Canada’s ‘waterfall’ procurement stalls startups, benefits foreign giants

Since early 2024 the federal government has rolled out a series of funding programs and policy tweaks aimed at strengthening Canada’s technology and artificial‑intelligence sectors. The same period saw a pledge to modernise procurement, borrowing concepts from “agile development,” which emphasizes short, test‑driven cycles rather than a single, massive specification.

Current practice still follows a “waterfall” model. A waterfall request for proposals (RFP) spells out the exact technology the government intends to buy, then forces bidders to submit exhaustive technical dossiers, compliance matrices, corporate histories and project plans. Large firms—often foreign and equipped with dedicated tender teams—navigate this paperwork with ease. Startups, by contrast, must divert scarce staff and capital to compile the same documents, a hurdle that frequently eliminates them before a technical assessment even begins.

Industry experts argue that an RFP should define the problem, not the solution, allowing private firms to propose the most suitable technology. The Saskatchewan pilot illustrates the upside of a leaner approach. Seven companies presented four distinct technologies in a single trial; the contract went to the firm offering the best quality‑to‑cost ratio, judged on minimal paperwork and clear performance metrics. That winner later secured a larger government deal, demonstrating how streamlined evaluation can surface competitive, cost‑effective options.

The fallout extends beyond individual contracts. Without domestic buyers, Canadian startups struggle to gain early revenue, credibility and feedback—critical ingredients for scaling. Many are forced to chase U.S. or European customers, often selling intellectual property abroad before they can grow at home. While agencies such as the National Research Council and the Natural Sciences and Engineering Research Council continue to fund research, the lack of a supportive procurement pipeline leaves innovators without a reliable market.

Switching to agile procurement would insert multiple checkpoints where performance is tested, funding can be adjusted, and projects can be halted if they miss targets. In fast‑moving fields like AI, this could prevent costly missteps like the failed ArriveCAN app and keep Canadian talent competing domestically.

What to watch next: Ottawa’s upcoming budget review may include concrete measures to replace waterfall RFPs with problem‑focused, agile tendering, a shift that could reshape the landscape for Canadian tech startups.