July 24, 2017

The case for the creation of the Next Version of Innovative Solutions Canada: Competitive Innovation Nation Advocacy

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From Left to Right: Michael J Kelly, Dean, Lazaridis School of Business & Economics, Dan Wasserman, CATAAlliance, Procurement Advocate,  Sir Terry Matthews, National Spokesperson, CATAAlliance, and John Reid, President & CEO, CATAAlliance.

The case for the creation of the Next Version of Innovative Solutions Canada

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In the Canadian federal budget, tabled March 22, 2017, there is a $50 million provision for the creation of Innovative Solutions Canada. Moreover, it clearly states this would be based on a U.S. precedent and quotes an example based on the Small Business Innovation and Research (SBIR) program in the document. Although, the bigger economic driver is the 23% procurement requirement often called “set-asides,” the goal is to enshrine both of these in the final legislation.

Keep in mind that in FY 2016 the U.S. government spent $99.96 billion in prime contracts with small companies (i.e. directly) and another $83.5 billion through large companies, which in turn flow to the small businesses as subcontractors. As for the SBIR, in FY2016 the eleven government agencies that spend over $100 million annually were mandated at 3.0% of their total budget going towards funding the program (estimated to have generated over $2.5 billion in grants).

The following examines these two precedents in more detail, starting with set-asides, to further demonstrate how together these have contributed so significantly to the American economy.

SET-ASIDES

People consider President Eisenhower’s greatest achievement the creation of the American Interstate Highway System, which was signed into law in 1956. It is perhaps the most visible of his accomplishments, however in 1953 he enacted The Small Business Act (later updated in 1958) that established a 23% government-wide goal for awards of contracts to small businesses. It also created subsets of small businesses with goals of 5% for small disadvantaged businesses (SDBs), 5% to women-owned small businesses (WOSB), 3% for historically underutilized business zones (HUBZone), and 3% going to service-disabled veteran-owned small businesses (SDVOSB).

Based on the foregoing, it is likely many of the hundreds of businesses that contributed to the building of the Interstates would have benefitted from the 23% rule and in fact fallen under one or more of the subsets, especially since the contracts were issued through the individual states. In fact, the Koss Construction Company of Des Moines, Iowa received the first contract at $1.1 million dollars. They have been around since 1912 and still exist as a thriving private company.

With this background, one can easily imagine some other companies that should probably have been obvious. For example, in the Information Technology field, how can one ignore Microsoft? Not only did they cut their famous licensing deal with IBM in 1980, with deliveries starting in 1981, they were also supplying the operating system to virtually every computer clone. A mix of these machines were being purchased throughout all the federal departments, from the early 1980’s onward, resulting in Microsoft accruing ever-increasing licensing fees. In 1983 the company broke through the small business threshold when they reported revenues of $55 million. As such, for the first few years they would contributed to IBM’s federal set-aside requirements, probably Compaq’s as well, and maybe even some of the smaller suppliers.

Another sector that one immediately considers is defense and homeland security. ManTech International, now a $1.6 billion company, is an example of success in this area. When first founded in 1968, to “help government…manage and protect information, support and maintain critical systems, and develop integrated systems to handle complex needs,” with only two people, it was definitely a small business. However, through partnering contracts with the likes of Raytheon, Boeing, Lockheed, or Grumman, they too would have benefited from revenues that flowed through the big companies (as well as direct contracts).

Examples can be found in every sector. Just in the top 10 of the Fortune 500, in addition to IT and defense, there is health (McKesson, United Health Group, CVS), automotive (GM and Ford), and communications (AT&T). To sell to the US government, they MUST engage with small companies.

SBIR

As for the SBIR, it was first signed into law in 1977 on behalf of the National Science Foundation (NSF), but didn’t come into cross-agency effect until 1982, nearly thirty years after Eisenhower created the Small Business Administration (SBA).

Although the SBIR is a highly competitive program that encourages domestic small businesses to engage in Federal Research/Research and Development (R/R&D) with a constant aim of potential commercialization. In that role, it is an economic driver.

It uses a structured approach whereby each agency states what research it is seeking and follows a three phase process:

Phase I. The objective of Phase I is to establish the technical merit, feasibility, and commercial potential of the proposed R/R&D efforts and to determine the quality of performance of the small business awardee organization prior to providing further Federal support in Phase II. SBIR Phase I awards normally do not exceed $150,000 total costs for 6 months.

Phase II. The objective of Phase II is to continue the R/R&D efforts initiated in Phase I. Funding is based on the results achieved in Phase I and the scientific and technical merit and commercial potential of the project proposed in Phase II. Only Phase I awardees are eligible for a Phase II award. SBIR Phase II awards normally do not exceed $1,000,000 total costs for 2 years.

Phase III. The objective of Phase III, where appropriate, is for the small business to pursue commercialization objectives resulting from the Phase I/II R/R&D activities. The SBIR program does not fund Phase III. Some Federal agencies, Phase III may involve follow-on non-SBIR funded R&D or production contracts for products, processes or services intended for use by the U.S. Government.

CONCLUSION:

There is no question the U.S. economy is more that 10X greater than Canada’s. And, how they allocate their respective government spending is different. However, by using a portion of their spending to advance commercially viable research, plus mandate the government procure from the small businesses they support, the Americans have created an unparalleled economic engine. The same could be achieved in Canada, even at a lower percentage requirement, especially if back-stopped by the creation of an unfettered commercially-oriented grant like the SBIR.

Related Communiques:

Tech Leaders Call on Canada’s Prime Minister to reset ‘ Innovative Solutions ‘

Next Version of the Innovative Solutions Canada Program: Full adoption of SBIR ( Small Business Innovation Research )

A proven model for the creation of Innovative Solutions Canada: Call for Guidance & Advocacy!

Canadian Government Executive Interview with CATA on the Innovative Solutions Canada program

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Contact: CATAAlliance CEO, John Reid at email jreid@cata.ca, tel: 613-699-8209, website: www.cata.ca, tags: Innovation. Leadership, Entrepreneurship, Advocacy