OTTAWA — The federal government is significantly reducing funding to a program for departments to back innovation and buy from startups, as part of a broader push to find savings. 

Ottawa launched Innovative Solutions Canada (ISC) in December 2017. It requires 21 federal departments and agencies to spend one per cent of annual procurement and R&D expenditures via the program, which funds firms to develop fixes for the government’s problems.

Those mandated contributions add up to $113.8 million a year. But Ottawa plans to cut ISC’s budget by $28.2 million in the 2024–25 fiscal year, and then $70 million annually from 2025–26 onwards. The savings will come from “reduced contributions to the programs from participating departments across government,” according to Innovation, Science and Economic Development Canada’s annual plan, published Thursday. The document said decisions about how much each participating organization will reduce funding will be made this spring.

Departments and agencies have consistently, and by significant margins, failed to meet their spending requirements under ISC. In 2020–21—the last year for which the program published an annual report—expenditures totalled $33.6 million, just 29.6 per cent of the mandated amount. 

The Department of National Defence is supposed to be the biggest contributor to ISC, with a $65-million annual obligation. But the most it’s spent in a fiscal year was $11 million in 2022–23. As The Logic reported last month, the department has been considering scaling back its commitment to the program, citing its greater use of a similar in-house initiative. 

Startups have long complained that selling to government is too difficult, and that the procurement process favours larger and foreign competitors. The Liberals framed ISC as a fix, promising in the March 2017 federal budget to act as “a first customer—to test and validate Canadian technologies.”

Startups involved in the program have said it simplified the procurement process, and provided some non-dilutive funding to develop their technology while they retained their IP. Initially, though, they lamented the ISC’s lack of a system for departments to buy their products for regular use. The program later launched a pathway to commercialization, allowing some firms to bypass the normal tendering process and sell directly to government clients for three years.

Council of Canadian Innovators president Benjamin Bergen said Ottawa’s move to cut ISC did not come as a surprise, noting the group’s scale-up members have faced “significant flaws and frustrations” with the program. “However, if the federal government does not recommit itself to procurement reform and new avenues to support domestic small- and medium-sized enterprises, this move will be a significant loss for Canadian innovators,” he said. 

There are better ways for the government to support such firms than the ISC, according to Michele Lajeunesse, senior vice-president of government relations and policy at Technation. She said Ottawa should redirect the funding to existing supplier-diversity initiatives run by Public Services and Procurement Canada or Shared Services Canada. “We wouldn’t want to lose that money.” 

The ISC cut is part of the Liberal government’s plan to reduce spending by $14.1 billion over the next five fiscal years, and $4.1 billion annually thereafter. Treasury Board President Anita Anand is leading the effort. Other cuts include reducing the annual envelope for the flagship Strategic Innovation Fund by $38.2 million in 2025–26 and $141.4 million from 2026–27 onwards.