1. Lockheed Martin Canada’s SMB Mentoring Program
Understanding and Working within Canada’s Industrial and Technological Benefits Program

2. Disclaimer
This presentation is intended for informational purposes only and does not constitute an official guideline on the subject. For a complete understanding of the process and rules the official Canadian Government program/site should be consulted:
ITB Policy: Value Proposition Guide

3. ITB & VP Principles & Objectives
Canada's Defence Procurement Strategy (DPS) has transformed Canada's Industrial and Regional Benefits (IRB) policy into the Industrial and Technological Benefits (ITB) policy (as of February 2014).
A core element of the ITB approach is a rated and weighted Value Proposition. Companies will be motivated to put forward their best Value Proposition for Canada in their bid proposal, as industrial considerations and economic impact will now directly influence which bidding firm wins a contract.
Objective: Leverage Defence procurements to get long-term industrial and regional development
High quality and advanced technology
Lasting economic value
Emphasis on a mix of direct and indirect benefits
Position Canadian industry for future growth
First principle – all DND operational requirements must be met.
Second principle – companies are able to make decisions that best meet their own business case.
© 2016 LOCKHEED MARTIN CANADA

4. Definitions SMB = Small and Medium Business
ITB = Industrial and Technological Benefits
VP = Value Proposition
CCV = Canadian Content Value
Eligible Parties/Donors = Parent corporations, related subsidiaries and Tier 1 suppliers
Commitments = ITB and VP commitments are commercial or business activity that is carried out by means of a contract, including any purchase order, sales agreement, license agreement, letter of agreement or other similar instrument in writing, and which has an identified dollar value, and is measured in Canadian Content Value (CCV)
Transaction Sheets = forms on which specific transactions are recorded and submitted to Canada for assessment/acceptance as part of the VP
© 2016 LOCKHEED MARTIN CANADA

5. Small and Medium Business (SMB)
Are you a Small and Medium Business?
A Canadian Company with fewer than 250 full-time personnel as of the date of entering into an IRB/ITB Transaction.
Agents and distributors of foreign goods and services, as well as subsidiaries of firms that are Contractors or Eligible Parties on any IRB contract do not qualify as SMB.
© 2016 LOCKHEED MARTIN CANADA

6. Industrial & Technological Benefits Obligation
ITB Policy
Under the ITB Policy, companies awarded defence procurement contracts are required to undertake business activities in Canada equal to the value of the awarded contract.
The Value Proposition is proposed at the time of bid. After a contract is awarded, the contractor is required to start fulfilling its commitments. Further business activities in Canada may have to be identified to meet the overall ITB obligation.
Industrial & Technological Benefits Obligation
Usually 100% of Contract Value
Commitments/activities proposed at bid time
Rated and weighted during bid evaluation
Value Proposition
Activities identified after contract award
Brings identified activities up to 100% of contract value
Outstanding Obligation
© 2016 LOCKHEED MARTIN CANADA

7. ITB Policy (cont’d)
The ITB Policy, including the Value Proposition, will apply to all eligible defence procurements over $100 million
All eligible defence procurements with contract values between $ million will be reviewed for the use of Value Propositions.
The review will determine whether the application of a Value Proposition is consistent with achieving the appropriate balance between capability, cost and benefit to Canada.
Typical Mandatory Requirements
Commitment to 100% of contract value and to a schedule for identifying specific activities to meet the obligations
Commitment to 15% SMB involvement
Acceptance of ITB Terms and Conditions and performance guarantees
Submission of four plans (ITB management, company business, regional and SMB)
First phase of ITB/VP evaluation is assessing the plans as pass/fail (the bidder needing a minimum score outlined in the RFP for a pass)
If minimum score is reached for a pass, bidder moves to second phase which is the Value Proposition evaluation (rated & weighted)
© 2016 LOCKHEED MARTIN CANADA

8. Value Proposition Evaluation
In addition to Price and Technical, Value Proposition score is now added to bidder’s score
Price
Technical
Value Proposition
Weighted & Rated - Usually 10-20%
EVALUATION CRITERIA
Defence Sector
Direct work in Canada specific to procurement
Indirect work in Canada in defence sector
Canadian Supplier Development
Work undertaken by Canadian suppliers
Work undertaken by Canadian SMB suppliers
Innovation/R&D
Innovation/R&D undertaken in Canada
R&D in Canadian post-secondary institutions
Exports
Strategy to export from Canada, specific to procurement
May include incremental export capability in the defence and other sectors of the Canadian economy
Others
On procurement-by-procurement basis
As appropriate to measure high-quality investments in Canada, based on industry engagement
Within each procurement there is flexibility for Canada to:
Increase or decrease the weight of the Value Proposition in the overall bid score;
Weigh each criteria differently;
Apply all or some of the evaluation criteria;
Add other evaluation criteria e.g. Skills Development, Cyber Security;
Develop different rating grids to adequately assess and differentiate among Value Propositions;
Restrict category to a particular market segment(s).
© 2016 LOCKHEED MARTIN CANADA

9. Types of Transactions
ITB and VP Commitments are executed via Transaction Sheets
Types of Transactions
Description
Example
Direct Transactions
Business activities that will be undertaken by the contractor and its suppliers in Canada that directly relate to the equipment or service being produced by Canada.
Program: DND Procurement
Direct transaction: Winning bidder's program management and Engineering services on the Program.
Indirect Transactions
Business activities that will be undertaken by the contractor and its suppliers in Canada related to the contractor’s product or business lines but not directly related to the equipment or services being procured by Canada.
Indirect transaction: General Investment in a business not doing work on the Program. Can also be purchases of goods and services from suppliers, investments in R&D, technology transfer, supplier development, and other eligible activities.
Not all ITB Transactions qualify as VP Transactions
A transaction must fit in a VP category in order for it to be evaluated and counted as VP
© 2016 LOCKHEED MARTIN CANADA

10. ELIGIBILITY CRITERIA FOR TRANSACTIONS
Causality: each Transaction must be one which was brought about by either the Contractor or one of its Eligible Parties, due in part to a current or anticipated Obligation to Canada. It must not be one which probably would have been entered into if an Obligation had not existed or been anticipated. Causality may be demonstrated to a specific project or more broadly to a company’s Obligation in general.
Timing: Transactions must be implemented within the Achievement Period of the program (defined in the Terms & Conditions of the program in the RFP)
Incrementality: Transactions must involve new work in Canada.
Eligible Party: Transactions must be undertaken by an Eligible Party as defined and named in the Contract.
An Eligible Party is the Contractor, its parent corporation, and all of the parent’s subsidiaries, divisions and subdivisions; and, the Contractor’s Tier- One suppliers related to the performance of the Work under this Contract, their parent corporations and all of the parent’s subsidiaries, divisions and subdivisions.
A transaction will be ineligible if it does not meet all of the listed criteria.
© 2016 LOCKHEED MARTIN CANADA

11. Banking ITBs
Canada encourages the banking of transactions in advance of upcoming procurements as a way to encourage businesses to engage and invest early with Canadian industry.
The policy allows for banking in two circumstances:
In advance of a procurement;
As an overachievement on an existing obligation.
Potential contractors can bank in advance of a procurement, only contractors can bank overachievement activities.
An obligation can be considered an overachievement if it is achieved between the date of early completion and the end date of the achievement period.
Banked activities must meet the eligibility criteria (previous slide).
The ITB Authority will assess proposed transactions and will inform the company in writing of a proposed transaction’s eligibility. Once accepted it enters the bank immediately.
A banked activity may remain in the bank for up to 10 years. After 10 years, the transaction has no value.
Banked activities may be used:
To satisfy an ITB obligation to a maximum of 50% of the total obligation value;
As part of a Value Proposition proposal, but the proposal must contain non-banked transactions values at not less than 50% of the value identified.
To open a bank account for transactions, contact the Banking Team with your company’s request.

12. Canadian Content Value
Direct and Indirect Transactions are always measured in Canadian Content Value (CCV)
No.1
Net Selling Price Method
Used for a product or service which bears a substantiated selling price
Total Selling Price
Any applicable customs duties, excise taxes and applicable Goods and Services Taxes (GST), Harmonized Sales Taxes (HST), all provincial sales taxes and any foreign material, labour and services (non-Canadian)
2 Methods for Calculating CCV
MINUS
© 2016 LOCKHEED MARTIN CANADA

13. Canadian Content Value
No. 2
Cost Aggregate Method
Any product or service that cannot be assigned a substantiated selling price. CCV is calculated as the aggregate of:
Direct and Indirect Transactions are always measured in Canadian Content Value (CCV)
2 Methods for Calculating CCV
Wages, salaries, benefits paid to Canadian workers
Facility costs in Canada (including utilities, taxes, insurance, rent, administration, maintenance, depreciation)
Parts and materials (of Canadian origin) for plant equipment
Engineering and Professional Services in Canada
Transportation costs within Canada
Profits earned in Canada
The value of any living, relocation costs, remuneration and premiums paid to non-Canadian citizens who may work on the project cannot be claimed for IRB Credit.
© 2016 LOCKHEED MARTIN CANADA

14. Value Proposition Categories The VP Categories include:
1) Defence Sector
The Government will motivate bidders to maximize the amount of business activity they undertake in Canada directly related to the procurement by awarding points for direct work (and may award points for indirect work) that involves business activity in Canada related to the defence sector work.
How does your company fit in the Defence Sector?
(Direct/Indirect?)
What is your company’s competitive advantage?
(Supplier Development)
2) Supplier Development
To further incent bidders to work with Canadian companies, points may be awarded for work offered to and investments made in suppliers in Canada. Supplier development opportunities may be awarded points for direct work related to the procurement or indirect work in the defence, or possibly other sectors of the economy.
© 2016 LOCKHEED MARTIN CANADA

15. Value Proposition Categories Cont’d
3) Canadian Research and Development (R&D)
Points may be awarded for R&D investments that bidders and their eligible parties propose to make in Canada, including R&D related to the procurement, the defence sector and/or other sectors of the economy.
Additional points may be awarded based on the R&D that bidders and their major suppliers propose to undertake with accredited Canadian post-secondary institutions.
4) Exports
Key objective of the Defence Procurement Strategy is to strengthen Canada’s success in tapping traditional and non-traditional export markets and share in the long-term economic benefits that result from success in those markets.
How much R&D does your company perform and can your product be applied to a particular sector through R&D?
Do you work with
Post Secondary
Institutions?
Do you Export?
What are your Target Markets?
What is your company’s capacity to export?
© 2016 LOCKHEED MARTIN CANADA

16. Value Proposition Categories Cont’d
5) Other
On a procurement-by-procurement basis, the Government may engage industry to determine whether they propose to make other high-value investments in Canada that would not be captured by the above-noted categories. In these cases, the Government may decide to add additional categories/criteria.
Skills Development (example)
Transactions with Canadian Companies and/or Post-secondary Institutions, leading to an increased capability or skill through an investment, or knowledge/technology transfer within the Identified Market Segment. These activities will be in the areas of program and subcontract management, intellectual property management, life cycle management; logistics support analysis, skilled apprenticeships and engineering.
© 2016 LOCKHEED MARTIN CANADA

17. How does ITB/VP apply to an SMB
Industrial & Technological Benefits
15% SMB Requirement
Bidders will be looking for SMBs to work with
General Investment
Investment Framework
Consortiums
Value Proposition
VP Criteria
How is your product/service unique?
What is your niche area of expertise?
How does it fit in the Value Proposition Criteria?
Who are you? What industrial value can you offer/commit to? Make yourself known to large businesses that can benefit from what you have to offer.
© 2016 LOCKHEED MARTIN CANADA

18. What Large Businesses look for
Business Alignment and Business Sense, Industrial Value
Quantify existing presence in Canada, nature of operations, regions/locations, how long have you operated in Canada, any prior experience in defence contracts, number of employees (SMB), business volume, Controlled Goods, Security, Quality.
Quantify existing supply chain in Canada. Identify how this supply chain will be leveraged into this procurement.
Investments you are willing to make in R&D
Capacity to Export
Canadian Content commitments for Product Capability Enhancement in future
Past experience in offset management, especially any evidence of successful IRB/ITB execution in Canada
Any Experience in working with Public Research Institutions/Academia/EDO groups
Lockheed Martin Canada is Always Looking for Long Term Business Partners
© 2016 LOCKHEED MARTIN CANADA

19. Summary / Benefits Understanding Canada’s ITB/VP Policy will:
Ensure your organization can effectively respond to Defence Sector solicitations
Allow your organization to better position itself as a valuable partner/supplier to large businesses seeking to maximize their own Value Propositions and Canadian Content
Contribute to the development of Canadian SMBs and R&D which will establish a strong Canadian-based industry of which your organization will be a part
Ensure your organization benefits from major Government of Canada programs and export opportunities this program will generate as Canada’s defence industry grows
Develop partnerships beyond Canada’s defence procurement
© 2016 LOCKHEED MARTIN CANADA

20. Helpful Links About ITB ITB Policy: Value Proposition Guide
Industrial and Technological Benefits
Innovation, Science and Economic Development Portfolio
Buy and Sell – explore VP and ITB examples
© 2016 LOCKHEED MARTIN CANADA