousdefence expenditures. The US has also led theway internationally with respect to promotingsmall businesses with vigorous programs,including procurement set-asides. Thequintessential initiative in this regard is theUS Small Business Innovation and Researchprogram (SBIR — see Box 7.1), 2 now almost30 years old. Recognizing that Canada can learnfrom the use by other governments ofprocurement to support innovation by SMEs,the Panel believes there is an opportunity forgreater application of this kind of policy tool topromote innovation by Canadian business.Recommendation 3Make business innovation one of thecore objectives of procurement, withthe supporting initiatives to achievethis objective.The Vision of the PanelThe government’s procurement and relatedprogramming must be used to createopportunity and demand for leading-edgegoods, services and technologies from Canadiansuppliers, thereby fostering the development ofinnovative and globally competitive Canadiancompanies while also stimulating innovationand greater productivity in the delivery of publicsector goods and services.2 More information on the SBIR program is available at: http://www.sbir.gov.7-3