Leveraging Defence Spending: A Guide to Market Segments

When talking to different suppliers and users on OMX, we often run into confusion regarding Market Segments and how they work in procurement programs. Specifically, how small companies that don’t often work in defence, aerospace or shipbuilding, or have never worked in these industries can leverage Market Segments to win business from large companies with offset obligations.

So here’s the gist of it:

In February of 2013, Tom Jenkins identified his Key Industrial Capabilities (KICs) in his report, Canada First: Leveraging Defence Procurement through Key Industrial Capabilities. These served as a way to analyze the capability within Canada’s industrial base and were identified as potential areas for growth within Canada’s defence industrial base.

The KICs identified by Jenkins are:

  • Arctic and Maritime Security
  • Protecting the Soldier
  • Cyber Security
  • Training Systems
  • Command and support
  • In-service support

As a part of the new Industrial and Technological Benefits (ITB) policy that was announced in the Defence Procurement Strategy (read more about that here), bidders for large government procurements will have to respond to a series of identified market segments through transactions in their Value Proposition. These market segments are rooted in Jenkins’ KICs but are created custom on a procurement by procurement basis and do not have to match the identified KICs. The market segments for a given procurement are established based on the capability or capabilities that the Government of Canada wants to target or further develop through the procurement program.

Some examples of market segments could include: Shelter Systems, Marine In-Service Support or Aircraft Maintenance. However, they are not always so straightforward or directly related to the procurement program and this is where it tends to get slightly more complicated. In certain upcoming procurements, we have seen the Government choose to target areas of Canada’s industrial base that seemingly have nothing to do with defence, aerospace or shipbuilding.

In these instances, primes and eligible parties will have to target their transactions towards suppliers within that specific market segment using Direct and Indirect Transactions. In short, government contractors have two ways to fulfill an obligation: a direct or indirect transaction. A direct transaction is one that is directly related to the procurement program that the obligation is tied to. For instance, aircraft parts for an aerospace procurement. An indirect transaction is a transaction where the work itself is not related to the procurement program, but the purchasing or spending on the transaction is a result of the obligations associated with the program. An example of an indirect transaction is a transfer of work for another division within the contractor company to Canadian suppliers for the purpose of fulfilling the offset obligation. Thus, although an identified market segment may not be a capability that is directly related to a procurement program, government contractors may still have an obligation as a result of the program to spend in that area.

Why should this be important to you and your company? If you are a supplier that fits within a targeted market segment on a procurement program, you should be reaching out to the primes or eligible parties bidding on the program. These companies have a requirement to identify suppliers in their Value Proposition and spend in those areas specified under the Market Segments – even if they may not seem relevant to the procurement program itself. Market Segments, especially when they aren’t directly related to a procurement, represent a great way for companies that normally do not work in defence to leverage offset spending to gain business.

By: Katherine Jacome, Project Manager, OMX

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