Bill C-40 Changes Who Ottawa Funds and How It Buys Defence. The Framework Is Being Built Right Now.
What the new Defence Investment Agency, and 13 routes to a non-competitive contract, mean for Canadian defence and dual-use companies.
The bottom line
If your company builds what the Canadian Armed Forces buys, or supplies the firms that do, Bill C-40 changes both how you win that work and how Ottawa can back you. Tabled on October 6, 2026, the bill turns the Defence Investment Agency into a Crown corporation that can lend to your company, guarantee its financing, and take an equity position in it. It also sets out 13 grounds on which Ottawa can award a defence contract without a competition, including one for work that federal research funding has already paid for, and another to support Canadian industry itself. These are discretionary calls, made by ministers and the agency. The companies that do well will be the ones already understood inside the system when those calls get made. The framework is still being written. That is the opening.
What Bill C-40 is
Bill C-40, the Strengthening Canada’s Defence Sector Act, was tabled in the House of Commons on October 6, 2026 by Joël Lightbound, Minister of Government Transformation, Public Works and Procurement. It does three things. It converts the Defence Investment Agency (DIA) from a special operating agency inside Public Services and Procurement Canada into a federal Crown corporation. It creates a new cabinet post, the Associate Minister of National Defence for Procurement. And it rewrites the Defence Production Act, the law that governs military buying, as the Defence and National Security Production and Procurement Act.
The spring 2026 budget bill, C-31 (Budget 2025 Implementation Act, No. 2), set the DIA up as a stand-alone agency inside government. Bill C-40 supersedes that and moves it to a Crown corporation: government-owned, run by its own board, with far more commercial room than a department has. The government’s argument is speed. Fewer approval layers, contracting practices industry already understands, and the commercial expertise to negotiate with the largest defence companies in the world. As Lightbound put it, “Procurement and investment must live together.”
The bill has passed first reading and is now at second reading. Its provisions come into force on dates set by Cabinet, not on a fixed date in the law, so the government controls the timing of the transition.
What actually changed
The agency, and its money. The DIA becomes the Canadian Corporation for Defence Investment, still operating under the DIA name, with its own board and a new home in the National Defence portfolio. It can make loans and advance payments and, with the Finance Minister’s sign-off, guarantee a company’s financing, provide credit insurance, and buy shares. Those tools draw on a standing authority of up to $1 billion at a time, restored as loans are repaid. For a defence or dual-use company, that is the real shift: the buyer can now also be an investor.
The new minister, and who controls the file. The bill creates an Associate Minister of National Defence for Procurement, who will answer to Parliament for the DIA. No one has been named; Stephen Fuhr currently carries the file as Secretary of State (Defence Procurement). A part-time executive chairperson will lead the board alongside a full-time CEO, both appointed by Cabinet. After consulting the Defence Minister, the responsible minister can direct the corporation to start or stop a procurement, and can require ministerial sign-off at any stage. The competition rules themselves stay with the Minister of Public Services and Procurement. Three offices now sit at the centre of every defence file: the Associate Minister, Public Services and Procurement, and National Defence.
The new rules: competition by default, with 13 ways around it. The rewritten Act requires a competitive process for defence contracts, then lists 13 grounds on which the minister can set that aside. They include an urgent operational need, a single capable supplier, interoperability with allied equipment, sensitive technology, research and development, follow-on work that federal research funding paid for, and support for a Canadian sector important to national defence or security, including economic security. Most turn on the minister’s judgment. The minister can also exclude a bidder judged a risk to national defence, security, or public safety, without giving reasons. And the bill widens the list of governments Canada can buy for to include NATO members and partners and the European Union, which Ottawa ties to Canada’s participation in the EU’s Security Action for Europe (SAFE) and the Readiness 2030 initiative.
Where your company fits
Most Canadian defence and dual-use companies already qualify for something here. The constraint is not eligibility. It is positioning. Decisions that turn on a minister’s judgment favour companies whose capability is already understood before a file reaches a decision point. Three things matter most right now:
- Map your federal funding history. If IRAP, IDEaS, or another federal program has funded your research or development, that work can now support a non-competitive follow-on contract. Know exactly what was funded and which defence requirement it answers.
- Get your ownership and supply chain in order. With exclusion now possible without stated reasons, your ownership structure, supplier origins, and data handling should be clean and documented before you bid, not after.
- Make yourself known to the DIA and the relevant ministers’ offices now. The board, the Associate Minister, and the regulations are still being settled. Being understood before they are in place is worth far more than arriving once the system is fixed.
The window
The rules that will run this institution are still being drafted. The regulations that define terms like “urgent operational requirement” and “sensitive technology,” and the competitive procedure itself, will follow Royal Assent. The board, the head office, and the Associate Minister are all still to be named. Against that, Ottawa’s Defence Industrial Strategy puts roughly $180 billion in defence procurement in front of Canadian industry over the next decade. Companies that engage while the framework is being built will operate in a very different environment from those that wait and apply into a system designed without them.
Northern Arc works with Canadian defence and dual-use companies at the ministerial, Regional Development Agency, and PMO level. If you want to understand where your company fits across Bill C-40, the new Defence Investment Agency, and the wider federal defence toolkit, and what it looks like to position your file before the money is committed, request your briefing and we will deliver it within 48 hours.