Sweeping Changes in Store for Canada’s Defence Procurement Regime

On October 6, 2026, the federal government tabled Bill C-40, An Act respecting production, procurement and investment in relation to national defence and national security (Bill), bringing about a significant structural shift in how Canada undertakes defence procurement and integrates private capital into its defence industrial base.

Under the Canadian Corporation for Defence Investment Act (CCDIA), a new Canadian Corporation for Defence Investment will house and operate the Defence Investment Agency (DIA), moving it from a “special operating agency” to an independent Crown corporation. The DIA will have a mandate to carry out activities related to production, procurement and investment in national defence. These activities are undertaken for the benefit of the Canadian Armed Forces, the Department of National Defence and associated allied governments. The new DIA will have considerably increased flexibility to streamline defence procurement.

The Bill also makes consequential amendments to the Defence Production Act. The overall intention is to align Canada’s industrial capacity with the strategic objectives laid out in the 2026 Defence Industrial Strategy (Strategy). The cornerstone of the Strategy is to reorient existing defence procurement mechanisms through a “Build-Partner-Buy” framework, overseen by the DIA, and to accelerate procurement timelines while developing robust domestic industrial capacity.

For government contractors, institutional investors and the financial sector, the Bill provides legislative machinery to execute on the tens of billions in planned capability investments in a streamlined and accelerated manner.

The Canadian Corporation for Defence Investment

As mentioned above, the first key pillar of the Bill is the creation of a new Crown corporation, the Canadian Corporation for Defence Investment, which will house and continue to operate as the DIA. Presently, the DIA functions as a “special operating agency” within the structure of the Department of Public Services and Procurement Canada.

Under the CCDIA, the DIA will operate as an independent Crown corporation with a clear mandate to carry out activities related to production, procurement and investment in support of national defence. These activities are undertaken for the benefit of the Canadian Armed Forces, the Department of National Defence and associated allied governments.

The Bill also amends the National Defence Act to create a new Associate Minister of National Defence for Procurement, who will be accountable to Parliament for the DIA. The new associate minister will oversee the consolidation of procurement and commercial authorities for the national defence portfolio within the DIA and maintain the power to direct the DIA to undertake certain activities within its mandate.

Modernizing the Defence Production Act and Extension of Procurement Authorities

The second major pillar of the Bill is a comprehensive overhaul of the Defence Production Act, to be renamed the Defence and National Security Production and Procurement Act (DNSPPA), and corresponding extension of powers in the DNSPPA to the DIA. Historically focused on the acquisition of traditional military supplies, the Bill significantly expands the operational and strategic scope of the DNSPPA.

The amendments broaden the scope of services that can be considered “defence services,” expanding potential defence contracts. The Bill also expands the application of the DNSPPA beyond traditional defence matters to explicitly include supplies, projects and services related to “national security.” Furthermore, the legislation broadens the government’s stockpiling authorities to encompass not only national security but also economic security and the defence of associated allied states.

Under the proposed changes to the DNSPPA and CCDIA, the DIA is granted clear, centralized authority to acquire national defence and security supplies required by any federal department, board or agency. Notably, the DIA can exercise powers that were previously exclusively afforded to the Minister of Public Works and Government Services (Minister) regarding defence procurement in the DNSPPA. Notably, where certain factors exist, both the Minister and the DIA can decide to proceed with a defence procurement on a non-competitive basis. In practice, we expect that this will result in the DIA exercising broader discretion to undertake procurements exceeding C$100-million and non-competitive procurements in the defence sector.

The Bill also provides that information obtained under the DNSPPA will be subject to restrictions on disclosure and carves out information obtained under the Act from the access to information framework, providing a clear avenue for protecting sensitive commercial information obtained by the government from third parties.

Expanded Financial Authorities and Private Capital Integration

For the financial services and investment sectors, the most notable changes lie in the new financial authorities granted by the Bill. The Minister and DIA are now empowered to enter into novel financial transactions specifically for the purpose of investing in the national defence and national security sectors. Both the Minister and the DIA will have the power to enter into lending arrangements without the approval of the Minister of Finance, or guarantee the repayment of, or provide loan insurance or credit insurance in respect of, any financial obligation with approval of the Minister of Finance.

These changes allow the federal government to act as a foundational investor in the defence sector and introduce predictability in the market, which is intended to encourage private equity and venture capital to co-invest alongside the state. This directly aligns with the government’s broader approach articulated in the Strategy to scale domestic manufacturing and technological innovation, particularly in dual-use technologies, cybersecurity and advanced logistics.

Next Steps for Industry and Investors

The government had proposed a number of amendments to the Defence Production Act and structure of the DIA in Bill C-31, the second budget implementation bill tabled in spring 2026. However, Bill C-40 repeals those changes.

As Bill C-40 progresses through Parliament, stakeholders across the defence, technology and financial sectors should carefully evaluate their engagement strategies with the federal government. The creation of the DIA as a Crown corporation and the modernized investment authorities present a generational opportunity for private capital to participate in Canada’s security infrastructure. Companies navigating these new procurement rules and funding pathways should begin assessing how their capabilities align with the expanded statutory definitions of national and economic security.

For further information on how Bill C-40 and the evolving defence procurement landscape may impact your business or investment strategy, please contact the authors or any other member of our Procurement, Public Sector Crisis & Compliance or Defence groups.