Bill C-40 and the future of defence procurement in Canada
Canada’s defence sector is undergoing significant reform of a magnitude not seen since the Second World War. Bill C-40, the proposed Strengthening Canada’s Defence Sector Act (the “Bill”), would establish a new Crown corporation for defence production, procurement and investment and broaden the Defence Production Act (the “Act”) to expressly address national security. Introduced in the House of Commons on October 6, 2026, the Bill has completed first reading and is at second reading.
If enacted, the Bill would centralize key defence functions, expand the statutory framework beyond traditional defence procurement and add new financing and investment authorities. Its emphasis on economic security, supply-chain resilience, allied interoperability and strategic procurement could affect businesses well beyond the traditional defence sector, including those involved in aerospace, advanced manufacturing, critical infrastructure, cybersecurity, communications, software, artificial intelligence and logistics.
Key Takeaways
- Bill C-40 would establish a Defence Investment Agency with a permanent statutory mandate to support defence production, procurement and investment.
- Bill C-40 would expand the scope of Canada’s defence procurement framework to address national security, defence services, data, intangible property, stockpiling and investment.
- New financing and investment powers could support Canada’s defence industrial capacity, including through loans, advanced payments, guarantees and direct investment.
- Bill C-40 would authorize non-competitive contracting in specified circumstances, including those involving national or economic security, interoperability, sensitive technology and critical defence projects.
- The proposed changes could affect businesses well beyond the traditional defence sector, including companies in aerospace, advanced manufacturing, cybersecurity, telecommunications, artificial intelligence, software, logistics and infrastructure.
Bill C-40 would create a new Defence Investment Agency
The Bill would enact the Canadian Corporation for Defence Investment Act and establish the Canadian Corporation for Defence Investment, which would operate as the Defence Investment Agency (the “DIA”). The DIA’s mandate would include production, procurement and investment activities related to national defence for the benefit of the Canadian Armed Forces or the Department of National Defence and, where directed by the Minister of Public Works and Government Services (the “Minister”), an associated government.
At present, defence procurement authority rests primarily with the Minister. Subject to statutory exceptions, the Minister has exclusive authority to acquire defence supplies and construct defence projects required by the Department of National Defence. Although the Act permits the Minister, with Governor in Council approval, to procure the incorporation of corporations to perform authorized functions, those corporations act solely as Crown agents.
The Bill would instead create a named Crown corporation with a permanent statutory mandate. The DIA would have the capacity, rights, powers and privileges of a natural person and generally act as an agent of His Majesty the King, while retaining authority to contract with His Majesty the King, as though it were not an agent. It would operate at arm’s length within the National Defence portfolio and report to a new Associate Minister of National Defence for Procurement. The responsible minister would retain strategic direction and oversight, including authority to require or prohibit specified activities.
This structure is intended to consolidate procurement, production and strategic investment within a dedicated institution while preserving significant government control.
Bill C-40 would broaden Canada’s defence and national security framework
The Bill would rename the Act to the Defence and National Security Production and Procurement Act and expand its scope to address national security, defence services, stockpiling and investment.
Expanded Defence and National Security Concepts and Government-Wide Procurement
Currently, the Act applies broadly to defence supplies and projects, including military equipment, infrastructure and works required to produce, maintain or store defence supplies. The Bill would expressly add national security, defence services, data and intangible property. “Defence supplies” would include physical things, animals, data and intangible or incorporeal property used or required for national defence, national security or cooperative efforts with an associated government. A new definition of “defence services” would cover services relating to those purposes and the construction of defence projects, subject to specified exclusions.
The Minister’s exclusive acquisition and construction authority would also extend to defence supplies, services and projects required by federal departments, boards and agencies, subject to the proposed Canadian Corporation for Defence Investment Act. This is broader than the Minister’s current exclusive authority, which is generally limited to requirements of the Department of National Defence. The expanded framework may therefore capture goods and services supporting national defence or security requirements across the federal government.
Expanded Stockpiling Powers
The current Act permits the Minister to acquire and manage designated materials or substances essential to community needs where stocks are advisable to safeguard against shortages. The Bill would extend this authority to anything designated by the Governor in Council as essential for purposes that include national defence, national or economic security, the defence or security of another state and shortage prevention. Supply assurance and secure supply chains may consequently become more significant for businesses providing critical goods, technologies and services.
Financing and investment authorities
As proposed by the Bill, the DIA would receive express authority to make loans and advance payments, guarantee repayment, provide loan or credit insurance and acquire, exercise, assign or dispose of shares and other financial instruments, subject to specified approvals. The Bill would also authorize payments from the Consolidated Revenue Fund to the DIA for specified purposes, subject to an aggregate limit of $1 billion, applicable deductions and any amendment made by an appropriation act.
Separately, the Minister would receive powers to provide financial assistance for national defence and security production, procurement, investment and stockpiling, including loans, advance payments and guarantees. Although the current Act already permits certain loans, advances and guarantees, the Bill would expressly connect these tools to investment in national defence and national security and provide the DIA with additional investment mechanisms.
The proposed framework therefore contemplates government support not only for acquiring defence capabilities, but also for developing, financing and sustaining the industrial capacity needed to deliver them.
Competitive procurement and exceptions
The Bill would establish a defence and national security-specific procurement framework for defence contracts and certain stockpiling contracts involving payment by His Majesty the King, other than leases of real property or immovables. The Minister would have exclusive authority to determine whether a contract falls within the framework.
A competitive procurement process would remain the default. However, the Minister could proceed without competitive procurement in specified circumstances, including those involving:
- urgent operational requirements, or military operations;
- critical defence projects;
- national or economic security;
- interoperability or interchangeability;
- sensitive technology;
- sole-source capability;
- interim operational requirements;
- research and innovation;
- previously funded innovation;
- arrangements with government entities;
- international-organization procedures; and
- prescribed exceptions.
The inclusion of economic security, interoperability, sensitive technology and strategic capability reflects procurement considerations that extend beyond conventional urgency-based sole sourcing. The Minister could also exclude a person from a competitive process where there are reasonable grounds to believe that the person, a related person or anything proposed for use in performing the contract poses a risk to national defence, national security or public safety, without providing reasons.
Confidentiality and statutory review
The current Act generally restricts disclosure of information concerning an individual business obtained under the Act without the business’ consent, subject to limited exceptions. The Bill would relocate that protection to the new Defence and National Security Production and Procurement Act and make corresponding amendments to Schedule II of the Access to Information Act. The changes preserve and update the existing commercial-confidentiality framework rather than create a new one.
The Bill would also require the responsible ministers to review the new framework within five years after the review provision comes into force and table a report before each House of Parliament. This would create a formal opportunity to assess how the reforms operate and whether further statutory changes are warranted.
What could Bill C-40 mean for industry?
Bill C-40 would align procurement, industrial policy and investment tools more closely in support of Canadian defence and national security objectives. The proposed DIA, broader statutory scope and new financing authorities could materially reshape how the federal government procures and supports defence and security capabilities.
Organizations in aerospace, advanced manufacturing, cybersecurity, telecommunications, artificial intelligence, software, logistics, infrastructure and other strategically significant sectors should assess whether their goods, services, technologies or supply chains could fall within the expanded framework. As the Bill progresses, stakeholders should also monitor accompanying regulations and implementation measures, which will shape how the new authorities are exercised in practice.
