Unlocking Growth: Why ITB Credits Matter for Canadian SMEs

A practical perspective on Canada’s Industrial and Technological Benefits (ITB) Policy and how integration-ready SMEs work with Prime Contractors

Taken at the field testing with Lockheed Martin's Skunk Works® Canada.

Canada’s Defence Industrial Strategy Update Below

For small and medium-sized enterprises (SMEs) in Canada, breaking into the aerospace, marine, and defence sectors can feel like trying to board a moving train. The barriers to entry are high, the competition is global, and the procurement cycles are far too long.

Canada already has a practical tool for bringing domestic companies into defence programs. The Industrial and Technological Benefits Policy was designed to pull Canadian SMEs into long-term work with Prime Contractors, and ITB credits remain one of the most direct ways for small firms to grow through real contracts rather than short pilot projects.

What are ITB Credits?

The ITB Policy is often described as a Buy Canadian program. When the Government of Canada awards a major defence or Coast Guard contract, the winning bidder becomes the Prime Contractor, the company responsible for delivering the overall program. That Prime must reinvest the full value of the contract in the Canadian economy. The requirement generally applies to procurements above $100 million and can also be used for contracts between $20 and $100 million after review.

Every dollar a Prime spends on Canadian suppliers, research, or skills development earns ITB credits against their obligation. Once those credits reach the value of the contract, the commitment to reinvest in Canada is fulfilled.

That requirement creates a practical challenge for Primes. They need Canadian partners who can take on meaningful work without increasing program risk. The policy directs about 15% of ITB activity to SMEs, so Primes focus on companies that can deliver capability on real schedules.

From a Prime’s perspective, three factors matter most: 

• The Multiplier Effect: Certain investments generate ITB credits worth 5 x to 9 x their actual cash value. A $100,000 investment in an SME’s R&D, for example, can offset up to $900,000 of a Prime’s total obligation. That leverage makes technology-focused SMEs one of the most efficient ways for Primes to meet requirements while strengthening real capability.

  
  

• Filling the "To Be Identified" Gap: As of 2024, more than $15 billion in ITB commitments remained unallocated. These funds must still be placed with Canadian companies. The need for credible partners is immediate, and Primes are under pressure to find organizations that can take on meaningful work now.

  
  

• Key Industrial Capabilities (KICs): Credits are most valuable when they support priority areas such as Artificial Intelligence, Cyber Resilience, and Remotely Piloted Systems. SMEs operating in these domains sit at the intersection of national priorities and Prime requirements.

Taken together, these factors make Canadian SMEs central to how Primes satisfy their ITB obligations.

From Policy to Practice: What This Looks Like in the Real World

Understanding ITBs on paper is straightforward. Working inside the ITB ecosystem is not.

I have seen many SMEs treat ITBs like a lottery ticket. They wait for an opportunity instead of preparing for one. Primes approach this very differently. They look for companies that lower program risk and can integrate into existing efforts without years of rework.

Three questions guide their decisions.

1. Is the technology integration-ready?

   • Can it operate within current platforms, data architectures, and security environments today?

     
     

2. Is the company program-ready?

   • Does the SME understand defence timelines, compliance requirements, and the realities of working with large integrators?

     
     

3. Does the capability advance priority missions?

   • Autonomy, ISR, AI-enabled sensing, and resilient networks are the areas where ITB investments deliver the most value.

     
     

How TerraSense Approaches ITBs

TerraSense was created to operate inside existing defence programs. We work in autonomy, ISR, and AI-enabled sensing, and our focus has been on improving how current systems share and use data rather than introducing another standalone product.

Our approach is integration-first:

• Architectures that connect to existing defence and security systems

• Data pipelines built for interoperability, not isolation

• Security and compliance aligned with controlled environments

• Teams accustomed to co-development with Prime integrators

• Technology kept ITAR free to support international collaboration

At the center of this approach is the MIST middleware layer. MIST moves and analyzes data between sensors, platforms, and operators, allowing programs to progress without replacing existing functionality.

Primes look for that mix of capability and maturity when they place ITB investments. TerraSense has participated in ITB-aligned initiatives supporting autonomy and ISR modernization, demonstrating that a Canadian SME can deliver within Prime-led programs and real procurement schedules. Our objective is to fit into programs rather than require programs to fit around us.

For Primes, investing ITB credits in companies like TerraSense accelerates capability development. Multipliers strengthen their missions while meeting obligations. For us, those partnerships provide access to global supply chains, joint research, and long-term stability.

Beyond a Single Contract

Companies often assume ITBs lead to one project and stop there. In reality, participation tends to open additional doors:

• Entry into international programs once you are a vetted supplier

• Technology transfer and joint development with industry leaders

• Faster commercialization supported by Prime investment

• Market credibility that signals strength to investors and government alike

I’ve watched SMEs change trajectory once they become part of this ecosystem. ITBs can move a company from early-stage work into long-term industrial programs.

Closing Note for Primes and Partners

For Canadian SMEs, ITBs reward preparation. Companies that understand Prime requirements, compliance, and integration realities are the ones that benefit.

For Primes, the Canadian SME community offers practical capability today. Firms like TerraSense are structured to integrate into existing programs, collaborate with large integrators, and deliver on program schedules.

ITBs connect global Prime Contractors with Canadian technology that is ready to deploy. TerraSense intends to be part of that effort and to work with partners who are building the next phase of defence capability.

We welcome conversations with Primes and partners about where our technology can support their programs.

Policy Update: Canada’s Defence Industrial Strategy

Updated February 20th, 2026, following the release of Canada’s Defence Industrial Strategy.

After this article was published, the Government of Canada released its first Defence Industrial Strategy. The strategy places strong emphasis on expanding domestic industrial capacity, increasing procurement from Canadian firms, and improving the pathways through which companies participate in defence programs.

Several elements reinforce themes already present within the ITB framework, including prioritizing Canadian suppliers, supporting small and medium-sized businesses, scaling commercialization of defence technologies, and strengthening integration of domestic industry into major programs.

For integration-ready SMEs, this direction provides additional structural support. Measures aimed at streamlining procurement, improving access to capital, and expanding domestic supply chains may increase both the scale and continuity of participation in Prime-led programs.

From TerraSense’s perspective, one of the more meaningful aspects is the focus on reducing barriers to entry for defence SMEs. Many capable companies struggle not because of technical limitations, but because navigating procurement structures, partnership channels, and funding mechanisms can be difficult without established networks. Efforts that make participation more accessible should broaden the base of Canadian firms able to contribute to national capability.

The strategy’s emphasis on interoperability, sovereign capability, and domestic industrial growth also aligns with how TerraSense has approached program participation from the outset. Integration readiness, program maturity, and long-term collaboration remain the practical requirements for sustained involvement.

As implementation progresses, the impact will depend on execution. However, the strategic direction signals a continued expansion of the role Canadian industry is expected to play in defence procurement and capability development.