Ontario s s Requirements under Procurement Agreements
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- Horace Gallagher
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1 PRESENTATION TO ONTARIO MGS (Toronto, July 27, 2011) Ontario s s Requirements under Procurement Agreements Brenda C. Swick bswick@mccarthy.ca
2 Setting the Stage: Increasingly Competitive Environment 2 Procurement processes of government institutions are subject to: 1. Statutory and common law rules 2. Administrative policies or directives; and 3. Rules of applicable Trade Agreements ( TAs ) Provincial & municipal public procurement will become much more open and competitive: Trade Agreements are forcing this Canada is under intense pressure from its trading partners (e.g., US, China, Europe, India) to open up non-federal procurements to foreign suppliers e.g. Crown corporations, utilities, provinces and municipalities Previously only federal procurements subject to TA rules Pressure from Canada s trading partners is being fuelled by their own suppliers who want access to the entire Canadian procurement market Why: +$150 billion overall spend annually Bottom Line: procurement at the Crown corporation, provincial and municipal level will become much more competitive over the next decade
3 Table Government finance statistics, statement of government operations and balance sheet, quarterly (dollars x 1,000,000) Survey or program details: Government Finance Statistics Geography Canada Canada Canada Government sectors Statement of government operations and balance sheet Federal government Use of goods and services Provincial and territorial government Use of goods and services Local government Use of goods and services IV 2008 $5,016 $25,315 $7,770 I 2009 $9,077 $25,778 $7,893 II 2009 $4,499 $24,671 $8,152 III 2009 $4,244 $25,296 $8,012 Total IV 2008-III 2009 $22,836 $101,060 $31,827 IV 2009 $5,215 $27,181 $8,439 I 2010 $9,535 $27,675 $8,325 II 2010 $5,543 $26,325 $8,837 III 2010 $4,796 $26,737 $8,536 Total IV 2009-III 2010 $25,089 $107,918 $34,137 Source: Statistics Canada. Table Government finance statistics, statement of government operations and balance sheet, quarterly (dollars) (accessed: February 18, 2011) 3
4 What does this mean for your organization? 4 If you are a government entity purchasing goods/services: 1. Know which Agreements apply to your organization 2. Be prepared for more bids and competition from foreign suppliers: Be prepared to justify your procurement decisions e.g. sole-source awards 3. Develop compliance regimes to demonstrate compliance with relevant Agreement Choose most arduous applicable Agreement and set it as the benchmark 4. Develop methodology to identify and assess risk exposure in the event of non-compliance 5. Monitor developments of the bid review mechanism under your Agreement
5 What does this mean for your organization? 5 If you are a bidder/supplier: 1. Identify which Agreement applies to the procuring government entity 2. Understand that entity s procurement obligations to your company under that Agreement 3. Understand what recourses and remedies are available if the government entity does not comply with its obligations under that Agreement
6 Spaghetti Bowl: Key Agreements Applicable to Canadian Public Procurements Canada-US Agreement on Government Procurement (CUSPA) Applies to provincial and municipal procurements being bid on by US suppliers 6 NAFTA-Chapter Ten Applies to federal contracts being bid on by US, Canadian and Mexican suppliers WTO Agreement on Government Procurement (AGP) Applies to federal contracts being bid on by Canadian and suppliers from 37 countries Agreement on Internal Trade (AIT) Trade & Cooperation Agreement between Ontario and Quebec (TACOQ) New West Trade Partnership Agreement (NWPTA) Applies to provincial and municipal contracts being bid on by Canadian suppliers Applies to Quebec and Ontario provincial and municipal procurements being bid on by suppliers carrying on business in those provinces Applies to B.C. Alberta and Saskatchewan provincial and municipal procurements being bid on by suppliers carrying on business in those provinces Canada-EU Trade Agreement (CETA) Negotiations May apply to procurements by federal, provincial, municipal, Crown corporations and utilities/commissions being bid on by EU suppliers * implications for Can-US AGP
7 Balancing Overlapping Requirements 7 Develop a framework to help you assess which Agreement applies to your specific procurement If you are a procuring entity, set your benchmark for developing your compliance plan based on the most arduous Agreement
8 Framework: 3 Parts to Each Agreement 8 Each Agreement is divided into three parts: 1. The obligation owed by the subject government entity to the covered bidders/suppliers 2. The bid dispute mechanism to be followed in the event that the government entity does not comply with its obligations under the Agreement 3. Applicable remedies in the event of a breach by the government institution, such as: Injunctive relief Cancellation and re-issuance of tender or award Monetary award to compensate for lost profits/opportunity Litigation costs associated with pursuing bid review mechanism Bid preparation costs
9 Framework: Determining Which Agreement Applies? The 4 - Part Test All 4 tests must be met for the Agreement to apply to a specific procurement: 9 1. Disappointed bidder must be from Party to the Agreement e.g. AIT: cannot be an American supplier CUSPA: must be American supplier Canadian supplier? AIT TACOQ NWPTA NAFTA Chapter Ten WTO AGP Supplier from the USA? NAFTA Chapter Ten Can-US AGP WTO AGP Supplier from Asia or Europe? WTO AGP
10 Framework: Determining Which Agreement Applies? The 4 - Part Test Must be a designated or covered procuring entity under the Agreement Federal Department? Federal Crown Corporation? Provincial Department or Agency? Provincial Crown Corporation? MASH sector? The agreements do not apply to all government purchases but only to purchases by those government entities and enterprises listed in each applicable agreement. 3. Value of the contract must exceed monetary threshold 4. Goods, service, construction services must be covered Caveat: Devil is in the detail! Agreements full of exceptions to exceptions
11 Federal/Provincial/Municipal Monetary Thresholds (CDN $ January 1, 2010 December 31, 2011) 11 TA Entities (Departments & Agencies) Crown Corporations Goods Services Construction Goods Services Construction AIT Annex 502.1A Annex MASH ,000 N/A 100, ,000 N/A 100, ,000 N/A 250,000 25, ,000 N/A 100, ,000 N/A 100,000 5,000,000 N/A Ont-Que Trade & Cooperation 25, , , , ,000 5,000,000 NWPTA 10,000 75, ,000 25, , ,000 C-U.S. AGP* Permanent 604, ,500 8,500,000 N/A N/A N/A WTO-AGP 221, ,300 8,500, , ,500 8,500,000 NAFTA Can/U.S. 27,300 76,600 9,900, , ,300 12,200,000
12 Canada-US Agreement on Government Procurement 12 Subjects provincial procurements to disciplines of the 2007 Revised WTO Agreement on Government Procurement Crown corporations are exempt from Permanent Commitments Opens up provincial procurements to US suppliers Implementation of bid review mechanism is a major issue for provinces Each province to have its own bid review mechanism effective February 11, 2011 still unclear how this will work Will open provincial procurement markets to greater competition from US suppliers and pave the way for greater competition from EU and other foreign suppliers
13 Canada-US Agreement on Government Procurement 13 Response to Buy American measures in American Recovery and Reinvestment Act Required that businesses use only U.S. manufactured iron, steel and manufactured goods, in projects funded by the stimulus package, such as major construction and infrastructure contracts Restricted access by Canadian industry to the U.S. procurement market in many areas
14 Canada-US Agreement on Government Procurement 14 Temporary Concessions by Canada (Appendix C) : *expires September 2011 U.S. suppliers have temporary access to certain provincial and municipal construction procurements valued at $8.5 million (CDN) or more Coverage varies widely by province/territory: Ontario: covers all provincial agencies except certain agencies and Ministries and covers certain designated municipalities (see Appendix to Appendix C) Excludes local electricity distributing companies owned by municipality Excludes mass transit and highway projects
15 Canada-US Agreement on Government Procurement 15 Permanent Concessions by Canada U.S. suppliers have permanent access to covered provincial procurements over monetary thresholds Goods: commitments apply to procurements valued at $604,500 (CDN) or more Services: $604,500 (CDN) Construction services: $8.5 million (CDN)
16 Canada-US Agreement on Government Procurement 16 Procurements by covered entities vary by province/territory (Nunavut excluded) B.C. has offered access to All Ministries, Boards, Commissions, Agencies and Committees but not Legislative Assembly Ontario: All Provincial Ministries & certain Agencies Excludes procurements of urban rail and urban transportation equipment, systems, components, materials incorporated therein, all project related materials of iron or steel; and highway construction Excludes: Provincial Crown corporations and public utilities Municipalities May apply restrictions that promote the general environmental quality in the province or territory, as long as such restrictions are not disguised barriers to trade In the case of Ontario and Quebec only, applies to the procurement of goods, services or construction services purchased for the benefit of, or which is to be transferred the authority of, school boards of their functional equivalents, publically-funded academic institutions, social services entities or hospitals
17 Canada-US Agreement on Government Procurement 17 Services covered in Annex 4 Canada offers to cover the following services for sub-central government entities listed in Annex 2, with respect to the CPC services classification system: Urban planning and landscape architectural services Consultancy services related to the installation of computer hardware Software implementation services, including systems and software consulting services, systems analysis, design, programming and maintenance services Data processing services, including processing, tabulation and facilities management services Data base services Maintenance and repair services of office machinery and equipment including computers Other computer services Real estate services involving own or leased property Real estate services on a fee or contract basis to only Leasing or rental services concerning machinery and equipment without operator to only Leasing or rental services concerning personal and household goods General management consulting services
18 Canada-US Agreement on Government Procurement General management consulting services Human resources management consulting services Production management consulting services Services related to management consulting (except Arbitration and conciliation services) Technical testing and analysis services including quality control and inspection (except with reference to FSC 58 and transportation equipment) Services incidental to forestry and logging, including forest management Services incidental to mining, including drilling and field services Repair services of personal and household goods 8861 to 8864, and 8866 Repair services incidental to metal products, machinery and equipment Building-cleaning services Packaging services
19 Canada-US Agreement on Government Procurement Commercial courier services (including multi-modal) Electronic mail Voice mail On-line information and data base retrieval Electronic data interchange (EDI) Enhanced/value-added facsimile services, including store and forward, store and retrieve Code and protocol conversion On-line information and/or data processing (including transaction processing) Sewage and refuse disposal, sanitation and similar services Hotel and similar accommodation services 642/3 - Food and beverage serving services Travel agency and tour operator services
20 Canada-US Agreement on Government Procurement 20 General Exclusions (General Notes): Notwithstanding anything in these Annexes, the Agreement does not apply to procurements in respect of: shipbuilding and repair; urban rail and urban transportation equipment, systems, components and materials incorporated therein as well as all project related materials of iron or steel; contracts respecting FSC 58 (communications, detection and coherent radiation equipment); set-asides for small and minority businesses; agricultural products made in furtherance of agricultural support programs or human feeding programs; national security exemptions include oil purchases related to any strategic reserve requirements; and, national security exceptions including procurements made in support of safeguarding nuclear materials or technology. These reservations and exclusions allow the province to favour Canadian suppliers when procuring contracts in respect of these matters
21 Canada-US Agreement on Government Procurement 21 Provincial Bid Review Mechanism U.S. has agreed not to enforce certain breaches of procurement obligations for a period of 12 months (February 11, 2011) Each province is required to have provincial rapid interim review measures which preserve suppliers opportunity to participate in effect by February 11, 2011
22 Canada-US Agreement on Government Procurement 22 Domestic Review Procedures (Art. XVIII) 1. Each Party is required to provide a timely, effective, transparent and nondiscriminatory administrative or judicial review procedure through which a US supplier may challenge: a) a breach of the Agreement; or b) where the US supplier does not have a right to challenge directly a breach of the Agreement under the domestic law of a Party, a failure to comply with a Party s measures implementing this Agreement Ontario is required to establish or designate one impartial administrative or judicial authority to review complaint If review body is procuring entity, then must have right of appeal to impartial administrative or judicial authority Rules established for the hearing of complaints by review bodies that are not courts
23 Canada-US Agreement on Government Procurement 23 Domestic Review Procedures (Art. XVIII) 7. Each Party shall adopt procedures that provide for: a) rapid interim measures to preserve supplier s ability to participate in the procurement - such measures may result in suspension of procurement - unless not in the public interest b) where a review body determines that there has been a breach of the Agreement or measures implementing the Agreeent en nnunless not in the public interest, procedures must provide for corrective action or compensation for the loss or damages suffered, which may be limited to the costs for the preparation of the bid or costs relating to the challenge or both
24 Canada-US Agreement on Government Procurement 24 Parallel bid review mechanism at federal level: Canadian International Trade Tribunal (CITT) is federal bid review mechanism under NAFTA Chapter 10 and WTO AGP Article 1017 of the NAFTA requires the adoption of fair, open and impartial procurement procedures, whereby each party shall adopt and maintain bid challenge procedures for procurement covered in accordance with a variety of principles, including that of establishing] or designating] a reviewing authority with no substantial interest in the outcome of procurements to receive bid challenges and make findings and recommendations concerning them. As a result, the Canadian government established the CITT: CITT s mandate is to: receive complaints and to conduct a hearing to determine whether procurement challenged is in breach of the NAFTA commitments; and to provide for remedies where breaches occur
25 Canada-US Agreement on Government Procurement 25 WTO Revised AGP : Article IV National Treatment & Non-discrimination Treatment no less favourable than that provided to domestic goods/services suppliers Prohibits discrimination against locally established suppliers based on foreign ownership links or foreign supply Code of Conduct Governing Procurement Offsets May not impose, seek or consider offsets either in qualifying or selecting suppliers/goods/services or in evaluation and awarding contracts Offsets are conditions/undertakings that encourage local development, such as use of domestic content, licensing technology, investment
26 Canada-US Agreement on Government Procurement 26 WTO Revised AGP: Valuation of Procurement (Art. II.6) No division to avoid obligations Maximum total value over entire duration including all forms of remuneration e.g. premiums, fees, commissions, interest, total value of options Special rules for recurring procurements Notice (Art. VII) Notice of proposed procurement must be widely disseminated free of charge Prescribed content
27 Canada-US Agreement on Government Procurement 27 WTO Revised AGP: Conditions of Participation (Art. VIII) Limit conditions to those essential to ensure that supplier has the legal and financial capacities and commercial and technical capabilities to undertake procurement relevant prior work experience where essential to meet requirements global evaluation Qualification of Suppliers and Selective Tendering (Art. IX) May restrict tender to pre-qualified goods, services or suppliers provided procedure does not have purpose or effect of creating unnecessary obstacles to the participation of U.S. suppliers Suppliers must be allowed to apply at any time for inclusion Subject to conditions
28 Canada-US Agreement on Government Procurement 28 Technical Specifications (Art. X) Must not adopt any technical specification or prescribe any conformity assessment procedure with the purpose or the effect of creating unnecessary obstacles to trade When describing technical specifications, procuring entity shall, where appropriate, set out (a) in terms of performance and functional requirements, rather than design or descriptive characteristics (b) if technical design or descriptive characteristics are used, should indicate that will consider equivalent goods that demonstrably fulfill the requirements by including words or equivalent (c) shall not prescribe technical specifications that refer to trademark, or brand name, patent design, producer, type, unless i) there is no other sufficiently precise or intelligible way of describing the procurement and ii) that the word or equivalent is included in tender documentation (d) must not accept advice that may be used in preparation of technical specifications from a person that may have a commercial interest if the effect is to preclude competition
29 Canada-US Agreement on Government Procurement 29 Tender documents (Art. X) Detailed rules on what tender documentation must include: requirements of procurement evaluation criteria including relative importance modifications Time Periods (Art. XI) Detailed time requirements throughout tender process Limited tendering (Art. XIII) Permissible under prescribed conditions
30 Canada-US Agreement on Government Procurement 30 Special rules for Electronic Auctions (Art. XIV) Treatment of Tenders and Awarding of Contracts (Art. XV) Transparency of Procurement Information (Art. XVI) Information provided to suppliers Debrief upon request Publication of awards Maintenance of awards, documentation, reports for 3 years
31 Agreement on Internal Trade 31 Chapter 5: provinces and most sub-provincial entities obligated to conduct procurement operations in a non-discriminatory manner vis a vis suppliers from other procinces for contracts above specific monetary thresholds Also prohibits federal governent from favouring suppliers from one province Canadian suppliers have standing to bring complaints against the federal governent based on the AIT before the CITT CITT has no jurisidiction to hear complaints relating to provincial or sub-provincial entities no effective remedy in the event solicitation is carried out by a province in a manner inconsistent with AIT
32 Agreement on Internal Trade 32 AIT lists procvincial government entities to which non-discriminatory provisions apply (Annex 502:1A) and those that are excluded (Annex 502.2B) Excluded entities are entitiled to adopt procurement practices that best meet their needs regardless of whether or not this practice is discriminatory or contrary to the obligations in the AIT no obligation to provide procurement opportunities to suppliers from other provinces A number of services are exempt (Annex 502:1B) management of government financial assets and liabilities services by licensed professionals (including doctors, dentists, nurses, pharmacists, veterinarians, engineers, land surveyors, architects chartered accountants, lawyers) hauling aggregate on highway construction projects services of financial analysts or the management of investments health and social services advertising and public relations services
33 Agreement on Internal Trade 33 Annex 502:3B entities (state monopolies and in entities in competition with private sector) are exempt from many of the obligations in Chapter 5 and are subject to their own separate requirements Higher monetary thresholds Have separate dispute settlement process Have separate circumstances where it is acceptable to sole-source
34 Agreement on Internal Trade 34 Domestic Preferences Permitted under a provision relating to Canadian value added (Art. 518) allows Parties to accord a preference for Canadian value-added goods and services subject to certain conditions In exceptional circustances, Article permits discriminatory procurement practices for regional and economic development purposes: severe economic downturn
35 SOLE-SOURCING Exception 35 All Agreements recognize that sole-sourcing is an appropriate form of government procurement in some circumstances Variation amongst Agreements as to when sole-sourcing will be permitted, but some bases are generally common
36 SOLE-SOURCING Exception Goods/services can only be supplied by a single supplier Must be able to demonstrate that there is only one supplier that can meet the requirements of the procurement No alternative or substitute exists there may indeed have been other equivalent[s] it is only through an open competition that this question can be resolved (Re Patlon Aircraft & Industries Ltd.) there could well have been other possible solutions available Consequently, the Tribunal finds that the procurement was improperly sourced (Re Cognos Inc.) 2. To ensure compatibility with existing product, to recognize exclusive rights, such as exclusive licences, copyrights and patent rights, or to maintain specialized products that must be maintained by the manufacturer 3. Situation of extreme urgency that was not foreseeable by the procuring entity
37 Sole-Source Procurements 37 AIT (Art ) WTO AGP (Art. XIII) must not be to avoid competition; discriminate against foreign suppliers; or protect domestic suppliers Where only one supplier is able to meet the requirements of a procurement to ensure compatibility with existing products to recognize exclusive rights such as exclusive licenses, copyrights, patents to maintain specialized products that must be maintained by the manufacturer or representative absence of competition for technical reasons and the goods or services can only be supplied by a particular supplier and no alternative or substitute exists Goods, services can only be supplied by a particular supplier and no alternative or substitute exists for any of the following reasons: protection of copyrights, patents or other exclusive rights due to absence of competition for technical reasons
38 Sole-Source Procurements 38 Situation of urgency exists and the goods/services cannot be obtained in time by means of open procurement Strictly necessary, where for reasons of extreme urgency brought about by events unforeseeable by the entity, the goods could not be procured in time Goods/ consulting services regarding matters of a confidential or privileged nature are to be purchased and the disclosure of those matters through an open tendering process could reasonably be expected to compromise government confidentially, cause economic disruption or otherwise be contrary to the public interest Additional deliveries by original supplier not included in initial procurement where change of supplier cannot be made for economic or technical reasons such as requirements of interchangeability or interoperability with existing equipment, software, services, installation; and would cause significant inconvenience or substantial duplication of cost
39 SOLE-SOURCING Procurements 39 Will become trickier business in the future as procurements subject to more competition Procuring entities need to comply strictly with wording of exception claimed CITT imposes rigorous standards Government entity must: demonstrate that the sole-sourcing decision comes within the precise ambit of an exception
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