Historic funding increase provides major stimulus to smaller high-tech firms

Budget 2009 — IRAP

Firms waiting in cue for Industrial Research Assistance Program (IRAP) funding have been thrown a critical lifeline. The recent federal Budget provides the business assistance arm of the National Research Council with a major infusion of funding that will tackle the project backlog and expand the number of companies it can serve. The temporary increase of $200 million over two years is good news for an organization that has seen its budget shrink in recent years despite repeated calls from all quarters for additional money.

The recognition of IRAP's importance to technology-based, small- and medium-sized enterprises (SMEs) is virtually the lone Budget measure aimed at assisting the tech sector. The new money will be directed to two areas: direct assistance to firms ($170 million) and IRAP's Youth Employment Program ($30 million).

"We're delighted … This is the largest (funding increase) certainly in the last 20 years and maybe the largest ever," says IRAP DG Dr Tony Rahilly. "Many years ago there was a suggestion that IRAP should have its budget topped up to $220 million but that never happened."

With the temporary increase, IRAP's annual budget will surge to more than $230 million annually, allowing it to assist firms that successfully applied for IRAP funding but had to be turned away due to lack of funding. It will also allow the level of assistance to increase to 75% of the cost of salaries and sub-contractor fees, up from the current 50%.

IRAP's cash crunch hit a critical point last year when it exhausted its annual funding allocation in June, just three months into a new fiscal year (R$, July 7/08). Rahilly says that the steady increase in demand for IRAP funding has pushed the portion of its budget committed at the beginning of the fiscal year from 35% a few years ago to 80% last year.

"It's a natural progression in the demand for assistance in products and services. We could probably place another $30 million with that many projects lined up," says Rahilly, adding that an additional $85 million a year will more than double the money available for direct assistance to firms. "We believe it's just the right amount of money to cover what's needed out there and the amount we can handle. We're not expecting to add any new staff and this money does not contain any operations or salary dollars. We've said we can handle the extra money so it will flow directly to firms."

The backlog is partly due to the increasing length of IRAP-funded projects, which now average 11 months. Rahilly says that while the majority of projects are in the $25,000 to $50,000 range, larger and longer projects are on the rise, with some lasting as long as three years.

For its part, the federal government's selection of IRAP as part of its massive stimulus package was one of the Budget's few initiatives that addressed the needs of the small, tech-based business sector. Minister of state for science and technology Dr Gary Goodyear says the organization's name kept coming up during his pre-Budget consultations with stakeholders across the country.

"The number one recommendation that came out of what I was hearing was support for IRAP … Clearly we have plenty of options before us but the prime minister wanted to find things that would help in the immediate term and could be short-term. We don't want long-term structural deficits," says Goodyear. "This is a national organization, the administration and the structure are in place, so this was the obvious solution … They've already done due diligence on a number of corporations (and) here's enough money to cover all of them and to move faster and be more complete next year."

While the government is viewing the IRAP funding boost from a short-term perspective, Rahilly hopes the new money will be made permanent. For the present, however, he prefers to focus on the immediate task of getting the assistance into the business community.

"That's two years away and a lot can happen. The first thing is to make sure that the money is flowing out there," he says. "We will certainly make sure it goes in the right hands as quickly as possible. Down the road, that will be for another day."

IRAP's mandate also doesn't limit assistance to R&D. Firms that may need a change in business models or a boost in marketing may also be eligible. Internal analysis shows that sales by firms that receive IRAP assistance increase 8-12% while every $1 leverages nearly $2 from other sources. Companies that receive assistance are required to report back after a project is completed so that IRAP can better gauge the impact it has on company performance.

Rahilly says firms seeking IRAP assistance should be looking beyond the growing recession and prepare for their position in the marketplace when the recovery takes hold.

"It's not just about survival. At some point the economy will turn around (but) it's too late to wait until then to prepare new products and services," he says. "We'd like to ensure that when we're helping firms, we're encouraging them to get involved in a route to innovation and revamp their products and services."

youth employment funds boosted

The Budget also provides $30 million for IRAP to help companies hire 1,000 new post-secondary graduates through it's well-established Youth Employment Program (YEP).

The funding will more than double the number of graduates IRAP can place with firms and (subject to clarification) will boost the amount available per placement from $15,000 to $30,000.

Currently, the majority of YEP funding is provided by Human Resources and Social Development Canada, topped up with IRAP's internal resources.

"Not only will this money help graduates get jobs at a time when they're going to be tough to get, companies really need their skills and this gives them a leg up going out and hiring graduates that they normally couldn't afford," says Rahilly. "As much as 70% of the people we place remain with the company after the internship is over and in the last two years it's jumped to 90%."

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