Canada: ISED Announces $950M Investment In Canadian Superclusters

Last Updated: June 26 2017
Article by Bruce Tattrie

On May 24, 2017, Innovation, Science and Economic Development of Canada (ISED) announced the details of its $950 million Innovation Supercluster Initiative (ISI) to support up to five innovation superclusters in highly innovative industries such as advanced manufacturing, agri-food, clean technology, digital technology, health/biosciences, clean resources, as well as infrastructure and transportation.

Applicants must be industry led consortia, including firms of all sizes and at least one post-secondary institution. Applicant activities must include technology leadership within the supercluster, through collaborative projects that enhance the productivity, performance and competitiveness of supercluster members.

ISI funding contributions will range from $125 million to $250 million over five federal fiscal years, ending in F2022. Contributions are not repayable.

ISI funding contributions must be matched by equivalent 1:1 cash and in-kind contributions from industry (maximum 25% in-kind).

Initial Letter of Intent applications must be submitted by 12 noon Eastern daylight time on July 21, 2017. The intention of ISI is to complete the application process, to negotiate and sign Contribution Agreements, and to make an initial advance of funds under the Contribution Agreements, before March 31, 2018.

This bulletin provides an overview of the ISI program, and will be of interest to organizations that are considering applying for ISI funding, and private sector enterprises that are being approached to make matching industry contributions to support applicant organizations.

Details of the ISI are available in the ISI Program Guide.

Objectives

The ISI invites industry led consortia to lead bold and ambitious programs to supercharge their regional innovation superclusters, and to achieve the following:

  • Build a shared competitive advantage for their cluster that attracts cutting-edge research, investment and talent by addressing gaps, aligning strengths, enhancing attributes, and positioning it as a world-leading innovation hotbed.
  • Increase business expenditures on R&D and advance a range of business-led innovation and technology leadership activities that will address important industrial challenges, and boost productivity, performance and competiveness for Canada's sectors of economic strength.
  • Generate new companies, and commercialize new products, processes and services that position firms to scale, integrate into global value chains, transition to high-value activities, and become global market leaders.
  • Foster a critical mass of growth-oriented firms, and bolster collaborations between private, academic and public sector organizations pursuing private-sector led innovation and commercial opportunities to enhance the cluster's pool of resources, capabilities and knowledge.

ISI Requirements

ISI requirements include:

  • Applicants must be industry led consortia. Participants in the industry-led consortium must be organizations incorporated in Canada and active in Canada.
  • Consortia must include firms of all sizes.
  • Each applicantion will require the participation of at least one post-secondary institution. Post-secondary institutions and other not-for-profit and innovation partners are encouraged to participate, but cannot lead.
  • Funding recipients (called Entities in the ISI Program Guide) must be incorporated under the Canada Not for Profit Corporations Act, must be membership based, must engage with member organizations to establish priorities and choose activities, must undertake projects and redistribute allocated ISI funds, and must monitor and report to ISED on activities and achieved results.
  • Entities are expected to redistribute portions of the funding they receive to fulfill program activities. Entity activities must benefit the broader ecosystem to which they belong, including members, non-members, and other Canadian organizations which have aligned interest or expertise.

Eligible Activities

Supercluster Strategies can be structured around five themes of activity eligible for co-investment under the ISI:

  • Technology Leadership. Collaborative projects that enhance the productivity, performance and competitiveness of member firms, such as: collaborative R&D projects; demonstration or prototype development projects with benefits for multiple firms; development of production methods and processes involving industry and academic partners; or private-sector led commercialization projects.
  • Partnerships for Scale. Activities serving a target group of cluster firms to enable their growth, including by increasing domestic demand for cluster products and services or by facilitating expansion, such as: linking start-ups with strategic partners; offering business mentoring, consulting and coaching; supply chain development or integration efforts for cluster SMEs with local anchor firms; or partnering with a public stakeholder/organization that provides access to capital and financing.
  • Diverse and Skilled Talent Pools. Activities enhancing regional labour force skills and capabilities or initiatives addressing industry needs for talent, such as: a recruitment campaign to repatriate Canadian talent to the cluster; development of curricula linked to industry's needs and workforce integration programs for students; development and promotion of specialized certifications in areas of technology leadership; re-training programs (e.g., digital skills) for the existing workforce; assessment of industry's current or anticipated workforce needs; or building awareness of industry demand for skilled talent across stakeholder groups (e.g., students, workers, firms, universities and vocational colleges, policymakers).
  • Access to Innovation. Investing in and providing access to assets, services or resources that benefit a range of cluster firms over a period of time, such as: support for access to specialized technical services; installation of and access to dedicated laboratory or cutting-edge equipment; or acquisition and assertion of jointly held intellectual property.
  • Global Advantage. Activities and initiatives that position the cluster and its strengths as world-leading, enable firms to seize market opportunities, and attract international investments and partnerships, such as: cluster promotion; investment attraction to cluster region; studies to identify new global markets for cluster products and services; participation in or leadership of trade missions to key geographic markets; development of regulatory or policy proposals to enhance domestic technology advantage; or development and promotion of new international standards that embed Canadian approaches.

Strategies are not required to address all five themes, but - to be eligible - a strategy must include technology leadership activities.

Entities will use ISI funding to design, select and carry out projects and initiatives to advance the activities proposed in their respective supercluster strategies. Allocated ISI funds may cover the Entity's costs or be redistributed to ultimate recipients undertaking projects, including Entity members and non-members, through "calls for projects".

Projects are expected to encourage Canadian-based firms, post-secondary institutions, and not-for-profit organizations to partner with each other, and/or with the Entity, and are expected to encourage collaboration and partnership between large firms and SMEs or start-ups to create opportunities to grow Canadian companies.

Activities should also generally be undertaken in Canada. With pre-approval from ISED in exceptional circumstances, funding could be extended outside Canada when necessary to advance specific priorities or projects and when the benefits will accrue to the cluster and/or build similar capacity among cluster members.

Eligible Costs

Costs for which ISI funding can be used are referred to as Funded Eligible Costs. Costs for which industry's matched funding can be applied, but which will not receive ISI funding, are referred to as Unfunded Eligible Costs. Generally, both types of Eligible Costs must be incurred in Canada. Entities will only be reimbursed for Eligible Costs that are reasonable and relate directly to the Eligible Activities.

Funded Eligible Costs include administration and operating costs, and project costs.

Administration and operating costs include costs that support the day-to-day operation of the Entity. Details of eligible administration and operating costs are provided in the Program Guide. ISI will contribute up to 75% of the eligible administration and operating costs. The remaining eligible administration and operating costs can be met by industry, other levels of government, and/or not-for-profit contributions. Eligible administration and operating costs are not permitted to exceed 15% of the total ISI contribution.

Eligible project costs relate to the activities undertaken to execute a supercluster strategy. Details of eligible program costs are provided in the Program Guide.

Unfunded Eligible Costs are costs incurred that are not reimbursable through ISI contributions. If these costs are covered by industry, are reasonable, and are directly related to the achievement of the Entity's supercluster objectives, they can be counted toward the mandatory industry matching funds requirement.

Certain costs are ineligible for ISI funding. Details of ineligible costs are provided in the Program Guide.

Matching Fund Requirements

Funding requested from the ISI must be matched 1:1 overall by industry contributions.

To be considered matching, industry contributions must be used to support Eligible Costs.

Up to 25% of the industry match can be in-kind contributions. The remainder must be cash.

Selection Factors

An applicant's value proposition must demonstrate the ultimate benefit of the proposed activities to the cluster and to Canada, including how it will generate real economic impact, commercial results, and global leadership for Canada by:

  • Building on a strong industry-led regional cluster (i.e., geographically proximate) with the capacity for world-leading performance, using a plan that will align and leverage regional assets, foster collaboration in sectors of economic strength, and grow an existing critical mass of SMEs.
  • Strengthening competitiveness of key sectors of a regional economy by involving leading firms representing those sectors and supporting activities that deepen integration within supply chains.
  • Building an innovation advantage and commercializing a strategic area of technology.
  • Extending the cluster-based strengths to a broader network with innovation partners across Canada.

The Program Guide provides additional information on the assessment criteria.

Application Process

ISI contemplates a two phase process, with an open call for Letters of Intent and a subsequent invitation-only Full Application.

Applications at the Letter of Intent stage are due no later than 12 noon Eastern daylight time on July 21, 2017.

ISED has not announced when it will complete its review of the Letters of Intent and invite Full Applications from those selected to proceed to the second stage. Industry participants expect that this announcement will likely be made mid-fall 2017.

Letters of Intent must include, at a minimum, five organizations: four private-sector enterprises, including: at least two large firms (500 employees or more); one medium firm (100-499 employees); one small firm (1-99 employees); and one post-secondary institution.

Full Applications must include, at a minimum, eleven organizations: ten private-sector enterprises, including: at least two large firms (500+ employees); at least one medium firm (100-499 employees); at least four small firms (1-99 employees); and at least one other small and medium-sized enterprise (1-499 employees); and one post-secondary institution.

Private sector organizations are required to provide Letters of Commitment and post-secondary institutions are required to provide Letters of Support.

Details of the application, selection and decision process and requirements for the Letter of Intent are specified in the ISI Program Guide and in the ISI Applicant Guide.

Successful applicants will be asked to sign a Contribution Agreement.

The intention of ISI is to complete the application process, to negotiate and sign Contribution Agreements, and to make an initial advance of funds under the Contribution Agreements, before March 31, 2018.

Program Administration

ISI funding contributions will be made over five federal fiscal years, from F2017 to F2022.

Generally, contributions will be made in the form of advance payments that must be reconciled through the submission of claims.

Applicants are encourage to seek other sources of government assistance, but the total Canadian government assistance for all projects is not permitted to exceed 100% of the funded Eligible Costs.

Entities will be subject to negotiated KPIs, will be required to collect, manage, and share data to report on achieved results and support program performance measurement, and will be required to provide extensive ongoing reporting to ISED.

Entities may be required to communicate, and to offer services, in both English and French.

Entities will be required to demonstrate on an ongoing basis how their project selection criteria encourage gender diversity among the ultimate recipients of funding.

Intellectual Property Strategy

Each Entity is required to have an intellectual property (IP) strategy setting out the Entity's role in achieving program objectives through IP-related activities. The IP Strategy must describe how protection for Entity-supported IP will be obtained, how rights will be owned and managed, and by whom, including: how background intellectual property will be treated; if and how non-Entity supported intellectual property will be acquired; and how royalties on Entity-supported IP will be managed.

The Entity is not required to own or directly manage Entity-supported intellectual property, but the Entity is expected to set policies to ensure that IP is managed in such a way that the ISI requirements are fulfilled.

The IP strategy must provide members of the supercluster with "frictionless access" to Entity-supported IP. The Entity is required to establish processes or procedures to ensure that all Entity-supported IP in whole or in part, is either owned or licensed in a manner that maximizes accessibility of all members of the cluster. Members that work directly on a project may earn preferential access to or ownership of the IP, compared to a member that does not participate. Other reasonable restrictions may include a tiered membership model under which greater contribution to the Entity entitles the member to greater IP access including the right to commercialize the IP or an aspect of it.

The requirement for frictionless access may be challenging for some projects.

IP generated by the Entity may be owned, in whole or in part, by one of the members, but must be accessible to all other members on appropriate and agreed-upon contract terms.

In addition, Entities are expected to create policies and procedures to ensure that Entity-supported IP is either being commercialized by members or that the entity is otherwise driving benefit from the IP.

Members who are entitled to make use of IP must be able to exercise that right without unreasonable delay.

Further information is available in the Program Guide.

Section 34 of the 1 provides that applicants will be evaluated on how their proposed IP strategy will benefit the economic development of Canada. If a proposed IP strategy is lenient in regards to Entity-supported IP leaving Canada, the applicant is strongly encouraged to explain how this and any other activities render the IP strategy to Canada's net benefit. Applicants will need to consider this FAQ very carefully, as many participants in Canadian superclusters will be global industrial players.

ITB Policy

The Industrial and Technological Benefit (ITB) Policy applies to all eligible defence procurements with a value over $100 million, and generally requires companies that are awarded defence procurement contracts to undertake business activity in Canada equal to the value of the contract.

Question 20 of the FAQs provides that industry private-sector investments towards an innovation supercluster, which are cost-shared by the federal government, are not eligible under the ITB. Any subsequent company investment into an established supercluster could be considered, and will be reviewed to determine if it meets ITB eligibility criteria.

Footnotes

1 ISED has advised that the FAQs will be updated regularly during the application process, and has recommended that interested parties revisit the site frequently for updates.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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