It was a clean-energy fix hiding in plain view. The engineers at Toronto’s Morgan Solar reckoned that standard office blinds could do double duty if their external surfaces were coated with photovoltaic cells. Shade from one side, clean energy from the other. Even better, that potential could be optimized if the blinds automatically followed the course of the sun. As it happened, Morgan Solar already had technology to power such an innovation — the company had developed an AI-driven system designed to track the orientation of panels on solar farms.
The catalyst for Morgan Solar’s pivot traces back to 2021, when Global Affairs Canada launched an open challenge for ideas on how to design “energy-producing window coverings.” The company won a contract to produce a prototype that could generate electricity from the sun and reduce energy required to run HVACs. It then partnered with BGIS, a global asset management company, to install a pilot version of its blinds on one floor of a federal building in Ottawa, and, in 2022, installed an exterior system using PV shades on another building in the capital.
Those proofs of concept were just the beginning. Last year, BGIS, which manages 40,000 buildings around the world, awarded Morgan Solar’s system its supplier innovation prize; the two firms are now rolling out a commercial version to clients — among them BMO and Cisco.
While Morgan Solar’s bid for the open challenge proved successful, the process was anything but straightforward. The government’s request for proposal (RFP) process was taxing and time-consuming for a small firm without deep pockets. “Our entire experience with government procurement,” says CEO Mike Andrade, a former Celestica executive, “is that it takes three years to work through the discussions and the paperwork and checks and balances.”
Public sector procurement rarely generates headlines, much less public interest. Yet tech veterans like Andrade know that governments not only buy billions in goods and services but have the opportunity to dramatically boost the profile — and fortunes — of homegrown startups looking to scale. But in a hidebound procurement system that tends to favour multinationals, that potential is often overlooked or squandered.
Tasked with fortifying the tariff-hobbled economy, Prime Minister Mark Carney has pledged to make better use of Canadian firms to deliver his marquee nation-building projects. What Andrade and his fellow Canadian tech entrepreneurs want to know is why government contracts are so difficult to secure, given how crucial they are for startups looking to commercialize Canadian-made technology? And why do multinationals land so many public-sector contracts?
Canadian innovators have long argued that governments could better leverage their spending powers by doing more to help small domestic firms gain traction and win customers. Procurement policy experts are also pressing governments to adopt so-called “outcomes-based procurement,” a system that encourages bidders on government contracts to propose innovative solutions to problems as opposed to bidding to provide goods or services that satisfies the precise specifications outlined in an RFP at the lowest cost possible.
As Andrade points out, “the multibillion-dollar companies with lobbyists and group-proposal writing and massive balance sheets” are far better equipped to navigate procurement rules, which are predicated on a set of conditions that early-stage companies can struggle to meet.
There are significant opportunities at stake. Governments buy billions in goods and services each year — everything from office blinds to long-duration energy storage to fighter jets. Ottawa’s outlay is about $37 billion, and the overall figure grows significantly when you factor in provincial, territorial and municipal procurement. The federal minister in charge of procurement, Joël Lightbound, has pledged to use AI to make the system more efficient. In July, his department also announced an interim reciprocal procurement policy meant to protect Canadian firms from unfair trade practices.
The ground rules are crucial because they determine who gets a chance to win public sector deals. In emerging industries, a government contract is a powerful calling card because it signals to potential customers (and investors) that the innovations are worth buying.
“You can get a lot more access to capital if you have access to customers,” says cleantech investor Peter McArthur, chair of the Canadian Cleantech Alliance. Conversely, in a country where companies need to look beyond its borders to grow, the lack of a first government customer can serve as a millstone — and not just for individual firms. As McArthur adds, “It’s a key barrier to Canada growing its economy and exporting products.”
Canada’s Catch-22
Since 2023, according to The Hill Times, large U.S. firms have won $3.5 billion in federal contracts in Canada. StatCan, in turn, reports that a vanishingly small proportion — about four per cent — of Canadian small- and medium-sized enterprises (SME) sell to Ottawa with more than a fifth reporting they were either unaware of the opportunities or found the process too complicated.
Case in point: Flash Forest, a Toronto startup that uses specialized drones to plant seed pods, thereby accelerating reforestation projects. With wildfires wiping out hundreds of thousands of hectares, there has never been a greater need for replanting campaigns. Indeed, the federal government has pledged to spend $3.2 billion planting two billion trees by 2031.
Yet Flash Forest was initially deemed ineligible to bid on contracts because its technology didn’t fit the terms of the federal RFP, which prescribed the planting of seedlings, not pods. The company eventually found a way to make a case for its technology and secured a $1.3-million contract in 2022. (Flash Forest has since secured contracts with First Nations and other non-profits in Quebec, Alberta and Colorado.)
For smaller firms that have novel technologies but not enough cash flow to ride out a lengthy vetting process, it can be financially risky to bid on public sector contracts, which are often overly prescriptive in their parameters.
This Catch-22 is not new and helps explain why Canada’s tech sector has historically struggled to produce large-scale global firms. The stakes are even higher in cleantech: innovations that can decarbonize the atmosphere, reduce industrial emissions and help the world transition away from fossil fuels will build the foundation of the global economy for decades to come. These goals represent a generational export opportunity for cleantech ventures.
As Ottawa boosts its NATO commitment to five per cent of the GDP, the federal government is hiking its defence spending as well as ambitious nation-building projects. Those investments, coupled with provincial buy-Canadian mandates, have the potential to change the game for aspiring cleantech firms, argue McArthur and other experts.
“We are about to embark on a transformation of our economy, diversifying it away from the United States, making a major investment in defence and security,” says McArthur. “It’s a huge opportunity to become more efficient and more competitive by deploying innovative clean technology solutions that are being created right here at home. You can have multi-purpose solutions here that achieve climate security, physical security for Canada and can develop the economy.”
Innovation policy scholar Darius Ornston, of the University of Toronto’s Munk School of Global Affairs and Public Policy, adds that the U.S. government has been far more intentional about using its defence procurement budget to drive R&D and commercialization by SMEs in such sectors as cleantech. Through a pair of Congressionally mandated programs known as Small Business Innovation Research and Small Business Technology Transfer, Washington directs about $4.7 billion (U.S.) each year to SMEs that are scaling up tech solutions used by the Department of Defense, NASA and large research councils.
“The Department of Defense is purchasing products for mass adoption, sometimes in ways that enable companies to subsidize risky new technologies,” says Ornston, noting a project to electrify military bases to make them more resilient in the face of both environmental disasters and cyber attacks.
Alongside its broader green procurement strategy, the federal government established programs for startups, including scientific R&D tax credits and funds that support pilot projects for domestic technologies. Last fall, Ottawa launched the $10-million low-carbon fuels procurement fund to acquire offset credits from emerging carbon removal firms, which build technologies that can absorb and trap atmospheric carbon. Yet, as Ornston says, “the barriers to using procurement as an innovation policy instrument are really formidable.”
Andrade traces the obstacles back to Canada’s days as a branch-plant economy. For decades, large U.S. firms with Canadian divisions did the bulk of their R&D and IP commercialization back home, and then simply exported those innovations to their international operations.
During the free-trade era, governments shied away from industrial policies designed to promote specific domestic industries, including tech startups. International trade agreements such as the Comprehensive Economic and Trade Agreement with the EU allow offshore suppliers to bid on Canadian public sector contracts. Tenders often go to multinationals with the size and sophistication to see through lengthy RFP processes, which in turn disadvantage smaller Canadian firms.
Some ventures never try for government contracts; others give up out of frustration.
Pantonium, a transportation software firm that built an AI platform to optimize municipal bus routes and thus reduce diesel fuel consumption, had secured pilot contracts in a few U.S. cities and in 2021 landed a partnership with Fort Erie’s transit service. But the Fort Erie deal ended in 2024 when the operator was absorbed by a regional agency.
Co-founder Remi Desa says his firm faced a square-peg-round-hole dilemma, in that municipal transit agencies are typically structured to prioritize stability, which means they don’t always position themselves as drivers of innovation. “You can run a very efficient platform, you can do more trips and be more efficient, but that doesn’t seem to resonate as much with transit agencies,” he says. “RFPs often emphasize traditional IT specifications and compliance requirements, which can limit opportunities for ventures to highlight their innovative strengths and the outcomes or value they can bring.”
Pantonium has since shifted gears. The team adapted its software to help First Nations develop and operate their own community transportation services, and has secured several deals across the country. “There’s a significant need for better transportation options in First Nations communities, which are often in rural settings with both aging populations and high birth rates,” he says. “We are seeing the impact of our work firsthand.”
To foster homegrown solutions, McArthur says the federal government should hive off a portion of its procurement budget and use it to invest in higher-risk, innovation-oriented goods and services — in a sense, a procurement incubator. He also says municipal governments, with their extensive procurement budgets, should be more proactive when it comes to testing emerging technologies. Indeed, when local governments are using provincial or federal funding on large projects, those grants should specify that some of the money goes to innovative Canadian technologies. “Absolutely, make it a condition of securing the funding,” he says.
Andrade goes a step further, making the case that federal procurement shouldn’t only be about supplying the government with the lowest-cost goods and services it needs to carry out its work. “We have to have procurement as industrial policy,” he states. “It has to go to companies that meet the specific requirements of Canadian headquartered, Canadian predominant shareholders and Canadian-controlled companies with intellectual property rather than going to some large firm with a big balance sheet.”
Without that explicit link to a broader policy goal, Andrade adds, “you will never create this next generation of companies.”
John Lorinc writes about technology for MaRS. Torstar, the parent company of the Toronto Star, has partnered with MaRS to highlight innovation in Canadian companies.
