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Parliament Hill, in Ottawa on Oct. 16, 2017.Sean Kilpatrick/The Canadian Press

The federal government is set to unveil a new $100-million program that will boost the amount it contracts out to startups, part of its attempt to stimulate Canada's domestic technology sector.

Ottawa's Innovative Solutions Canada program, announced in the March budget, will require 20 federal departments to set aside 1 per cent of their research and development expenditures annually – amounting to $100-million – to buy from startups that can provide "novel solutions" for "challenges proposed by federal departments and agencies," according to an advance copy of a press release obtained by The Globe and Mail. Innovation Minister Navdeep Bains and Small Business Minister Bardish Chagger will unveil the program Thursday.

Canadian early stage firms have long complained that it's harder to sell to Ottawa than to foreign customers, who in turn ask why they haven't had any luck selling to their home government. "Our members believe the time for a modernized government procurement process in Canada is long overdue," said Benjamin Bergen, executive director of the Council of Canadian Innovators, which represents successful Canadian scale-ups. "The current procurement process favours large, foreign incumbents and doesn't foster an ecosystem where new entrants can become part of the procurement system. Canadian innovators are hopeful the new program will level the playing field … and will help more businesses scale up here in Canada and abroad while helping our government solve its own IT challenges."

Ottawa's chief information officer, Alex Benay, criticized the government in a recent internal memo obtained by the CBC, saying Ottawa's IT procurement processes "favour incumbents and don't foster enough new entrants."

The new program is modelled on the U.S. Small Business Innovation Research (SBIR) program, unveiled in 1982, which has benefited thousands of young firms. More than 40 per cent of SBIR projects have evolved into commercialized technology, with 40 jobs created for each $1-million (U.S.) awarded, according to a 2012 study by economics professors John Scott and Albert Link. SBIR alumni include chipmaker Qualcomm Inc. and cybersecurity firm Symantec Corp. Several other nations have adopted similar programs.

Innovative Solutions marks a new approach for Ottawa, which previously earmarked just $40-million of its multibillion-dollar technology procurement budget to buy from startups through its Build in Canada Innovation Program (BCIP). Under the program, the government took a "supply push" approach, whereby startups were asked to present market-ready technology that BCIP then shopped to federal departments.

By contrast, Innovative Solutions Canada is a "demand pull" program, where departments and agencies identify problems they're trying to solve and then challenge startups to come up with innovative solutions. Under the program, those bodies will fund up to $150,000 for a proof-of-concept study and $1-million to fund development of a prototype. Firms could then qualify to sell the technology to government through normal procurement processes.

The program will function similarly to SBIR, although the U.S. program mandates participating agencies to allocate 3.2 per cent of their R&D budgets to SBIR projects compared with 1 per cent in Canada. Ottawa has allocated $10-million a year to administer the program.

"The benefits from this program are clear: the government … will be able to acquire new products and services that will improve our work, while hard-working small-businesses owners will be able to grow their businesses and create more … jobs," Ms. Chagger said in the release.

The procurement initiative is one of several efforts by the Liberal government to boost the domestic tech sector. The government has also committed $950-million to create up to five "superclusters," earmarked $125-million to support Canada's artificial intelligence sector, and set aside funds for venture capital and cleantech.

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