Canadian Sovereign Procurement Standard
Overview
Establish a Canadian Sovereign Procurement Standard (CSPS) requiring all federal defence contracts above $10M be awarded only to firms passing an Ultimate Beneficial Ownership (UBO) test: 51%+ of voting shares AND economic interest held by Canadian nationals or Canadian-controlled entities through any chain of ownership. A three-tier structure (Full CSPS / Alliance Partner Certification / Strategic Exception) prevents capability gaps while systematically shifting contract VALUE — and the profit derived from it — to Canadian-owned firms. A mandatory Change-of-Control clause renders contracts void or renegotiable upon foreign acquisition of a qualifying contractor during the contract term. Target: raise Canadian-UBO contract share from ~35% to 65%+ by Year 10; reduce annual profit repatriation from ~$5.2B to under $1.5B/year.
Problem Statement
Of the 2025 CDR Top 100 Canadian Defence Companies, 66 are genuinely Canadian-owned under a UBO test; 34 are foreign subsidiaries whose profits ultimately repatriate to US, UK, German, Italian, French, Norwegian, Dutch, Austrian, and Swedish parent corporations. Critically, only 13 of the top 30 firms are Canadian-owned, and the top 30 hold ~80% of contract value. Canada spends ~$30.6B/year on defence; an estimated $5.2B/year in profit flows to foreign shareholders. The current ITB policy negotiates offset returns averaging 6.1 cents per dollar (F-35 ratio). CUSMA Article 13.3(c) provides a self-judging national security exception covering all weapons, platforms, C4ISR, and autonomous systems. The National Shipbuilding Strategy proves the model: when Canada mandated Canadian-owned yards, Canadian shipbuilding capacity grew to fill the demand.Proposed Approach
ELIGIBILITY TIERS: Tier 1 (Full CSPS) — Canadian incorporation + Canadian principal operations + 51%+ Canadian UBO (voting AND economic interest, through any chain of ownership) + Canadian board control + no foreign override clause in any shareholder agreement or financing covenant. Tier 2 (Alliance Partner Certification) — Foreign-owned subs from Five Eyes and NATO allies may apply: requires technology transfer commitment within 7 years; 35% Canadian reinvestment floor on contract value; minimum 1/3 Canadian board members; no third-country reexport. Tier 3 (Strategic Exception) — Minister of National Defence may grant contract-by-contract exceptions where no Tier 1 or Tier 2 supplier can provide required capability; public justification required. CHANGE-OF-CONTROL CLAUSE (mandatory on all CSPS contracts): Every contract awarded under CSPS Tier 1 or Tier 2 must include a Change-of-Control clause providing that: (a) the contractor must provide 90-day advance written notice of any proposed transaction that would transfer beneficial ownership of 10%+ of voting or economic interest to a foreign national or foreign-controlled entity; (b) the Crown retains the right to terminate the contract with 30-day notice if the transaction would cause the contractor to fail the CSPS UBO test; (c) any completion of such a transaction without required notice constitutes a material breach entitling the Crown to immediate termination, forfeiture of any performance security, and recovery of all subsidy, incentive payment, or ITC claimed under the contract; (d) in cases where strategic capability continuity requires contract assignment rather than termination, the Crown may require novation of the contract to a qualifying Canadian entity at a price not to exceed book value of the relevant contract assets. This mirrors change-of-control provisions standard in Canadian nuclear facility licences, CRTC broadcast licences, and Investment Canada Act undertakings. PHASE-IN: Framework announced Year 1 (7-year runway for industry adjustment); Tier 1/2 preference scoring applied Year 3+; full enforcement Year 7-8 after D-01 CSDIA has built domestic industrial capacity to absorb reoriented contract flow.Anticipated Impacts
defence_ubo_canadian_share rises from 35% to 65-70% by Year 10; defence_profit_repatriation_foreign falls from $5.2B to $1.0-1.8B/yr; defence_industrial_domestic_share rises from 25% to 50-60% (combined with D-01 CSDIA); defence_capital_retained_domestic rises from $2.65B to $6.0-8.5B/yr; canadian_defence_industry_revenue rises from $14.3B to $22-28B; Change-of-Control clause prevents post-award foreign acquisition from extracting the industrial benefit that motivated the CSPS award — closes the "build it, sell it" loophole. J-CURVE WARNING: Years 1-6 net negative: foreign multinationals may reduce Canadian direct investment if transition to APC status is not commercially viable for them. FDI STRESS TEST: Model must simulate contractor exit scenario (GD, RTX, Boeing reduce Canadian presence rather than comply) vs. APC compliance scenario.Ducklings Simulation
This proposal is active in the Ducklings causal simulation (Epoch 95). The simulation models downstream effects using a BFS cascade engine with strength-weighted, time-delayed edges capped at 3-hop depth and ±25% per-hop limits. Cascade outputs are bounded by variable saturation thresholds.
Domain: National Defence | Proposal ID: 188 | Series: E-series
How to Engage
Discuss this flightplan in the Pond forum under National Defence. Vote on adoption through Consensus. Adopted flightplans become projects with real-world implementation tracking.
Contact: [email protected]