In this article, leading legal experts from Norton Rose Fulbright LLP break down the complex legal framework governing defence and security contracting in Canada. They address key issues including which government bodies oversee procurement, how defence contracts differ from other federal agreements, export control obligations, intellectual property considerations, and the unique challenges facing contractors in this highly regulated sector.
Q: What is the department or agency legally responsible for defence procurement in Canada?
A: At the time of writing this article in early September 2025, two departments, Public Works and Government Services Canada (styled Public Services and Procurement Canada, or PSPC), and the Department of National Defence, were jointly responsible for the public for most defence contracts in Canada. This joint responsibility is the product of the Defence Production Act, the Financial Administration Act, and other legislative instruments. Because some Canadian Coast Guard purchases are also legally classified as defence contracts, the Department of Fisheries and Oceans also has a role in some defence procurements.
Earlier in the year, however, Canada had announced the creation of a new defence procurement agency. Details of the new agency and its legislative remit have not yet been announced.
Q: Are there differences between defence procurement and other types of government procurement in Canada?
A: Yes, the nature of defence procurement means that there are meaningful differences between defence procurement and other types of procurement by the Federal Government. Two examples are the ability to sole-source defence contracts and Canada’s defence offsets regime.
Section 3 of the Government Contracts Regulations (GCRs) provides that the GCRs do not apply to “a contract in respect of which a national security exception is properly invoked” under subsection 10(3) of the Canadian International Trade Tribunal Procurement Inquiry Regulations (the CITT Procurement Inquiry Regulations, discussed further below) or “a contract indispensable to national security” to which no trade agreement applies.
Practically, this means that unlike most other large government purchases, the Federal Government has the discretion to engage in limited tendering or even sole source major defence purchases where it considers it to be in Canada’s national security interest to do so. Recently, following many years of insistence that public tendering produced the best value for Canadian taxpayers, Canada has shown an increased willingness to sole source large defence contracts, particularly when purchasing Military Off-the-Shelf equipment.
Like many nations, Canada also has a defence offsets regime. Canada’s current defence offsets regime is the Industrial and Technological Benefits (ITB) Policy, which replaced the Industrial and Regional Benefits (IRB) Policy, though the IRB Policy is still applicable to some legacy contracts and some contracts under the National Shipbuilding Strategy (NSS).
The ITB Policy applies to most defence and Canadian Coast Guard procurements over $100 million, as well as many under $100 million. The ITB policy is administered by Innovation, Science and Economic Development (ISED). The ITB Policy requires defence contractors to undertake business activity in Canada which is equal (or deemed equal) to the value of the defence contracts which they have been awarded.
Q: Can defence contractors legally challenge procurement decisions they consider to be unfair?
A: Yes, though the scope and forum for a complaint depends on whether or not a security exception has been invoked. Procurement complaints can be made to the Canadian International Trade Tribunal (CITT) unless a national security exception has been invoked under subsection 10(3) CITT Procurement Inquiry Regulations. The invocation of this exception is common for many, though by no means all, defence contracts.
If a national security exception is invoked, a defence contractor may still seek judicial review of the procurement decision before the Federal Court. The Federal Court has security procedures for proceedings where classified information is at issue, known as designated proceedings. For a defence contractor to succeed in a judicial review of a procurement decision, the contractor will need to show that that the Government’s decision was unreasonable. In the national defence and security context, where the Court will give a very high deference to the Government’s decisions about how to best protect Canada’s national security, this is a very high burden to meet.
Export controls
Q: What Canadian laws govern export controls on defence and dual-use goods and technologies?
A: In Canada, the main laws governing export controls include:
- The Export and Import Permits Act (R.S.C., 1985, c. E-19) (EIPA), which allows for the establishment of lists of controlled goods/technology and sets out offences for failure to comply (including for exporting/transferring any listed goods or technology without a permit);
- The Export Control List (SOR/89-202) (ECL), which describes at a high-level the goods and technology that are subject to export controls, with the detailed list of goods subject to export controls being set out in A Guide to Canada’s Export Control List (the Guide); and
- The Export Permits Regulations (SOR/97-204) and certain General Export Permits, which deal with the granting of export permits.
The Export Controls Division (ECD) of Global Affairs Canada (GAC), the regulatory body responsible for export controls, also publishes practical information related to Canada’s export controls regime in the Export and Brokering Controls Handbook.
Q: What defence and dual-use goods and technologies require a permit to export or transfer from Canada?
A: Generally, any item listed on the ECL requires an export permit before it can be exported from Canada, subject to certain destination considerations (e.g., certain goods do not require a permit for exports or transfers to the United States). Exports can include both traditional shipments of physical goods over international borders, as well as exports by intangible means, such as downloads, file sharing, cloud access, and e-mails, meaning rigorous compliance procedures should be put in place to avoid inadvertent exports of controlled data or know-how.
The ECL sets out, at a high level, the defence and dual-use technologies that are subject to export control. Its structure is informed by Canada’s commitments under various international agreements and treaties, including the Wassenaar Arrangement, the Nuclear Non-Proliferation Treaty, and the Arms Trade Treaty. Dual-use technologies included on the ECL encompass items with civilian and military applications, such as cryptography, advanced electronics, telecommunications and information security systems, navigation and avionics equipment, and marine technologies. Other defence items subject to the ECL include munitions, nuclear-related items, missile technology, chemical and biological weapons, and goods subject to the Arms Trade Treaty. To determine whether a specific item falls under the ECL, exporters should consult the Guide, which provides a detailed breakdown of goods subject to Canada’s export controls.
Q: How can an exporter apply for a permit to export items subject to Canadian export controls?
A: If an export permit is required to export a dual-use technology or defence item from Canada, exporters should consider whether a General Export Permit (GEP) is available. If not, they will need to apply for an individual permit.
GEPs are pre-authorized permits that allow eligible exporters to ship certain controlled goods in prescribed circumstances without applying for an individual permit. These permits are generally available to all Canadian residents and corporations with a head office or branch in Canada. To determine if a GEP applies to a specific export, exports should consult the Guide and relevant Notices to Exporters. If an item is eligible for a GEP, an exporter generally does not need to apply for an individual export permit, although certain reporting obligations will apply.
If an export is not eligible for a GEP, an exporter needs to apply for an individual export permit. Exporters must apply through GAC’s Export Controls Online (EXCOL) system, providing detailed information about the item, its destination, and intended use, along with supporting documentation.
Q: What are the current issues facing defence contractors in respect of export controls?
A: Canadian defence contractors are operating in a shifting export control environment shaped by evolving geopolitical dynamics and corresponding regulatory updates. For example, the ECD has introduced policies which include a presumptive denial of permits for exports and brokering to Russia and a suspension of controlled exports to Israel that could be used in Gaza. These measures reflect Canada’s increased scrutiny of arms transfers to conflict-affected regions and underscore the importance of staying current with evolving export control policies.
Exporters must also ensure strict compliance with other laws and regulations pertaining to exports, including sanctions. Canada maintains sanctions against jurisdictions including Russia, Belarus, Iran, North Korea, Syria, and Venezuela. Notably, in June 2025, Canada expanded sanctions on Russia, further restricting dealings and broadening prohibited goods and technologies. Notably, Canadian sanctions do not always align with those of the United States, European Union, or United Kingdom. These expanded sanctions reinforce the need for defence exporters to implement rigorous screening and robust compliance systems to avoid inadvertent violations and to keep pace with the rapidly changing regulatory environment.
Contracting
Q: What is Canada's IP regime for defence technologies in government contracts?
A: Canada’s IP principles for defence procurement attempt to balance national and industry interests and provide a policy foundation that can adapt based on the nature of the defence technology, complexity of the procurement, level of risk, particular defence supplier(s), and so on. Generally, Canada obtains IP rights for technology developed under government contracts to ensure that it can use, reproduce, share and modify the technology for its purposes. To obtain these IP rights, Canada may require ownership of the IP developed under the contract, or the supplier may retain ownership of the IP and grant Canada a broad royalty-free, irrevocable license to that IP. For pre-existing (or independently created) IP, the supplier retains ownership and grants Canada a license to that IP to the extent that it is incorporated into or necessary for the technology/IP developed under the contract. The government may require broader rights to use, share, and modify technology to ensure interoperability and operational readiness.
Defence contracts use Standard Acquisition Clauses and Conditions (SACC) clauses to define IP rights and obligations.
Canada may define IP requirements addressed to different stages in procurements and that extend over the lifecycle of defence assets for development, acquisition, use, maintenance, and disposal. This may include access and use by third parties on behalf the government.
Q: Do defence contracts contain any unique features when compared with other types of government contracts?
A: Like other Federal government contracts, defence contracts use standard terms and conditions from the SACC manual.
Defence contracts often include strict national security clauses that may require suppliers to obtain security clearances, restrict access to sensitive information, and comply with requirements for controlled goods. There may be more rigorous export controls, and obligations from international agreements.
As noted above, there are typically requirements on defence suppliers to perform activities in Canada based on the value of the contract or provide economic offsets to promote Canadian economic growth under the ITB Policy.
Defence contracts may have broader indemnification and liability clauses for high-risk procurements and given the risks more generally associated with defence equipment and services.
There may be restrictions on foreign ownership or control of supply chain and disposition to protect national security interests. Commercialization and transfers may be restricted for sensitive technology.
Q: What other features of contracting with the Canadian Federal Government should new entrants to the market be aware of?
A: Canada has procurement rules to support transparency and fairness. New entrants should understand the tendering process and proactively obtain pre-qualifications, certifications and clearances. Some procurements may require that suppliers be pre-approved to be eligible for procurements.
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Jenna Anne de Jong is a partner at Norton Rose Fulbright Canada LLP. An aggressive litigator and negotiator, representing clients in a variety of commercial and regulatory disputes and in an advisory capacity. Her practice includes a particular focus on advising clients on issues relating to contracting with federal, provincial and municipal governments. She has in-depth experience in defence contracting and related legal issues, including the Canadian Defence Production Act, the ITB Policy, Contract Cost Principles 1031-2, and other legislative and regulatory documents.
Edward Anido is a partner at Norton Rose Fulbright Canada LLP. A business lawyer in the Ottawa office, he has extensive experience in secured transactions, including syndicated and bilateral project finance, acquisition finance, corporate finance, and asset-based lending. He is ranked by Best Lawyers, Ones to Watch in Canada, for Banking and Finance Law.
Edward’s practice covers private mergers and acquisitions, defence contracting, sports law, and general corporate/commercial matters. He has worked across several industry sectors, including defence and security, mining, renewable energy, nuclear, aerospace, defence, infrastructure, and professional sports.
Maya Medeiro is a partner at Norton Rose Fulbright Canada LLP. She’s an intellectual property lawyer, patent agent (Canada, US) and trademark agent (Canada, US) and has a degree in mathematics and computer science. She has extensive experience in artificial intelligence, blockchain, cybersecurity, cryptography, payments, graph theory, risk management, gaming, face recognition, communications, healthcare and medical devices, virtual and mixed reality, wearables, and other computer-related technologies. She is a key contributor to www.insidetechlaw.com on the ethical and legal implications of artificial intelligence.
Erin Brown is is a partner at Norton Rose Fulbright Canada LLP. A litigation and regulatory lawyer based in Ottawa, she has a focus on international trade, public procurement, and competition.
Erin regularly advises clients on complex international trade and procurement issues, including economic sanctions, export controls, customs issues, and the applicability of trade agreement procurement provisions to specific tenders.
She frequently represents clients before the Canada Border Services Agency, the Canadian International Trade Tribunal (CITT), and the Federal Court of Canada on issues relating to anti-dumping, customs classifications, duty relief, the import/export of goods, and bid challenge disputes.