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The good, the bad and the uncertain

Canada's new internal trade deal aims for better public procurement


August 30, 2017
by Graham Ragan

Graham Ragan is a partner at Gowling WLG in Ottawa.

From the August 2017 print edition

On July 1, 2017, the Canadian Free Trade Agreement (CFTA) came into force, replacing the 1995 Agreement on Internal Trade (AIT). The provinces, the territories and the federal government have signed on to this agreement. One of the aims of this agreement is to ensure better access to public procurement in Canada.

The goal of the CFTA is “to strengthen and modernize internal trade”. The CFTA is expected to expand Canadian businesses and increase economic growth by enhancing the flow of goods and services, investment and labour mobility. The governments have made specific commitments to promote open procurement practices, which aim to “create a level playing field for companies operating across Canada, and boost value-for-money in government purchasing”.

The CFTA procurement rules are extended from the former AIT. For example, the CFTA covers the energy sector, among others. By extending such coverage, it is estimated that more than $4.7 billion a year will open to broader competition. The governments have also agreed to implement a single electronic portal, which will make it easier for Canadian businesses to locate these additional procurement opportunities.

The CFTA includes new protocols for transparency and review procedures. While the AIT permitted the governments to request “relevant bid information” if their rights may have been affected, the CFTA permits suppliers to request an explanation of why they did not win a contract award, which must be provided. Other provisions require public disclosure of each contract award within 72 days, including its value and the winner’s name, as compared to the annual reporting of procurement totals to the Governments that was required under the AIT. While the AIT had separate complaint procedures for provinces and the federal government, the procedures mandated by the CFTA are the same for all governments and require that administrative or judicial review procedures be provided. If the former are used, findings must be made within 90 days of a complaint (unless extenuating circumstances warrant an extension of up to 45 days). The administrative body must be independent, or the supplier must have the ability to appeal its decision. Furthermore, the decision of an administrative body must be subject to judicial review, unless its procedures provide the right to: a public hearing; representation; present witnesses; disclosure of all relevant documents by the procuring entity; and, a timely, written decision with reasons.

As with the AIT, the CFTA also has several notable exceptions. These include the ability of the governments to disregard procurement rules in pursuit of “legitimate objectives” (defined to include environmental and consumer protection, among other things), provided that they do not arbitrarily or unjustly discriminate or restrict trade under the guise of these objectives. The CFTA imports other exceptions for limited tenders in defined circumstances and for certain types of contracts. This includes land transactions, certain financial services, legal and notary services, as well as non-profit and government-to-government procurement.

Under the CFTA, the institutions and the types of procurement that are not covered are expressly excluded by way of a “negative list”. By contrast, the AIT used a “positive list” that set out the procurements covered. Thus, entities that were not expressly included under the AIT’s “positive list” are now covered by the CFTA, unless expressly excluded. However, while more government entities are covered under the CFTA, many are still exempted from this new agreement.

A strong motivator for the CFTA was the signing of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). This is similar to how the previous AIT was motivated by the signing of NAFTA in 1994. CETA’s looming implementation and NAFTA’s renegotiations therefore stand to further change the Canadian procurement landscape.

Procurement provisions in CETA are set to apply provisionally as of September 21, 2017. Governments’ contracts (except utilities, construction, and certain others) valued over $309,100 will be opened to European bidders. Many CETA procurement provisions were incorporated into the CFTA and may possibly be included in a renegotiated NAFTA.

Government procurement has been raised as a consultation subject during NAFTA renegotiations. Comments by US and Canadian officials demonstrate a guiding principle is “do no harm”, and that other negotiated agreements will be used as a starting point. The completion date and outcome of these talks is uncertain, but they’re likely to have an impact on Canadian procurement and the economy.