Are you over the line? MARCH/APRIL 2012 PRINT EDITION

Value and thresholds in public procurement

April 9, 2012
by By Rosslyn Young

Value for money and open competition are the twin policy pillars defining due diligence under the trade treaties for public institutions. Public tendering is the main vehicle through which these policy goals are accomplished and the threshold question facing Canadian public purchasing professionals is whether the contract value of the procurement calls for open competition. In this article, we’ll look at the overlapping threshold requirements affecting public procurement under our various trade treaties and we’ll discuss how “procurement value” should be defined and calculated when applying those thresholds.

First, let’s consider what the appropriate threshold is. There are several overlapping trade treaties across Canada, ranging from the national Agreement on Internal Trade (AIT) to regional treaties like the New West Partnership Trade Agreement and the Atlantic Procurement Agreement. Each treaty imposes different thresholds for open competition. There are different thresholds for different purchase categories, depending on whether the purchase is for goods, services or construction. Where a public institution is subject to more than one trade treaty, an analysis of these requirements is essential to ensure compliance.

Defining value
The second issue to consider is, what should be included in the calculation of “procurement value”? Again, definitions of procurement value vary across Canada, depending on the governance matrix of trade treaties, directives and statutes that differs by region and sector. Broadly speaking, the definition of procurement value is the total estimated value of a purchase—but what is included or excluded to calculate that value varies. For example, the AIT excludes optional renewals of a contract when the main duration is at least a year. But Ontario’s procurement directives, which apply to the provincial government and the broader public sector in Ontario, include optional renewals within the definition of procurement value. Some definitions also provide further details about what the calculation should include. For example, Ontario’s Management Board of Cabinet’s Procurement Directive includes items that must be included in the calculation to determine the appropriate threshold, which includes—among other requirements—indirect payments by the government to successful suppliers and conferred value flowing from the government to suppliers.

Is it a procurement?
Finally, public sector institutions must determine if the opportunity constitutes a procurement process at all. In Bell Nexxia Inc. v. The Commissioner of Corrections and Telus Integrated Communications Inc. (Bell Nexxia), a Federal Court of Appeal decision from 2002, the Court held the procurement of a telecom provider to supply telephone services in federal corrections facilities didn’t constitute procurement for the purposes of the AIT. Inmates paid for the telephone services, while Corrections Services Canada (CSC) made no payments to the service provider. The Court of Appeal decision overturned a prior Canadian International Trade Tribunal (CITT) determination that had found the RFP did constitute a procurement process. The Court of Appeal found that because CSC wasn’t paying for the services, there was no “financial commitment” for the purposes of the definition of procurement value. Therefore, the tendering process wasn’t subject to AIT and the CITT’s jurisdiction. While the Bell Nexxia decision found the opportunity for a private company to make money through the public sector didn’t constitute procurement for the purposes of the AIT, many public sector institutions still opt to put such “concession” opportunities to public tender. Examples include the procurement of food service providers for cafeterias in government buildings or coffee kiosks on university campuses. Under these arrangements, the service provider pays the public sector for the opportunity to offer food services on public property.

Another high profile example of the public tendering of a revenue-generating opportunity was the public procurement process recently run by the Niagara Parks Commission to procure a service provider for the boat tour services in the Niagara Gorge. That opportunity nets millions of dollars annually for the Ontario government and was recently awarded to a new supplier after a long-term untendered incumbency.

There are many considerations when deciding whether a public entity is required to put a contract opportunity to public tender. In order to ensure public funds and resources are managed efficiently, it’s essential procurement value be properly calculated according to appropriate governance structure. As well, correct internal and external thresholds must be applied and all public policy considerations considered to determine whether (irrespective of the amounts being paid in public funds) the opportunity should be competed to serve the public interest.                b2b

Rosslyn Young is a commercial lawyer whose practice focuses on public procurement. Reach her at [email protected]