SADI Program Information

Objectives:

  1. Encourage strategic research and development (R&D) that will result in innovation and excellence in new or improved products, services, and processes.
  2. Enhance the competitiveness of Canadian aerospace, defence, space and security (A&D) companies.
  3. Foster collaboration between research institutes, universities, colleges, and the private sector.

Key Program Characteristics

  • Administered by the Industrial Technologies Office (ITO), an agency of Industry Canada.
  • To date $1.16 billion in authorised assistance has been approved for 34 projects.
  • No minimum or maximum contribution—authorized assistance to date ranges from $276,000 to $300 million per project.
  • Accessible to companies of all sizes:
    • Small companies (15 projects, 4% of contributions)
    • Medium companies (11 projects, 11% of contributions)
    • Large companies (8 projects, 85% of contributions)

Eligibility Requirements

  • Company incorporated in Canada undertakes pre-competitive R&D in Canada.
  • Aerospace, defence, space and security applications.
  • Activities anywhere along the Technology Readiness Level (TRL) 1-9 scale.
  • Project:
    • supports the development of next-generation A&D products/services or process innovations;
    • builds on Canadian strengths in A&D technology development;
    • enables Canadian companies to participate in platforms and supply chains;
    • helps Canada meet international obligations (eg. JSF, DDSA).
  • At least 1% of total project costs support collaboration with post secondary institutions in Canada (examples – involving co-ops or subcontract work).
  • Demonstrate that SADI support is essential to the location, scope, and/or timing of the project.

Eligible Projects – A&D Product/Service Innovation

Sample Project Objectives:

  • Develop a new product/service.
  • Improve an existing product/service.

Activities:

  • Activities – SADI supports Technology Readiness Levels (TRL) 1-9.
  • Basic research through to prototype development, testing, demonstration, training, etc.
  • Prototype build and testing costs eligible for support—prototype cannot be sold as production unit after testing without prior agreement.

Eligible Projects – A&D Process Innovation

Sample Project Objectives:

  • Improve process efficiencies for A&D products or services.
  • Develop new/improved production capability.

Activities:

  • Process innovation is generally distinguishable from plant modernization by virtue of having:
    • significant element of risk or uncertainty;
    • non-routine nature;
    • significant investment in direct labour to undertake R&D;
    • significant lapse in time before new equipment can be deployed in a fully operational environment (generally not less than 2 years).

Project Life Cycle

Figure 1: Project Life Cycle
Figure 1: The Project Life Cycle (the long description is located below the image)

The Project Life Cycle Table states three phases: the Application Phase in which ITO conducts due diligence and project approval. It is typically of a four month duration, for projects with companies having less than one hundred employees and requesting less than two million dollars in contribution; or six months if they are requesting between two and ten million in contribution. The second phase is the Research and Development Phase, in which the company performs R&D and submits claims. It has a typical duration of between two and five years. The last phase is the Repayment Phase. That is when the R&D is complete and the company makes repayments. It has a typical duration of fifteen years.

Project Life Cycle
Application Phase R&D Phase Repayment Phase
ITO conducts due diligence and project approval. Company performs R&D and submits claims and receives SADI assistance. R&D is complete and the company makes repayments according to the terms of the contribution agreement.
6 months
$2M to $10M contribution
4 months (Small Enterprises)
< $2M contribution - companies with <  100 employees
5 years 15 years

Application Phase – The Process

  • Application package is available on the ITO SADI website.
  • Applications are accepted year-round.
  • An ITO program officer is assigned to the proponent within 24 hours of initial contact and is available to provide guidance and assist companies during proposal preparation.
  • When an applicant's proposal is deemed complete they receive a letter confirming that ITO will start due diligence. Between this date and the day that a contribution agreement is signed, the applicant may incur up to 20% of eligible project costs.
  • However, SADI will not reimburse applicants for any eligible costs should the proposal be rejected after due diligence, or if the contribution agreement is not signed for whatever reason.

Application Phase – Due Diligence

  • Objective: Ensure projects meet eligibility criteria (page 3) and evaluation criteria through verification of the information provided in the proposal.
  • Involves at least one site visit.
  • Evaluation criteria assessed:
    • Technical feasibility and capability: Clear objectives and activities; access to the necessary resources; risk mitigating strategies.
    • Managerial capability: Necessary skills and experience to manage the proposed project.
    • Market potential: Credible strategy to exploit the proposed technology or service in the marketplace.
    • Financial: Sufficient resources to fund the project and financial stability to repay the crown.
    • Benefits: Project will enhance the company's competitiveness and generate economic and social benefits for Canada.

Application Phase – Financial Considerations

  • Applicants are expected to be established companies with a solid track record.
  • The applicant must provide three years of financial statements prepared by an external accountant or certified by the company CFO:
    • income statements;
    • balance sheets;
    • cash flow statements.
  • The applicant should also provide historical revenues for the past ten years.
  • Start ups (with less than three years of operating history), will be considered only if there is a guarantor (jointly and severally bound by the contribution agreement) which can demonstrate its financial capability to ensure adequate project financing and ability to meet repayment obligations.

Application Phase – Financial Considerations

  • Financial considerations are often critical in deciding whether to proceed with a project.
  • It is strongly recommended that three of the four conditions below are met by the applicant or guarantor to ensure a successful application:
    • Positive Net Worth (In the latest annual financial statements, the book value of assets exceeds the book value of liabilities).
    • Positive Working Capital (In the latest annual financial statements, current assets are greater than the current liabilities).
    • Ample Existing Sales Volume (Most recent year's sales exceed projected annual average project costs by a factor of at least four).
    • Sufficient Operating Cash Flow (In the latest annual financial statements, annual available cash flow for R&D [defined as EBITDA + Gross R&D] should be equal or greater than projected annual average project costs).

Application Phase – Approval Process

  • Project approval involves consideration of the results of the due diligence review by senior Industry Canada officials.
  • Once project approval is received, a contribution agreement can be signed between the Recipient and the Crown.
  • The contribution agreement outlines the contractual obligations and responsibilities of the Recipient and the Crown, including repayment obligations and reporting requirements.

R&D Phase – Recipient Obligations

  • Starts with a kick-off meeting – site visit to introduce ITO officer who will be the new point of contact for the duration of the time that the R&D is underway (generally 5 years), clarify claims procedures, and review reporting requirements.
  • Submit claims and progress reports on a monthly or quarterly basis – SADI funding is provided following each claim submission.
  • Project Management Reviews including at least one annual on site visit.
  • Annual financial statements.
  • Annual project benefit reports.

R&D Phase – Eligible Costs

  • Eligible Costs include direct labour, materials, equipment, sub-contracts:
    • Projects should focus on labour (generally not less than 20% of project costs).
  • Indirect Eligible Costs (overhead):
    • flat overhead rate of 75% of direct labour;
  • Non-Eligible Costs:
    • Capital costs related to land and buildings, cost overruns, losses of contracts and investments, income taxes, depreciation of assets paid for by the crown, entertainment expenses, donations and membership dues (see the SADI Contribution Agreement template for complete list).
  • Foreign R&D labour costs may comprise a small amount of the project if agreed to in advance. It must be essential to the completion of the project and not available in Canada with a rational provided in the application.

Repayment Phase – Terms of Financing

  • ITO reimburses 40% of eligible costs.
  • Maximum of 75% government funding (federal, provincial, municipal, SR&ED).
  • 15 year repayment period commencing 2 years following the end of the R&D phase.
  • Unconditional repayment based on agreed annual amounts; or
  • Conditional repayment based on gross business revenues (GBR):
    • no repayments due in years of negative revenue growth;
    • modest repayment in years of 0-3% revenue growth;
    • higher repayment in years of stronger revenue growth.
  • Repayment Cap: Maximum amount repayable, based on assessed level of risk.

Repayment Phase – JSF

Joint Strike Fighter Projects (JSF)

  • ITO reimburses 40% of eligible costs.
  • Nominal repayment (i.e. 100% of amounts disbursed) over 20 years starting 2 years after R&D phase.
  • The project must show a direct link to the JSF supply chain (technical assistance agreements, non disclosure agreements, letters of interest, letters of intent or contract).
  • Repayment options:
    1. Unconditional repayments based on negotiated, fixed yearly amounts.
    2. Conditional repayment based on gross business revenues.
    3. Conditional repayment based on JSF related revenues when a contract is in place and when the R&D will only generate JSF related sales.

Repayment Phase – DDSA

Defence Development Sharing Agreement Projects (DDSA)

  • R&D projects involving Canadian companies undertaking defence technology development.
  • US Department of Defence typically funds 50% of eligible costs in the form of a grant.
  • SADI funds:
    • 40% of eligible costs
    • Nominal repayment over 15 years starting 2 years after the end of the R&D phase

Repayment Phase – Reporting Obligations

  • The office of the CFO at Industry Canada manages the project throughout the repayment period.
  • During the repayment period, recipients provide:
    • annual repayments to the Crown;
    • repayment forecasts in April and August;
    • annual financial statements;
    • annual project status meeting;
    • annual progress benefits reports;
    • asked to participate in case studies periodically.

Repayment Phase – Benefits to Canada

Resulting Benefits

  • One of the objectives of the SADI program is to maximize Canadian participation in the manufacturing of commercialized products and/or service activity resulting from supported R&D.
  • Contractual commitments require high-value production/service activities to take place in Canada over the life of the agreement.

Intellectual property (IP)

  • Recipients are contractually obligated to own the intellectual property that is developed and agree not to transfer title or grant rights other than:
    • to provide end-user licenses associated with the sale of products;
    • to attract academic research partnerships through collaborations.

Contact Information

Website: ito.gc.ca
Email: Industrial Technologies Office
Toll free (Canada): 1-800-266-7531
Toll free TTY (hearing impaired only): 1-866-468-1669

Industrial Technologies Office
Industry Canada
235 Queen Street, 8th Floor
Ottawa, ON K1A 0H5
Fax: 613-954-5649