OTTAWA — Fifteen years ago, as Canada’s shipyards floundered, the government came up with a $35-billion plan to keep them afloat. The premise was simple: buy a lot of boats, and make sure Canadian companies get the profits. 

“It is about using Canadian sources to fill Canadian needs,” Rona Ambrose, who was public works minister, said back in June 2010. The contracts to build naval ships, coast guard vessels and small crafts, she added, would create thousands of new jobs in Canada and 75 million hours of work over three decades—not only for shipbuilders but subcontractors and suppliers. 

Critics warned building Canadian ships would be costlier and take longer than buying up proven vessels from abroad. Canadian shipyards were outdated, and without the labour and supplies to compete, the government said. Even though Ottawa was clearly keen to rebuild its aging fleet, the purpose of the shipbuilding strategy seemingly had more to do with Canada’s economy than its navy. 

The critics’ fears have largely proven true, and the federal auditor found in 2021 that ship delivery was “significantly delayed,” but today the government touts the economic benefits of the plan, crediting it with a $38.7 billion contribution to Canada’s GDP and creating more than 21,400 jobs per year since 2012. 

Now, facing an uneasy trade relationship with the United States and concerns about the sovereignty of sensitive data, Ottawa plans to adapt the ship-building strategy for home-grown technology—including artificial intelligence, cloud infrastructure, and cyber security—using government demand to anchor the industry while it grows. 

“I think [the shipbuilding strategy] has demonstrated how targeted, long-term investment and procurement can really foster Canadian job creation, innovation,” Jenna Sudds, parliamentary secretary to the procurement minister, said in an interview with The Logic. “I think there is a lot that we can pull from as we look to buy more Canadian tech as a government.” (Procurement Minister Joël Lightbound declined The Logic’s interview request.)

The approach has raised concerns that taxpayers could pay more than necessary for goods and services. As things stand, Sudds acknowledged, Canadian firms typically “cannot compete on price” with established tech giants. Data sovereignty might also come at a cost, she said, as domestic companies would have to scale up to fulfill the demand—and would price their bids accordingly. Still, Sudds wants the public service to consider the spin-off economic benefits of buying Canadian when awarding tech contracts.

“When we do business with Canadian companies there is a multiplier effect throughout our economy, meaning creation of more jobs,” she said. “I do believe that there’s a ripple effect that will help lift all boats.”

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First the government needs to figure out where buying Canadian should sit on the hierarchy of considerations when it awards contracts. The public service is supposed to seek the “best value” for taxpayers in bids, but that concept has evolved over the last 60 years, according to a recent report by Ottawa’s procurement watchdog. Socio-economic and environmental benefits have been baked into policy over time, and are now considered alongside total cost and delivery timelines. 

In recent months, defining “best value” has gotten harder for public servants, as the push to buy Canadian, prompted by the trade war with the U.S., shifts the government’s idea of Canadians’ best interest.

The federal government spends billions of dollars on tech services each year, but offers the vast majority of those contracts to American megacorporations like IBM, Microsoft and Amazon Web Services (AWS), as domestic firms struggle to compete with economies of scale. There is only one Canadian company, Toronto-based ThinkOn, approved to handle federal government cloud services, for example.  

Last year, the government awarded $49.92 million to AWS for various tech contracts valued over $10,000. ThinkOn was awarded $275,518.

In 2022, the government defended the huge sums it awarded to AWS at the time, arguing the size of the company allowed it to build global infrastructure at scale, offering greater value to taxpayers. (The justification came in response to an accusation from the Bloc Québécois, which seemingly mistook the company for Amazon’s delivery arm and demanded to know why the government wasn’t using Canada Post instead.) 

Now Ottawa wants to prioritize domestic firms, but still needs to weigh that against other benefits of buying off the shelf from larger companies. Earlier this month the government announced it would hire Minnesota-based HR firm Dayforce to replace the troubled Phoenix pay system and handed it a $173-million contract to cover the build and testing phase over the next 15 months.

The procurement department says it has taken extra care to make sure employee data associated with the project stays in Canada, but there were no domestic vendors who could manage the complexity of overhauling the pay system. “The sad reality is Canada doesn’t have companies the scale of Dayforce or SAP or Oracle or Microsoft or IBM,” said Alex Benay, associate deputy minister at Public Services and Procurement Canada. “It’s just not in our industrial DNA.”

Canadian tech groups and CEOs beg to differ. 

The advantage for large U.S. companies boils down to incumbency, and the financial resources that come with it, said Daniel Perry, the director of federal affairs at the Council of Canadian Innovators (CCI). “If [hyperscalers] need something, they can just go out and buy it, where Canadian companies, in some cases, have to grow and scale” said Perry, whose group met with the federal industry and procurement ministers earlier this month. 

ThinkOn CEO Craig McLellan said awarding those stable government contracts to Canadian companies is a much better way to help them grow than doling out subsidies. “We are all best served with hand-ups, as in opportunities, versus handouts,” McLellan told The Logic. “Revenue is a much better lever to put a multiplier effect on than a grant or some other form of government directed support.” 

For ThinkOn, founded in 2013, money wasn’t the only benefit of public-sector contracts it landed over the last few years. It was also the experience of meeting the government’s lofty expectations. The public sector can be a discerning customer, demanding high standards and driving efficiencies a company doesn’t typically have to meet, said McLellan. “It really is almost like a proving ground, from which you can springboard into the commercial space and international markets.”

He and other CEOs have spent years trying to convince Ottawa to use its purchasing power to boost Canadian firms. In December 2024, the previous Liberal government announced plans to legislate procurement targets to buy 20 per cent of its goods and services from small- and medium-sized Canadian businesses and one per cent from domestic innovation firms. That legislation never got off the ground.

Still, McLellan and Perry say government officials appear more motivated than ever to buy  Canadian tech. Sudds, for her part, favours working with departments on new rules that encourage them to buy at home, rather than restarting the time-consuming legislative process. That will include attempts to make the process less cumbersome for small- and medium-sized businesses to access government contracts, she said. 

The former head of Canada’s public service said taxpayers should beware attempts to emulate the shipbuilding strategy with protectionist policies that limit the government’s options. “Everything is way more expensive and much slower than if you bought it in the global market,” said Michael Wernick, now Jarislowsky chair of public sector management at the University of Ottawa. “I would say the shipbuilding policy is a lesson in what not to do.”

The success of the shipbuilding program has been debated for years. Critics like Wernick argue Canada could have rebuilt its fleet much more quickly for less money by buying from Japan or Europe. As of February, shipbuilders had delivered eight large vessels and 34 smaller ones under the federal strategy, but they’ve come in more slowly and at a higher cost than expected. Ottawa argues that any premium on Canadian-built vessels is offset by job creation and increased tax revenue.

Wernick fears Canadians could end up paying more for less if the government ties its own hands. The idea reminds him of the early 2000s, when the government refused to pay for Microsoft Word, and opted instead for WordPerfect, which was developed by Corel in Ottawa. “It wasn’t as good as the Microsoft products. Everybody wanted Word, and then the Microsoft Office Suite, and public servants were stuck with Corel WordPerfect,” he said. “It’s a classic trap of something that sounds good at the beginning, but probably just leads you down into protectionist mediocrity.”

It’s too early to say if the government’s plan will sail or sink. Sudds said the reforms are still in early stages, and she can’t say how long they might take. 

Correction: The photo that first appeared with this story has been replaced with one showing a vessel constructed as part of Canada’s national shipbuilding strategy.