After a good wait, the updated Defence Investment Agency is finally on full display. Bill C-40 refines the work done in Bill C-31 and provides a revamped DIA, with a new organization, a shift in authorities, and as some are likely to say, a step back from some of the more controversial aspects of Bill C-31.
If Bill C-40 is anything, it is a Bill of authorities and delegations. A lot of the bigger changes we see from Bill C-31 come from the division of power between various departments or stakeholders. The core authorities, most of them, from Bill C-31 are still here. They have not been whisked away or banished to the aether forever forgotten.
The whole Bill is under 40 pages, and a decent chunk is restating things from Bill C-31 or minor changes. We will still go through things, but I do highly recommend reading our piece on Bill C-31, as it is still relevant to the authorities being granted and is still important to see how things have shifted.
But we’ll get more into that as we go through things. For now, let’s get into the bill itself.
Bill C-40, formally an Act respecting production, procurement and investment in relation to national defence and national security, is split into three parts. Part one sets up the Canadian Corporation for Defence Investment as a Crown Corporation. Despite the official name, it can still operate as the Defence Investment Agency. The Act itself uses Corporation as the preferred term, so to align with that, we will as well when discussing the Act.
It also creates an Associate Minister of National Defence for Procurement. The bill itself doesn’t give this new minister any specific duties. Instead, Cabinet decides which of the Defence Minister’s responsibilities get handed over.
The Associate Minister of National Defence for Procurement is also not automatically the DIA Minister. The DIA’s minister is technically whichever member of the Privy Council that Cabinet designates, so they could choose to assign that responsibility to someone else. In practice though, it’s clear to see the direction here.
The Associate Minister falls under the Defence banner, as opposed to the separate, standalone setup Bill C-31 had. Everyone is assuming that this new position will also replace the Secretary of State for Defence Procurement role that Fuhr has, which is a fair assumption but still unconfirmed.
Part 2 rewrites the Defence Production Act and renames it the Defence and National Security Production and Procurement Act. We will get deeper into that later, but the key point for now is that unlike Bill C-31, which put most of these authorities and the DPA under the new DIA Minister banner, Bill C-40 reverses this and keeps those powers with the Minister of Government Transformation, Public Works and Procurement, under the PSPC banner, as opposed to locking them out.
Part 3 sets up a review, repeals the DIA division of Bill C-31 if that bill passes, and covers how it will come into force.
The Corporation and Its Mandate
The corporation is its own legal person, with the same capacity and powers as a natural person. It is an agent of the Crown, though Cabinet can declare it isn’t one when it’s carrying out activities that Cabinet specifies. Likely that is to separate potential investments that the corporation might make in the future as commercial activities instead of Crown activities.
There is an active push to invest in production or even acquire equity stakes in certain companies or operations to support the Defence Industrial Base, so it makes sense to add a clause that provides some distinction and aligns it closer to organizations like CPPIB. It can also sign contracts with the government as though it weren’t a Crown agent. Cabinet also designates where its head office goes, which makes me think it won’t be Ottawa, or at least they’re willing to explore other options. Likely there will be some desire to align it with wherever the DSRB ends up.
The corporation has four direct mandates. First is production, procurement and investment for national defence, for the benefit of the Canadian Forces or DND. Second is the same as the first but for allied governments. That comes with the asterisk that the corporation can only do that at the Minister’s request and as the Minister directs, as authorized by Cabinet. Third is giving advice to the Minister or any other federal minister, again at the Minister’s request. The fourth is left as a generic catch-all, any other activity Cabinet decides to assign to it.
The mandate covers national defence only, not national security as Bill C-31 mandated. That means procurement authority for the CSE, CSIS, RCMP, CBSA, etc. will continue to stay under the purview of PSPC instead of being unified under a single banner, at least to my reading.
So the DIA’s focus is Defence-related procurement as it relates to DND. That of course comes with some wiggle room on what counts as Defence and what counts as National Security, but the basic point is that the DIA is focused on military and defence procurement over national security as a whole.
The Minister can direct the corporation in two ways. First, the Minister can order the corporation to carry out, or not carry out, any of its activities for the Forces or DND. They have to consult the Minister of National Defence first, but don’t need their approval. Second, the Minister can direct how it carries out anything in its mandate, including requiring the Minister’s approval at any point before it continues. The corporation must follow those directions, and doing so is deemed to be in its best interests.
Essentially, at any point the Minister can direct the Corporation on how to execute its mandate. They can decide what tasks it does and doesn’t take on, and can set their own benchmarks for the Corporation’s authority. As an example, the Minister could dictate that for a specific procurement, their sign off is needed to proceed.
The bill doesn’t require these directions to be in writing, published, or tabled in Parliament. Section 89 of the Financial Administration Act still applies, but the Act gives the Minister authority that could bypass the need for it in many cases. There is likely a good transparency argument there, as there is no requirement for the Minister to report or document their directions publicly.
It does serve as a counterbalance to the Corporation’s authorities, and the Minister is within their right to use it and the corporation is mandated to follow. How that will look in practice is yet to be fully seen, as it does present its own concerns around ministerial overreach.
Moving on, the corporation can use two of the powers under the Defence Production Act as if it were the Minister. One is stockpiling goods designated by Cabinet. The other covers buying, using, storing, transporting and disposing of defence supplies, building and acquiring defence projects, buying services, acquiring land and property, and anything that goes along with that.
When it uses those powers, several Production Act rules apply to it as well. PSPC’s own departmental laws don’t limit what the DIA can do, and information it collects about companies stays confidential and is shielded from ATIP requests. It can buy and stockpile on behalf of allied countries with Cabinet’s approval, and anything it acquires can be repurposed, whether that’s resold, donated or put to civilian use. It can also still skip competitive bidding under the same 13 exceptions available to PSPC.
What isn’t applied to it is the rule requiring competitive bidding in the first place, or the rule on which contracts that covers. The bill also doesn’t say who decides when an exception applies and something gets sole-sourced. The wording makes it sound like the corporation decides on its own, but whether that’s coming from elsewhere I don’t know yet, as I have no reply as of now.
The Minister, not the corporation, can use three other Production Act powers carried over from Bill C-31, those being requiring businesses to provide information, requiring other departments to gather it, and excluding bidders on security grounds without giving reasons. So both the Minister of Government Transformation, Public Works and Procurement and the future DIA Minister keep these authorities to some extent.
The corporation can make loans and advance payments to any person without further approval, and that seemingly includes non-Canadian entities. With Finance’s approval, it can also guarantee debts, provide loan or credit insurance (which counts as a guarantee), and buy or sell shares or other financial instruments. Any other financial arrangement needs Cabinet’s approval, and the bill doesn’t set a cap on guarantees.
The DIA also gets its own $1 billion fund. This is separate from the Minister of Government Transformation, Public Works and Procurement’s own $1 billion fund, so essentially there are two separate funds running around. There are also some additional rules on PSPC’s fund, such as the rule that it can’t be used for loans toward capital equipment or R&D without a Cabinet exception. The DIA can have up to $1 billion out at any one time, and when money comes back, through loan repayments, sales of goods it bought, or payments from allied governments, that room opens up again.
It can be used for buying equipment and services, making loans and advance payments, and anything else Cabinet adds by regulation. Parliament can also raise that $1 billion limit through a regular spending bill.
Finance can also lend to the corporation on whatever terms it sets, with no cap, as long as the corporation asks and the Minister recommends it. The corporation can charge fees for its services, and can provide services to, or get them from, any federal department. Forgiving a debt owed to it needs both the Minister’s and Finance’s approval.
The Board
The board is among the largest shifts from C-31. Instead of being reliant on an overpowered Minister and CEO, the new DIA will have a dedicated board with up to seven members. This includes both a part-time Executive Chairperson and a full-time CEO, both at the pleasure of Cabinet for whatever term it decides, with no five-year cap like C-31 had. The chair is also an officer of the corporation.
The deputy minister of the department that supports the Minister sits on the board automatically. Cabinet can also designate up to two more deputy-head positions, whose holders also get an automatic seat. Two other part-time directors can also be appointed at pleasure, for terms of up to four years.
In theory the board could be as small as the chair, CEO and the deputy minister. I doubt that we see that in practice, as that is ridiculously small, but legally there are only three people needed to have a functioning board, and the whole board weighs heavy with public officials who are guaranteed positions on it.
Cabinet can also name one of the other directors as vice-chair, who stands in when the chair is absent. If neither of them is available, the board can name any director as acting chair for up to 90 days, or longer with Cabinet approval. If for whatever reason the CEO is absent, the board can name any individual as acting CEO on the same terms. The Minister also has to consult the board before the chair and CEO are appointed, except for the first ones.
Any property and rights PSPC has that are used for the DIA move to the corporation, along with its obligations and liabilities. Any contracts the DIA previously signed carry over, while contracts PSPC signed outside the DIA are left out and stay with PSPC. That’s a big shift from C-31, which set out that all of PSPC’s defence supply and construction contracts would move under the DIA.
Until the corporation has a chair and at least two other directors appointed, the chair acts as the board on their own. The corporation is listed in Schedule III, Part I of the Financial Administration Act as a parent Crown corporation. The Minister, the Defence Minister and the Minister of Government Transformation, Public Works and Procurement can all use the customs duty exemption for defence goods.
The Defence Production Act
Almost all of it is carried over word for word from C-31, including the expanded definitions, the power to compel information from businesses, stockpiling, the 13 sole-source exceptions, bidder exclusion without reasons, and the $2 million penalties. Our C-31 piece covers those in detail, so again I recommend going there for the deeper details. What has changed is who holds these powers, along with some other smaller changes.
The big one is that every power in the Act stays with the Minister of Government Transformation, Public Works and Procurement rather than moving to the DIA’s minister. That includes the Act’s older powers to create new Crown corporations and to let private parties act as Crown agents. Defence Construction Canada, which C-31 had planned to move under the DIA banner, also stays back with PSPC. PSPC’s exclusive authority to buy defence goods is now “subject to” the corporation’s Act, so both PSPC and the corporation can buy for DND.
Again, while many of C-31’s tools sit outside the DIA’s purview, some are shared. The DIA itself can use the stockpiling and buying powers, along with the sole-source exceptions. The Minister can compel information from businesses, require other departments to gather it, and exclude bidders on security grounds, but only for the files under its banner.
Some financial tools available through C-31 have either moved or vanished. The power to issue grants and contributions, which C-31 listed explicitly, is gone. There is no reference to either PSPC or the corporation having this authority by name (though a grant could still be possible under the “other financial arrangements with Cabinet approval” clause).
The C-31 clause preserving the government’s ability to invoke national security exceptions in trade agreements is also not carried over, and Cabinet now has an explicit power to loosen the limit on using the $1 billion for loans for capital equipment or R&D.
Lastly, the mandatory review has been extended from three years in C-31 to five years. It’s to be done jointly by the Minister of Government Transformation, Public Works and Procurement and the DIA’s minister, and the report gets tabled in both Houses as soon as it’s ready.
If Bill C-31 receives royal assent, its “Defence Investment Agency Act and Defence Production Act” division gets repealed. Other parts of C-31, including Division 4 on Crown corporation contracting and the Procurement Ombud, aren’t affected.
Apart from enacting the corporation’s Act and the C-31 repeal clause, everything in C-40 comes into force on dates Cabinet sets, and different pieces can start on different dates.
Some Thoughts
There are some other things in there, but these are the major points. Overall, Bill C-40 feels like a more measured version of what C-31 was going for. Instead of moving everything under one new minister, who would hold near limitless and unchecked authority to shape defence procurement as they wish, Bill C-40 tries its best to split things in a way to keep everyone happy and hopefully in check with each other.
PSPC is the absolute winner here, after being pushed to the trash in C-31. They keep the Production Act, the corporation gets its own set of tools for its board to use, and the Minister still has enough power to be an influence and keep the overall DIA from becoming too overreaching.
That should calm some of the concerns people had with C-31, especially when it came to unchecked power and a lack of accountability across the board. It should also ease some of the concerns that others, like PSPC and ISED, had about the overall power the DIA was seemingly positioned to have.
The trade-off, of course, is that the system does become more complicated in some respects. There are now two ministers, two $1 billion funds and two organizations that can buy for DND, and how they divide up the work in actuality is going to matter a lot. If the DIA can stay mostly in control of significant procurements, at least the ones you all care about, then the overlap and concern should be minimized.
The Crown corporation label also shouldn’t be read as the DIA being fully arm’s length, nor should we be quick to brandish the independent label without some context. The Minister can direct it on almost anything, without those directions being made public, and a good chunk of the board is made up of senior public servants.
Arm’s length, but only so much, and with the asterisk that the Minister has the ability to control the overall process if they really desire, and to ensure that they have a major stake in any procurement. The Board are not figureheads, but they can’t operate with unlimited authority either.
In practice it looks a lot closer to the Minister than most Crown corporations. Some will see that as a good thing for keeping procurement moving, but either way the transparency side still deserves a closer look. Like C-31, there is a lack there. The review is pushed back even further as well, something that is a bit less of a concern with how much more division of power there is, but also isn’t necessarily good.
The financial side is also a bit more open than I think many hope. You can really give loans to anyone in the current read. You have equity stakes being actively brandished by officials today, guarantees with no cap and uncapped loans from Finance. That is a lot of financial instruments and wiggle room made available. What’s not in the corporation’s Act is much mention of Canadian industry or the Defence Industrial Base. That is another big difference. If Bill C-31 was built off the back of industry and economic policy, which was very much its cornerstone focus, the DIA of C-40 is specifically focused on Defence Procurement first, leaving most everything else from Bill C-31 to continue to fall under PSPC, save the tools needed to facilitate Defence Procurement where there is overlap.
I guess you could say that it’s returning to its roots? It ain’t the Ministry of C.D. Howe LARP anymore, I can say that. Hell, PSPC moves closer there… So if you were hoping to have a Minister of Everything moment with the DIA, unfortunately that isn’t the case anymore. Instead you get a fairly pure Defence Procurement Agency, with some wiggle room to expand itself.
Overall, I think that’s better in the long term. Of course, I wasn’t a fan of C-31’s authorities or what I saw as a watering down of the Defence Procurement mandate for what was, essentially, a government-backed Industry organization that had such a broad mandate and authority, it was hard to tell how defence procurement would even fit.
Is a Crown Corporation the best move? Probably here. I won’t judge. I will say there are risks and advantages. Accountability is one, as is how the Board and Minister interact and work together. Personal influence and people issues still matter, and in an organization like this they can become problems. The loosening also opens up more potential for conflicts with folks like PSPC, but I find Bill C-40 does a decent job trying to prevent too much overlap.
The independence of the Board and DIA is also more limited than it appears. It has freedom, but never too much. The Minister is still there to keep it in check. It has lots of financial tools and decent flexibility, but with hard limits compared to others like EDC.
Hopefully where that all really pays off is when things like hiring, speed of procurement, and at least a general independence come together to really kickstart the procurement ecosystem. You unfortunately can’t raid PSPC and ISED forever, and being able to detach from the public service hiring process, and open yourself more to outside talent, is something that can be exploited. The DIA has struggled this year with a lack of talent.
Speaking of talent, and a bit more personal, there’s the question of the people who have moved under the DIA banner, such as certain ADMs, and how this move affects them. I am going to have to dive a bit more into that. I also want to see how the DIA interacts in the short term with folks like Treasury Board, who have recently been looking to rein in spending and what they see as overtly fattening budgets.
A Crown Corporation opens new opportunities to fix issues, but they have to be exploited. They have to be pushed and they have to have commitment to make them work. An organization with a million powers but no will to use them has no powers at the end of the day.
As I said at the start, this is a bill of authorities and delegations, and a lot of it is left for Cabinet to fill in. That includes who the minister is, what the Associate Minister actually does, where the head office goes, what gets added to the mandate, and when any of it starts.
The bill sets the frame, but the real shape of the DIA will come from those decisions. I do have hope. I think there is a lot of positive here, and I think it is better than C-31 was in keeping the focus on Defence Procurement as a whole. Yet this hasn’t passed, the DIA is still not here, and there is still a path to go to get this all set up.
I think we’re off to a great start, but that’s still just a start.
The three positives I see: Moving out from PSPC, its own $1B and its focus on military procurement. Unfortunately, there is still PSPC latitude to process some Military purchases into their traditional procurement quagmire.