Cautious optimism for government's new R&D procurement program

A new government program that aims to boost R&D support for small and mid-sized enterprises (SMEs) is being welcomed by players in the innovation ecosystem as many have long been clamouring for such an initiative. However, expectations are coloured with caution, depending on how the program will be implemented.

The federal government launched Innovative Solutions Canada (ISC) late last year with the aim of helping SMEs find a market for their innovation – by selling to the government on a “challenge” basis. The program is patterned on the US’ Small Business Innovation Research (SBIR) program, which has awarded more than US$43 billion to research-intensive small firms since its launch in the 1980s.

Under ISC, the federal government can purchase innovative products and services from SMEs if they can address “challenges” or requirements put out by a federal department or agency. SMEs that apply can go through a three-phase process where they are given seed capital to work on their innovative ideas.

Similar to the US model, ISC comes in three funding phases. Phase 1 gives SMEs up to six months and a maximum of $150,000 to develop a proof of concept. Phase 2 allows successful SMEs to develop a prototype for up to two years for maximum funding of $1 million. Phase 3 helps SMEs commercialize their innovation with no funding limit.

Some $100 million has been allocated for the program by requiring 20 government departments and agencies (see Table 1) to dedicate 1% of their 2015-16 procurement and intramural R&D expenditures to ISC.

The program was first announced in Budget 2017, but details, including six challenges that SMEs can respond to, were announced only last December. One of the challenges has closed as of press time, but Innovation, Science and Economic Development Canada (ISED) tells RE$EARCH MONEY: “The goal is to have a regular schedule of challenges.”

Navdeep Bains, Minister of Innovation, Science and Economic Development Canada said in a press statement: “We're being proactive and transforming our challenges into opportunities—opportunities for innovation, economic growth and small business success."

Some stakeholders in the R&D ecosystem interviewed by RE$EARCH MONEY are cautious about how this success will be realized. While they agree that ISC is a positive first step, they say its success depends on the program’s implementation.

Dr Margaret Dalziel, associate professor at the Conrad Centre for Business Entrepreneurship and Technology at Univ of Wateloo, has doubts that the program can reach out to thousands of SMEs with only six challenges (see Table 2).

“People have been asking for a procurement program, but government has immense need. It goes beyond this list (of challenges and) that’s a pretty narrow list,” says Dalziel.

She adds: “Any government observer knows that the government has … lots and lots of opportunities for efficient services – the scope is endless. Instead of having a full list of their (government's) needs, they’ve identified a handful of hot technologies. So, I don’t think this program is going to really do much to improve government for Canadians, on one hand. And on the other hand of supporting high potential companies, it is going to support only a handful. And that handful could be companies that are eligible for other government programs.”

Dalziel says the challenges should go beyond technologies and include innovative services, not only to expand the reach of the program but also because a large part of what the government does is to provide services. “Is there no room for innovation in services?” she asks.

Nobina Robinson, president and CEO of Polytechnics Canada, also has doubts about the short list of challenges. But more than the number of challenges to be made available to SMEs, Robinson says what’s important is how the government is promoting to SMEs to make them aware of the government program and their specific requirements.

Robinson was a member of the expert panel on the Review of Federal Support to R&D, chaired by Open Text Executive Chairman, Tom Jenkins. In 2011, the Jenkins panel submitted a range of recommendations to help support an innovative economy. One of the six recommendations in the report, titled Innovation Canada: A Call to Action, is to “make business innovation one of the core objectives of procurement.”

Robinson says ISC is in the same spirit as the Jenkins panel recommendation, but that she is being cautiously optimistic about the program since it is still in the early stages and there is still no evidence it’s going to succeed.

“It is written in the right language; there’s lots to congratulate government about, but now the question will be, are there enough companies finding this, responding to the challenge, (and) getting the capital?” Robinson says.

She adds that for the program to be successful, government should act promptly on SME submissions. “If (government) takes too long (to decide), companies won’t wait and if it’s a genuine R&D problem, it wouldn’t wait. This can’t be something that takes 12 months to decide, like the superclusters (program, which took nine months to announce the winning proposals). This has to be time-sensitive. If the government doesn’t want it, then that company must be able to take the prototype and market it for itself,” she explains.

Dalziel notes in an earlier RE$EARCH MONEY opinion column that a recent study of SBIR concluded that the program is helpful to SMEs in phase 1 when they are able to increase revenues, improve their chances of survival and proceed to an initial public offering and get acquired.

“SBIR has a positive effect (based on the study) but that effect is primarily as a consequence of Phase 1 funding,” Dalziel tells R$.

Both Dalziel and Robinson note that there are other federal programs that also help SMEs innovate, creating a “rivalry” among government programs. As an example Robinson cites the National Research Council’s Industrial Research Assistance Program (IRAP) which also offers “innovation and funding services” … to help accelerate the growth of … business through innovation and technology.” On the ISC website, there is a list of other programs for SMEs in case the ISC is not the “right fit”.

Nevertheless, Robinson says “I’m supportive of any efforts that connects procurement to innovation.”

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Source: Innovative Solutions Canada FAQs

Source: Innovative Solutions Canada