Let's Talk About Bill C-31 And What The DIA Will Look Like.

Opinion

Welp. It's finally here. We officially got our look at the new Defence Investment Agency legislation, and with it, our first glance at what the future of defence procurement looks like with the tabling of Bill C-31 yesterday.

We knew this legislation was coming, likely this week or next, but now that we finally have the text in front of us, we can really start to unpack the architecture of the new Defence Investment Agency and what sort of authority it will have in navigating through the Road to 5%.

For the last several months, the DIA has operated in a weird space. It has existed as a part of PSPC, primarily staffed by former PSPC people shuffled over to the defence file. It has been tasked with getting several major projects, including CPSP and ESCP-P, off the ground and contracted in record time.

It has little mandate, no real, legal authority, and operated off a system of Cabinet decisions, loopholes, and exploits to the system to get things moving at a near ridiculous speed as set out by the Prime Minister. Like a little ghost flying around, except this ghost was also the household accountant and grocery shopper in charge of getting everything for everyone.

I have praised the DIA as it stood for getting things contracted and pushing things ahead. I think it deserves praise, especially on the space front. Several projects, including ESCP-P and DESSP, were pushed ahead by several years. CMAR shaved two off. There has been progress there.

Before I jump into things, though, I highly recommend you read the bill yourself. I will not be going over every detail, instead focusing on the major ones. If you want the real, nitty-gritty exposure, then you can go here. I think it's worth anyone reading, even if it can be hard to understand a bit at times.

The DIA

As telegraphed for the last few months and noted during the Spring Economic Update, the DIA is being established as a distinct entity separate from PSPC. Under the current concept, a dedicated Minister will preside over the Agency, and the Chief Executive Officer (currently one Doug Guzman) will hold the rank for a renewable term of up to five years, holding the rank and status of a deputy head of a department.

The old Defence Production Act is getting a new title, the Defence and National Security Production and Procurement Act. Responsibilities under this newly minted act are being explicitly split.

The new Minister will take over all powers under Part 1, which covers the production, procurement, and investment of defence supplies. Meanwhile, the Minister of Public Services and Procurement retains Part 2, which regulates access to controlled goods.

Essentially, the Minister is assuming responsibility for all matters over which Parliament has jurisdiction for production, procurement, and investment for national defence and security, provided they aren't legally assigned elsewhere.

When you get further down into the definitions, though, the scope of the Minister’s reach here gets expanded quite extensively, even beyond the scope of traditional defence-related activities, with both National Security and, more notably, Economic Security being added directly into the Minister's mandate.

The definition of an associated government has also been broadened to explicitly include the European Union, its member states, and any governments or international organizations recognized by NATO as partners in good standing. This will be important for later.

The Act no longer just covers goods, materials, and equipment, either. Defence services are now explicitly included within the mandate of the DIA. In this case, defence service covers anything required or provided for national defence, national security, cooperative efforts with allied governments, or the construction of defence projects.

There are a few notable exceptions. It does not include legal services, nor the actual work provided by Crown employees or members of the CAF, though what's more notable is all the additions and clauses tied into the legislation to further expand upon the scope within which the Minister can act.

For example, the legislation includes the clause that a service doesn't lose its designation as a defence service merely because it has an additional, non-defence purpose, effectively safeguarding the implementation of dual-use technologies and infrastructure so long as they have some relation to National Defence and Security.

Even if such a service is primarily civilian in nature, under the DNSPPA, anything that can be reasonably justified as a dual-use technology or component can be classified as a defence service, and as such can be brought under the DIA banner.

Even more notable is the blurring line between military and civilian infrastructure; the definition of defence projects has been expanded to include works related to residential communities, including non-military ones, located on federal property administered by the Minister of National Defence.

If it falls under the DND banner, the Minister maintains full authority under the DNSPPA. That could include things such as the construction of civilian housing on DND land. It could include things like energy infrastructure, water treatment facilities, roads, or even broader applications like commercial retail, health clinics, and schools.

All of which, theoretically, could fall under this clause, and all of which would fall under the Minister to authorize under his authority. Also added to his portfolio, since we're on this topic, is Defence Construction Canada, which now falls under the DIA banner.

All of this paints a pretty simple picture. Anything that can be justified as contributing to National Security, be that Defence, Economic security, Human Security, etc., could reasonably fall under the DIA banner.

This also includes specific carve-outs for the DIA to take an expanded role in Canada’s Major Projects and other government initiatives, such as housing, with the DIA given explicit and broad clauses and authorities to include civil infrastructure under its banner.

Basically, if the DIA could justify it, they could reasonably have authority to pursue it under their legislative authority. The extent to which they will exercise that is yet to be seen; however, it gives the Federal government a fairly powerful organization under its banner to be utilized in cases where certain authorities may present a challenge.

But to really assess what this means for industry, we need to talk about how this legislation handles competition. Probably the most notable change for those in procurement, the proposed legislation introduces a sweeping list of exceptions where the Minister can completely bypass the competitive procurement process.

Some of these are standard fare, such as cases where only one supplier meets the requirements, addressing urgent operational requirements, to construct, maintain, or operate critical defence projects, conduct military operations, or safeguard national security; but others give the government an incredible amount of discretion to direct contracts exactly where they want them to go.

For example, the Minister can sole-source a contract if it is deemed warranted to support a sector of the Canadian economy that is important to national or economic security. That means, as an example, the DIA could take a competition like LUV and rapidly push through selected options under the guise of supporting the automotive industry. That's one example.

They can bypass competition for sensitive technology, or if goods need to be interoperable or interchangeable with our allies or existing government supplies. They can skip competition for interim logistical requirements, for research and development, or if the supplies were already the subject of government R&D funding.

The amount of competitive carve-outs is honestly so extensive that one could probably justify just about any capability under its banner. Want to buy a platform like Globaleye? The justification is there to support the aerospace industry under the guise of economic security.

It gives specific carve-outs to support joint procurements and to acquire capabilities in service with our allies under the guise of interoperability. It also, quite happily on my end, provides authority for the DIA to sole-source capabilities through programs like MINDS and IDEaS so long as they have received previous R&D funding.

That will likely go a bit unnoticed, and it isn't quite as simple, but it provides the foundation to adding a pathway to procurement through things like the IDEaS program, something many SMEs are going to be ecstatic and thrilled about, though it's in execution.

This is one section I like, though, and one could argue these should always have been the case; many will. I obviously wouldn't support abuse of these exemptions; however, I do like the broad nature and the pathways it lays out. In theory, with a bit more accountability and maybe some hard limits, it could be great.

Some will be upset, naturally; however, there should have always been broad carve-outs to me in how we handle specific procurements, especially in cases where we know the results ahead of time. It is all in the execution, though, how they handle it.

There is also an interesting external authority granted here as well. Section 11 allows the Minister, with cabinet approval, to undertake any procurement act on behalf of an associated government. That includes those listed under the expanded definition of associated governments, including NATO allies, the EU, or other allied governments.

This creates a bit of a weird possibility, where the DIA acts not just as a Canadian procurement authority, but also as a consolidated purchaser or middleman for allied nations. While some will likely fall heavily into the Ukraine support side of things when it comes to this authority, the mandate is left broad enough for any ally to fall under this banner.

That will be especially interesting to see when it comes to joint procurements, as well as cases where the Federal government is pursuing possible export opportunities. It gives the DIA the authority to leverage its mandate to streamline and support allied procurements, even against their own internal systems.

This all gives the DIA incredibly, almost untethered authority to pursue contracts and capabilities that it wants. However, for industry, the legislation gets even more heavy-handed the deeper you go into it, with the DNSPPA granting the DIA extensive powers over sensitive information and participation authority.

The Minister, for example, can exclude any person from a competitive procurement process if they believe the person or their supply chain poses a risk to national security, and they are legally completely exempt from having to provide that person with the reasons for their exclusion.

In a more draconian authority, the Minister can also issue written notices legally requiring businesses to hand over highly sensitive information regarding their defence supplies, services, and facilities. If you receive a notice, you are legally obligated to provide the requested information at the times and in the format specified by the Minister.

This power applies to anyone who "carries on a business that, in the opinion of the Minister, is suitable for providing defence services." If the Minister thinks your commercial company could provide a defence service? They can legally mandate you to share critical and sensitive information about your business and supply chain.

To support that, the DNSPPA introduces significant penalties for businesses that refuse to comply. Section 33.1 allows the government to establish an administrative monetary penalties scheme, with fines reaching up to $2,000,000 per violation. On top of that, general contraventions of the Act can lead to summary convictions, additional fines, or up to twelve months in prison.

Furthermore, if another government department has the legal authority to extract information from a business, the Minister can legally compel that other department to exercise their powers to get that information on the DIA's behalf.

Basically, if the DIA believes that your business falls under their banner, they can legally mandate you to hand over proprietary information about your business, in such a broad case that justifiably they could ask for almost anything; and while Section 5 contains non-disclosure protections for that corporate data, it includes gaping exceptions allowing the Minister to share your proprietary data across other government departments, or even use it in civil suits.

This positions the DIA as a heavy-handed authority in the supply chain and for industry, giving them the mandate to not only extract information but exclude businesses that they deem a risk to National Security. The extent of this is given little checks or balances, with the DIA able to essentially rope in other agencies to act as personal enforcers on their behalf.

How extensive could this go? As of now, as far as they wish. The DIA could, hypothetically, demand information about your supply chain, identify nodes that could be deemed a risk to national security (for example, ties to adversarial industry), and then exclude you from further procurement opportunities until fixed, while at the same time having the authority to just not tell you if they feel like it.

Now, this does have value, mind you. There are cases where protecting the supply chain from fraud, corruption, or adversarial infiltration will greatly benefit from having these authorities and mandates available; however, they're so broad and extensive that it just worries me in how they could be executed in the future.

There are uses here. It has value, but how it is currently presented will cause fights, and a lot of worry among industry when it comes to data protection, and that can quickly turn negative at a time when we are trying to build the Defence Industrial Base.

It positions the DIA further as an unrestrictive federal tool. Because of the broad mandate of authorities and defence services, the DIA could reasonably utilize its new authorities well out of the scope of the traditional defence industry and into the commercial and civil sectors.

And it doesn't stop there. The DNSPPA includes a number of further clauses and authorities scattered about to further inflate the DIA's power as an independent agency. Section 4 explicitly states that the powers conferred by DNSPPA can be exercised despite absolutely anything in the Department of Public Works and Government Services Act.

Even more significant, regulations made for the DIA regarding competitive procurement and contracts will prevail over the standard regulations made under Sections 41 and 42 of the Financial Administration Act.

These don't go away, mind you; the DIA is still bound to them. However, in cases where the DIA has its own regulations and guidelines? The DIA takes precedence over the others. This alone gives the DIA extensive opportunity to draft its own contracting and financing regulations outside the regular federal regulations.

Essentially, it means the traditional checks and balances still exist in the background, but the new Agency has been handed a permanent trump card. Whenever there is conflict with the standard transparency and competition rules that govern the rest of the federal bureaucracy? The DIA's rules legally prevail. They are bound by the standard rules only up to the exact moment they decide they don't want to be. At least how it is written.

I digress for now, though. We will get back to it later. For now, let's look at another new authority the DIA has: financing. Under the DNSPPA, the DIA has also been given the tools and authorities to act as yet another investment and funding outlet.

For purposes related to national defence or economic security, the Minister has the power to make loans, provide advance payments, guarantee debt, hand out grants, and even acquire shares or financial instruments in corporations!

The legislation establishes a ceiling, allowing the Minister to pay out of the Consolidated Revenue Fund an aggregate amount of up to $1 billion to exercise these financial powers and acquire projects or stockpiles. If you suffer a loss on these investments or acquisitions? The loss can be deducted from that aggregate $1 billion limit if Parliament authorizes it.

This doesn't come without a bit of restriction. There are explicit rules that restrict the Minister from making those payments out of the Consolidated Revenue Fund if the money is meant for a company to construct or acquire capital equipment, or for research, development, or innovation. The only way around this restriction is if the cabinet drafts specific, separate regulations overriding it.

Furthermore, if the DIA sells an asset, if a company repays the principal on a DIA loan, or if an allied government reimburses the agency, those amounts are immediately deducted from the aggregate total. It is essentially a revolving door of credit that the DIA can utilize at its discretion, even in support of outside allies.

This is separate from other government funding instruments, such as those under BDC. It is essentially a Canadian copy of the Pentagon’s Office of Strategic Capital, even down to the $1 billion capital limit. It is essentially set up to operate in the same way, with a similar mandate and authorities.

For the United States, the primary role of OSC is to bridge the financial gaps between strategic companies and to secure supply chains through investments in critical mineral production and acquisition. How Canada will utilize it is yet to be seen. We've already introduced numerous instruments, through things like BDC and the Regional Development Agencies, to support general investment in SMEs.

There is still a lack of clarity on how this will work, as well as the role the Treasury Board will play. My big worry is seeing this turn into a pet project fund, absolutely the worst thing that could happen to such a fund, or as a bailout mechanism for industry. Time will tell there.

The DIAs ability to intervene doesn't stop at handing out cash or contracts. The legislation grants sweeping powers to stockpile. The Minister can acquire, store, maintain, and transport anything designated by the Governor in Council as essential to the needs of Canada or an associated government for national defence, economic security, or safeguarding against possible shortages.

The extent of this is, like a lot, broad. It gives the feds extensive authority to stockpile anything they deem as critical to National Security. That can include just about anything they desire from munitions, medical supplies, critical minerals, and beyond. The limits there are non-existent.

Finally, the legislation allows the Minister to radically reshape the administrative landscape to get all of this done. If the Minister considers it helpful, they can, with the approval of the Governor in Council, procure the incorporation of one or more corporations to carry out their duties.

These new Crown corporations act as agents of His Majesty, and the Minister has the absolute authority to remove any members, directors, or officers at any time and appoint others in their stead.

The Minister can also appoint advisors and advisory committees to aid them, fixing their remuneration and reimbursing their expenses as they see fit. The Governor in Council also has the ability to appoint advisers and establish other boards to aid the Minister, also fixing their pay.

Mr. Lagassé already wrote quite extensively on this earlier today, and he is by far a better authority here than I am to discuss this specific section, any section. So I highly recommend you go read his part on this.

A bit more concerning, at least from my angle, the new Minister has the ability to delegate their powers to any other appropriate minister or to the chief executive of another department. Those chief executives can then subdelegate those powers down to their own subordinates.

Which to me, I mean, I can see why, but that also feels a bit counterintuitive, and concerning when considering all the authority and powers bestowed upon the Minister. Dependent on extent and execution, such an allowance poses a large risk of exercising extensive, sweeping powers across the public service to an extent I am not comfortable myself with seeing.

More concerning on top of this, if the Minister doesn't want to use public servants or spin up a new Crown corporation, the Minister, with cabinet approval, is allowed to enter into a contract with a private individual, legally authorizing that private citizen or corporate entity to act as an agent of His Majesty under the control and direction of the Minister.

That in itself feels like it could be very exploitative, and with the legislation already severely lacking checks and balances (combined with the near kingly powers of the Minister), the idea of a private individual, no matter how skilled or respected, being able to be delegated these authorities at the whim of cabinet, in this environment, really doesn't sit well with me.

Like at all. I don't like it. Not one bit. This entire section raises some ethical concerns with me in how it can be exploited. The Minister, essentially, has the mandate to set authorities how they wish, to set their advisory boards as they wish, and even exercise, even with cabinet approval needed, extensive shifts in the public service with very little in the way of accountability.

And that's a big issue, the lack of accountability and hard limits. There are a few, sure, but not much. The major form of this comes in Section 337, where the Minister is legally obligated to undertake a review of how all these new amendments are operating within three years after the section comes into force. Once that review is completed, the Minister has to cause a report to be laid before both Houses of Parliament.

Essentially, the DIA has a three-year play period to figure out how to wield these unprecedented powers before they have to officially answer to Parliament about the results. New Crown Corporations are still subject to audits by the Auditor General of Canada.

However, other areas of accountability are laughable. The protections on sensitive data, as a major example, are paper-thin. While they say your information won't be disclosed without your consent, it immediately carves out exceptions to it. The government can still legally share your proprietary information with any other government department that requires it for their functions. They can still utilize it in legal proceedings.

As a final note, under Section 29, the exact second this Act comes into force, any existing contract, agreement, or arrangement for defence supplies or defence projects currently held by PSPC is legally deemed to have been entered into the DIA retroactively.

Some extra thoughts

For an organization with such authority, and a Minister with such power, there is a glaring lack of any sort of balance. In fact, the DIA essentially gets a free reign period to figure out for themselves how to utilize their newfound powers as they see fit.

They have the mandate of heaven not just on defence, but over a wide range of strategic industries, all of which fall under an individual with near dictatorial control over everything under their banner. They are given widespread procurement authority, a new capital fund, and near unchecked access to industry's sensitive information if they want it, as well as carve-outs to share it around as they see fit.

The Minister controls their boards and councils. They can bring on, even with some restriction, anyone they see fit and delegate their authority through them. They have unilateral authority over DND property, under a mandate that goes so far beyond defence that you have to ask where everyone else stands.

What falls to industry? What falls to PSPC? Does it matter when the DIA has so much authority that they are bound to be given lead on many files? They can write their own financial and procurement guidelines, ones which take precedence over existing legislation.

Someone mentioned to me that this feels a lot like what happened when SSC was spun off; however, this feels more extensive, and I really want to focus on the good here, because from a procurement side of things it does a lot of good, and having authorities and the mandate for things like strategic stockpiling is good. This new fund could also be an excellent tool the DIA has to rapidly support key industries and investments that might get missed or need urgent action.

It gives the DIA the authority it needs to execute on the Defence Industrial Strategy, and sets out the pathways to building out capacity in the Defence Industrial Base by providing the DIA the contracting and financial authorities to support industry at scale.

Even on Crown Corporations and such, there is value there in my mind having the tool available to the DIA's discretion. The big thing is it tries to give the DIA the tools they need to execute in building strategic industries while ensuring that they have the ability to rapidly adapt as needed.

The DIA will have the tools to identify procurement pathways that can push projects ahead and form strategic partnerships. They have the financial tools to invest and support critical industries and capabilities quicker than most other methods.

The DIA will have a broader mandate to stockpile critical minerals, components, technologies, munitions, etc., in case of potential supply chain disruptions or emergencies. We will likely see the DIA investing and stockpiling, for example, key critical minerals currently tied to adversarial supply chains.

We will likely see things like the Munition Supply Programme reworked, thank god. The DIA has the tools to support export opportunities and deeper collaboration with allies through export support, supporting joint procurement, and supporting industry in executing on these opportunities. All of these are good. All of this aligns to both the DIS and support the Build-Partner-Buy policy.

There is still things left open as well, such as the delegation of authority between the DIA and Treasury Board, as well as how the DIA will handle upcoming ITB reforms that will likely require further clarification ot legislation in the coming months. I can't say there.

But I can't shake the nerves… Some of the harsher policies are gonna give the DIA an immediate negative rep to the public just by how their authorities are mandated so broad and vague to the extent they can go.

Because you and I both know that people will take note and latch onto the most radical and authoritative parts of this legislation, and that will be used against them from the beginning. I can't see a reality where these authorities remain so broad and extensive, but the fact it will be presented to the public like this will stick.

There will need to obviously be some learning done, and yes, it's broad because it's new and they want the ability to experiment and trial, but how it is presented here; I do worry.

There needs to eventually be a clawback, more standards set. That is inevitable. My concern is that we lose track of the main goal, that we turn defence procurement, our defence procurement agency, into something new, something that loses focus on the goals at hand.

We do not need Authoritarian PSPC. We don't need an organization that eventually goes so far in one direction that it stops remembering what its purpose is, one that keeps adding mandates and keeps adding complexity until it becomes another monster of procurement.

Funny enough, following in the steps of the Department of Defence Production there, where it slowly loses itself in the bureaucracy, where it grows into something that forgets what it originally was. That is my concern.

But still, it's too early to tell. It will pass, majority and all. The DIA has done good so far. They have done enough to remove some anxiety and worry, and I want to believe in them.

But the people there won't be forever, and when that happens, then what? What if these authorities aren't so quickly limited and balanced and people with less than savoury intent get their hands on these kinds of broad powers?

I guess time will tell. All we have is this, and maybe there will be a pivot, be more. I don't know, but for now? I have worries, I have concerns. I want to wait and see what comes after all this, what is produced from this.

Maybe I'm being overly concerned and paranoid for no reason. Maybe I am looking too deep into things, though that is my job… I just get a feeling here, a sense in my neck, and I don't like it.