Procurement Office - Building a Better Framework for Open ......procurement for all interested...

BuildingaBetterFrameworkforOpenandFairCompetition

ASupplementtotheYukonProcurementAdvisoryPanelReport

April13,2016

PaulEmanuelli,J.D.ProcurementLawOffice

[email protected]

TheProcurementLawOfficespecializesinCanadianpublicsectorprocurementlaw,advisinggovernmentbodiesinallsectorsandregionsofgovernment inCanada.PaulEmanuelli,GeneralCounselandManagingDirectorof theProcurementLawOffice,hasbeenrankedbyWho’sWhoLegalasoneofthetoptenpublicprocurementlawyersintheworldandhistextbook,GovernmentProcurement(3rded.,LexisNexis,2013),hasbeencitedbythecourtsas an authority on the subject of Canadian public sector bidding and tendering law.He has served as a coursedirector for Osgoode Professional Development since 2006, and has trained and presented to thousands ofprocurementprofessionalsfromhundredsofinstitutionsacrossCanadaandinternationally.

The Procurement Law Office 2

TableofContents

1.Introduction........................................................................................................................3

2.TheRegulatoryContextofOpenPublicProcurementinCanada.........................................32.1.TheTradeTreatiesandCorePolicyObjectivesofPublicProcurement.......................................3

A. Value-for-Money.........................................................................................................................4B. TradeLiberalization:ReciprocalNon-Discrimination..................................................................4C. Transparency...............................................................................................................................5

2.2TheMainFrictionPointsinPreferringLocalSuppliers.................................................................5A.TradeTreatyProhibitions:NoLocalPreference..............................................................................5B.NoBiasedSpecificationsorHiddenLocalPreferences....................................................................7C.ThresholdConsiderations:ContractValuesandAnti-Avoidance..................................................10

3.BattlingBigFirmBias:ThePerilsofState-SponsoredMonopolies.....................................11A.BiasedSpecificationsCanCutBothWays......................................................................................11B.CreatingDeFactoMonopolies:TheUnfairIncubationofEntrenchedIncumbencies...................12C.DrivingOutSmallOperators:TheOntarioSchoolBusStudy........................................................16

4.BuildingaBetterFrameworkforFairandOpenCompetition............................................23A.CanadianContext..........................................................................................................................25B.InternationalStandards.................................................................................................................32C.Conclusion.....................................................................................................................................41


1.IntroductionWhile there have been countless well-intentioned calls over the years to use the governmentprocurement process as a means of fulfilling a broad range of social policy objectives ranging fromstimulatingthelocaleconomyandcreatingjobstopromotingtheprocurementofmoreenvironmentallysustainable goods and services, those public policy objectives have often failed to gain traction sincepublicprocurementisalreadysubjecttothefirmlyentrenchedcompetingpolicyobjectivesofvalue-for-money,tradeliberalizationandtransparency.

Insofar as the public policy objective of supporting local suppliers in government procurement isconcerned, this paperwill explain the key friction points among the competing policy objectives andexploresomeareasofopportunityforpromotinglocalsupplierinterestsinamannerthatiscompatiblewith the public procurement rules. As this paper discusses, to be successful, any policies aimed atassistinglocalsuppliersmustcomplywiththeregulatorycontextestablishedforpublicprocurement.

However,thecomplexitiesoftradetreatycomplianceshouldnotresultinabandoninglocalsupplierstofend for themselves in the arena of unbridled open competition. Rather, as this paper explains, newinnovations in procurement are expanding opportunities to re-engage local suppliers within theemergingframeworksofopenandfaircompetition.

2.TheRegulatoryContextofOpenPublicProcurementinCanada

2.1.TheTradeTreatiesandCorePolicyObjectivesofPublicProcurementThe post-war era has seen a steady expansion to trade treaties impacting government procurementpracticesacrossCanada,includingthefollowing:

• theAgreementonGovernmentProcurementbetweenCanadaandmanyofitsinternationaltradingpartners,whichappliestoCanadianfederalgovernmentprocurement;

• the North American Free Trade Agreement between Canada, the U.S. and Mexico, which alsoappliestoCanadianfederalgovernmentprocurement;

• the Agreement on Internal Trade which, subject to some exceptions, applies to most publicinstitutionsacrossCanada;and

• the broad range of regional trade treaties across Canada that apply to provincial governments,provincial agencies and thebroaderpublic sector including theAtlantic ProcurementAgreement,the Quebec-New Brunswick Trade Agreement, the Ontario-Quebec Trade and Co-OperationAgreement;andtheNewWestPartnershipTradeAgreement.

The principles and practices entrenched in these trade treaties reflect the three core publicprocurementpolicyobjectivesof value-for-money, transparencyand trade liberalization.While value-for-money considerations are of prime importance, they must be balanced with the other two corepolicy objectives of government procurement: transparency and trade liberalization. Each of theseequallysignificantpolicyobjectivesisintroducedbrieflybelow.


A. Value-for-Money

The Auditor General of Canada’s 2000 Report of the Auditor General of Canada report (December2000)1,inasectionentitledMattersofSpecialImportance,indicatedthemagnitudeofspendingbythefederalgovernment,statingthat:

Despite the retrenchment and cutbacks of the past decade, spending by the federalgovernment remainsathistoricallyhigh levels— roughly$175billiona year.Howwell thismoney is spent is clearly of great interest to the taxpayers,who bear the cost, and to thepublicatlarge,onwhosebehalfthespendingtakesplace.(p.5)

This sectionof the report also noted the significanceof ensuring that government spending achievesvalue-for-moneyfortaxpayers,statingthat:

[P]ublicmoneyismoneyheldintrustforthebenefitofallCanadians.Asaconsequence,thegovernmenthasanobligationtoensurethatthemoneyismanagedprudentlyinsupportofthegeneralpublicinterest.Italsomeansthatthegovernmentmustseektoobtainmaximumvalueforthedollarsitspends.(p.12)

Public institutions typically seek to achieve value-for-money by using an open tendering process. Byharnessingfree-marketforcesinacontrolledcompetitiveenvironment,thisprocesscanresultinadealtailoredtotheinstitution’sneeds,onitstermsandatpotentiallylowercosts.

B. TradeLiberalization:ReciprocalNon-Discrimination

InanintroductiontoitsAgreementonGovernmentProcurement,2theWorldTradeOrganizationnotesthe protectionist pressures faced by governments to favour suppliers from within their ownjurisdictions:

In most countries the government, and the agencies it controls, are together the biggestpurchasers of goods of all kinds, ranging from basic commodities to high-technologyequipment.At thesame time, thepoliticalpressure to favourdomestic suppliersover theirforeigncompetitorscanbeverystrong.

Inordertoopengovernmentprocurementtogreatercompetition,theapplicabletradetreatiesseektocounter theseprotectionist tendenciesbyestablishingprotocols for“reciprocalnon-discrimination”or“nationaltreatment”,throughwhicheachsignatorypledgesthat itspublic institutionswillprovidethesameaccesstosuppliersfromtheotherjurisdictionsasitdoestosuppliersfromitsownjurisdiction.

In its2000-2001AnnualReport, 3Canada’s InternalTradeSecretariatalsoreferredtothepublicpolicyobjective of reducing domestic barriers to trade within Canada by implementing non-discriminatorypublicprocurementpoliciesandbyeliminating:

1AuditorGeneralofCanada,2000ReportoftheAuditorGeneralofCanada(December2000),availableonlineathttp://www.oag-bvg.gc.ca/internet/English/parl_oag_200012_e_1139.html.2WorldTradeOrganizationwebsite,athttp://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm10_e.htm.


…localpricepreferences,biasedtechnicalspecifications,unfairregistrationrequirementsandotherdiscriminatorypractices fornon-resident suppliers inorder toensureequal access toprocurementforallinterestedCanadiansuppliers.(p.4)

Asthispassageillustrates,oneofthekeytenetsofgovernmentprocurementistoopenalevelplayingfieldtoallsuppliersfallingwithintheumbrellaoftheapplicabletradingblock.Theexpansionoftradetreaties has thus increased the pool of potential domestic and international suppliers bidding ongovernmentworkinCanada.

C. Transparency

Tiedcloselytotheconceptsoftradeliberalizationandvalue-for-moneyistheprincipleoftransparencyin theawardofgovernmentcontracts.Onapractical level,oneof themost significantways that thispolicymanifests itself is through thewidespreadadoptionofopen tenderingpracticeswithopenandtransparent contract award procedures and criteria as the method of awarding contracts to privatesectorsuppliers.Asnumerouscaselawexamplesillustrate,thepublicpoliciesthatapplytogovernmentprocurement call for the open and transparent award of government contracts and can attachsignificantconsequenceswhenthosepoliciesarenotfollowed.

2.2TheMainFrictionPointsinPreferringLocalSuppliersThe following areas have proven to be the greatest friction points in complying with the publicprocurementruleswhilealsousinggovernmentprocurementasameansofsupportinglocalsuppliers:

• TradeTreatyProhibitions:NoLocalPreference• NoBiasedSpecifications• ContractValueThresholdsandAnti-AvoidanceRules

Eachoftheseareasisbrieflysummarizedbelow.

A.TradeTreatyProhibitions:NoLocalPreference

As noted above, theAgreement on Internal Trade (“AIT”) is a domestic treaty signed by the federal,provincial and territorial governments in Canada. Chapter 5 of the AIT sets out specific rules forgovernmentprocurement.Subject to themonetary thresholdsof$25,000 forgoodsand$100,000 forservicesandconstruction,4thepartiesagreethattheywillprocurebywayofopentendercallaccessibleequally to all Canadian suppliers. As with the international treaties, the AIT aims to implement theprinciplesofopencompetitionandreciprocalnon-discriminationforthebenefitofCanadiansuppliersfromalljurisdictionswithinCanada:

3InternalTradeSecretariat(Canada),2001-2002AnnualReport,TheAgreementonInternalTrade(April2000toMarch2001),onlineathttp://www.ait-aci.ca/wp-content/pdfs/English/AnnualReports/2000-01.pdf..4Article502oftheAITsetsthefixedthresholdsat$25,000forgoodsand$100,000forservicesandconstruction.SomepublicinstitutionsmaybeexemptorsubjecttohigherthresholdsbasedonspecificannexestoChapter5oftheAIT.


BACKGROUND

AIT

AsapartytotheAIT,theGovernmentofCanadahasagreedtoprovideallCanadiansuppliersequalaccessto federalgovernmentprocurementforcontracts involvingspecifiedclassesofgoodsandservices(includingconstructionservices)boughtbythegovernmentdepartments,agencies and Crown corporations listed in the AIT. Insofar as the federal government isconcerned,theAITappliestoprocurementswithavalueequaltoorgreaterthan$25,000,incases where the largest portion of the procurement is for goods, and a value equal to orgreaterthan$100,000,incaseswherethelargestportionoftheprocurementisforservices,including construction services contracts. The procurement values that trigger theapplicabilityoftheAITdonotchange.

TheAITprohibits thefederalgovernment fromdiscriminatingagainstgoodsorservicesofaparticularprovinceorregion,aswellasbetweenthesuppliersofsuchgoodsorservicesandthose of any other province or region. The AIT imposes procedural disciplines aimed atpromotingequalaccesstoprocurementforallCanadiansuppliers.

Theothertradeagreements

AsapartytoNAFTA,theCCFTA,theCPFTA,theCCOFTAortheCPAFTA,CanadahasagreedtoprovidesuppliersoftheUnitedStates,Mexico,Chile,Peru,ColombiaandPanamawithequalopportunity to competewithCanadian suppliers for contracts involving specified classes ofgoodsandservices(includingconstructionservices)boughtbythegovernmentdepartments,agenciesandenterprisescoveredinthesetradeagreements.

In addition, as a party to theAGP, Canadahas agreed to provide suppliers of certainWTOmember countries equal opportunity to compete with Canadian suppliers for contractsinvolving specifiedclassesofgoodsand services (includingconstruction services)boughtbythegovernmentdepartments,agenciesandenterpriseslistedintheAGP.

Thesetradeagreementsapplytofederalgovernmentprocurementswithavalueequaltoorgreater than certainmonetary thresholds, whichmay vary from agreement to agreement.These thresholds are revisedperiodically in accordancewith the indexationand conversionprovisionsinthetradeagreements.Forthecurrentlyapplicablethresholds,visittheTreasuryBoard of Canada Secretariat’s Trade Agreements Thresholds web page: www.tbs-sct.gc.ca/pubs_pol/dcgpubs/ContPolNotices/ 2013/13-5-eng.asp (valid from January 1, 2014toDecember31,2015).

These trade agreements guarantee national treatment and non-discrimination to goodsoriginatinginthesignatorycountries,aswellastothesuppliersofsuchgoodsandservices.They impose procedural disciplines aimed at promoting transparency, predictability andcompetitioninpublicsectorprocurements.

InkeepingwiththeprincipleoftreatingCanadiansuppliersnolessfavourablythansuppliersfromothercountries,CanadiansuppliersmayalsohaverecourseagainsttheGovernmentofCanadaunderthesetradeagreements.5

5CanadianInternationalTradeTribunal’sProcurementReviewProcess:ADescriptiveGuideunder“Background”,“AIT”onlineathttp://www.citt.gc.ca/en/Procurement_Review_Process_e#_Toc390068319.


Theannexes toChapter5containdetailed listsofpublic sectorentities thatare includedorexcludedfrom theseAIT obligations. Theobligationsare similar to those contained in theAGP andNAFTA andinclude: (a) “reciprocal non-discrimination” provisions to protect Canadian suppliers from barriers totrade; (b) procedural rules aimed at ensuring equal access to all Canadian suppliers; (c) prescribedmethods for issuing a tender call; and (d) specific types of information that must be included in alltendercalls.

Within Canada, and as between the provincial-level governments, the Internal Trade Secretariatoverseesandadministers theAIT.TheSecretariatnotes that theAIT’sprocurement-relatedobjectivesincluderemovingbarrierstocompetition:

ProcurementEliminating local price preferences, biased technical specifications, unfair registrationrequirementsandotherdiscriminatorypracticesfornon-residentsuppliersinordertoensureequalaccesstoprocurementforallinterestedCanadiansuppliers.6

In fact, the AIT’s Sixth Protocol of Amendment came into effect January 1, 2005. This round ofnegotiationsexpanded the scopeofpublic institutionsacrossCanada in theMASHsector (sometimesreferred to as the broader public sector i.e.,municipalities, the academic community, school boards,health and social services) that are now subject to the AIT’s open procurement obligations.7 Asevidenced by the expansion of the AIT’s open competition requirements across the Canadian publicsector,andbytheparallelproliferationoftheregionaltradetreatiesnotedfurtherabove,provisionsinfavour of open competition and in prohibition of local preference have become firmly entrenched inrecentyearsinamannerconsistentwithbroaderinternationaltradeliberalizationinitiatives.

B.NoBiasedSpecificationsorHiddenLocalPreferences

Subject to narrow and complex exceptions, the trade treaty rules generally prohibit specifications orevaluation criteria that would unnecessarily restrict competition. While the use of brandedspecifications is an obvious example of a procurement practice that, in the first instance, would becontrary to the trade treaties and require a case-specific rationale to be defensible, the use of anyspecificationor evaluation criterion that unnecessarily restricts competitionwouldbe contrary to theopenprocurement rulesunless thepublic institutioncouldestablish that theparticular restriction fellwithin legitimate operational requirements for the specific contract. As the case law in this area hasshown, suppliersmayhave standing to challenge these specificationsand,where it is challenged, thepublicinstitutionbearstheonusofjustifyingitsspecificationsandevaluationcriteria.

While the express prohibition against local preference prohibits direct and overt local supplierpreference practices, the restrictions against biased specifications also serve to prohibit indirect localsupplier preference in situations where the public institution introduces requirements in itsspecificationsorevaluationcriteriathatgiveacompetitiveadvantagetolocalsuppliersandthatcannot6InternalTradeSecretariatwebsite’s“OverviewoftheAgreementonInternalTrade”athttp://www.ait-aci.ca/overview-of-the-agreement/.7AconsolidatedversionoftheAITincorporatingallProtocolsofAmendmenttodateisavailableathttp://www.ait-aci.ca/agreement-on-internal-trade/.


bedefendedasbeinglegitimateoperationalrequirements.Bywayofexample,certaintypesofservices,such as snow removal, catering services or transportation services aremore likely to require a localsupplier presence to perform the work. Rationally related local presence specifications and criteriawouldmorelikelyfallwithin legitimateoperationalrequirements insuchcases.Bycontrast,arbitrarilyawardingsignificantevaluationpointstobiddersformaintainingaheadofficewithintheboundariesofaspecificmunicipalityismorelikelybeseenasunnecessarilyrestrictiveandbiasedandcouldconstituteanindirectlocalpreference.

Given the prohibition against overt local preferences, there have been instances where publicinstitutionshaverunafoulofopentransparentcompetitionnormsbyapplyingunofficialorhiddenlocalpreferencestotheircontractawarddecisions.ThefollowingcasesprovidesomehighlightsfromleadingCanadian and international jurisprudence dealing with the application of local preference in thetenderingprocess.

InitsNovember1989decisioninChinookAggregatesLtd.v.Abbotsford(District),8theBritishColumbiaCourtofAppealheldthatapurchasercannotrelyonaprivilegeclausetoapplyundisclosedevaluationcriteria.Thecase involvedamunicipal tendercall foragravelcrushingcontract.Themunicipalityhadadoptedanundisclosedlocalpreferencepolicyandawardedcontractstolocalbidderswhowerewithin10 percent of the lowest bid. The plaintiff challenged the contract award made on the basis of thehiddenpreference.TheCourtofAppealdescribedtheundisclosedlocalpreferencepolicyanditsimpactonthebiddingprocess:

Theappellanthadmadeaconsidereddecisionpriortoinvitingtenders,nottogivenoticeofitslocalpreferencepolicytobiddersinitsinstructionstobidders.Officialsofthemunicipalityconsideredthatifnoticewasgiventhismightalertlocalcontractorstothefactthattheywereaffordedapreference.Presumablytheappellantconsideredthattheabsenceofnoticewouldgive it a price advantage. On the other hand, outside contractors such as the respondentbelievedthattheywereonanequalfootingwithallbidders.Mr.Tanner,theprincipalofficeroftherespondent,testifiedthatifhehadbeenawarethattheappellantmightapplyalocalpreferenceinfavouroflocalcontractorsuptotenpercentoverthelowestbid,hewouldnothave bid on the job because it would have been virtually impossible, in view of thecompetitivemarket,forhimtobidtenpercentlowerthanthelowestbidder.(p.2-3)

Themunicipalityarguedthattheprivilegeclauseinitstendercallgaveit“therighttoselectanytendermadebyanyqualifiedbidder,not just the lowest tender”.TheCourtofAppealdisagreedsince itwas“unabletoacceptcounsel’ssubmissionthattheprivilegeclausegavetheappellanttherighttoexercisealocalpreferencewhenthatlocalpreferencewasnotrevealedby,orstatedin,thetenderdocuments”.

In its September 1991 decision inKencor Holdings Ltd. v. Saskatchewan,9 the SaskatchewanQueen’sBenchheldthatthegovernmentcouldnotrelyonundisclosedcriteriatobypassalowbidder.ThecasedealtwithatendercallissuedbytheGovernmentofSaskatchewanfortheconstructionofabridge.Asthe decision explains, Saskatchewan took the position that its general privilege clause allowed it tobypass the lowbidderbasedonanundisclosed local preferencepolicy. The lowbidder sued, arguingthattheseclausesdidnotgiveSaskatchewantherighttorelyonundisclosedcriteria,maintainingthat8[1989]B.C.J.No.2045,40B.C.L.R.(2d)345(B.C.C.A.).9[1991]S.J.No.439,[1991]6W.W.R.717(Sask.Q.B.).


“intheexerciseof itsdiscretionrespectingtenders, theGovernmentmaynotconsiderpolicywhich isunknowntobidders”.Thecourtagreed,notingthatthere“wasnoindicationinthetenderdocumentsthat preference might be extended to Saskatchewan bidders, and the plaintiff was unaware of thispossibility”. The court found that in the interest of maintaining the integrity of the bidding process,evaluationfactorsshouldbeclearlydisclosed:

To maintain the integrity of the tendering process it is imperative that the low, qualifiedbidder succeed. This is especially true in the public sector. If governments meddle in theprocessanddeviatefromtheindustrycustomofacceptingthelowbid,competitionwillwane.The inevitable consequence will be higher costs to the taxpayer. Moreover, whengovernments,forreasonsofpatronageorotherwise,applycriteriaunknowntothebidders,greatinjusticefollows.Bidders,doomedinadvancebysecretstandards,willwastelargesumspreparing futile bids. The plaintiff here for example, spent $23,000 on its abortive tender.(para.19)

The plaintiff was awarded lost profit damages on account of the government’s improper reliance onundisclosed selection criteria. As this case illustrates, whenever purchasers intend to rely on factorsotherthanbestpriceinmakingtheircontractawarddecisions,thosefactorsshouldbeclearlydisclosedtoallbidders.

InitsJune1997decisioninHughesAircraftSystemsInternationalv.AirservicesAustralia,10theFederalCourtofAustralia,GeneralDivision,determinedthatthetenderingprocessinitiatedbyAustralia’sCivilAviationAuthoritygaverisetoatenderingprocesscontractthatcontainedanimplieddutyoffairness.The court then found the Authority liable for conducting an unfair evaluation of bids based onundisclosedevaluationfactors.ThecasedealtwithatendercallfortheAustralianAdvancedAirTrafficSystemAcquisitioncontract(“TAAATSII”).ThecontractwasawardedtoanAustraliancorporationthatwas a subsidiary of a French company. The plaintiff, Hughes Aircraft Systems International, was anunsuccessful California-based bidder. Although it submitted the lowest qualifying bid, Hughes wasbypassedinfavourofadomesticbidthatofferedgreater“communitybenefits.”

The court determined that theAuthority breached theprocess contract by unfairly straying from thepredetermined evaluation rules. In particular, the court concluded that the evaluators breached thetermsof thebiddingprocesswhen they failed to follow theevaluation criteria establishedunder thetendercallandbypassedthe lowbidder in favourofadomesticbidderon“idiosyncraticgrounds” for“geo-political”reasons.Inotherwords,theAuthorityhadbypassedthebestbidbasedonhiddenlocalpreferences.Itwasfoundliablefordoingso.

Turning toanotherhigh-profile internationalexample, in itsOctober1999 judgment inHarmonCFEMFacades(UK)Ltd.v.TheCorporateOfficeoftheHouseofCommons,11theEnglandandWalesHighCourt(Technology and Construction Court) found that the Corporate Office of the House of Commonsbreached the tendering rules by applying an undisclosed “Buy British” policy to the evaluation ofcompetingbids.ThecaseinvolvedatendercalltobuildtheNewParliamentaryBuildingfortheHouseofCommonsinBridgeStreet,Westminster,tocreatenewofficesfor210MembersofParliamentandtheir

10[1997]FCA558;146ALR1.11[1999]EWHCTechnology199.


staff.The initialprojectedprojectcostsweresetat£250million,making itoneofthemostexpensivebuildingseverbuiltinLondon.

Thereweretwobiddingteamsvyingforthecontractaward.Thefirstteam,ledbytheplaintiff,HarmonCFEM Facades (UK) Ltd. (“Harmon”), a consortium of foreign suppliers, submitted the low bid. Thesecond team, a consortium referred to as Seele-Alvis that included a major domestic contractor,submittedahigherbid. TheHouseofCommonsbypassedHarmon’s lowbid in favourof Seele-Alvis’shigherbid.Harmonsued,allegingthattheevaluationbreachedtheapplicableprocurementrules.TheCourtagreed.

Thecourt’slengthydecisiondocumentedacomplexseriesofevents,includingaggressivelobbyingandpoliticalpressure infavourofSeele-Alvis,whichculminated inthebypassofthe lowbidonpurported“best value for money” considerations. As detailed below, the court found that this “best value formoney”evaluationprocesswas“acharade”.

According to the court, rather than representing the “best value for money,” the selection processrepresentedaflawedprocurementconductedincontraventionoftheapplicableprocurementrules.Infact,thethen-applicableregulationsrequiredthatthelowbidrulebeappliedtodeterminethewinningbidder unless the additional non-price criteriawere disclosed in the tender call document. The courtfoundthatthetendercallfailedtodisclosethenon-price-relatedcriteria.

Thecourtdeterminedthatthecontractawarddecisionwasmadeonthebasisofan improperhidden“BuyBritish”preferencethatdrovetheevaluatorstobypassthelowbidder.

The court determined that the House of Commons breached these implied duties by conducting aflawedevaluationprocessbasedonimproperhiddencriteria,andawardedtheplaintiff its lostprofits.As evidenced by this andmany other cases, relying on improper hidden evaluation factors, includinghiddenlocalpreferences,canresultinsignificantlegalliability.

C.ThresholdConsiderations:ContractValuesandAnti-Avoidance

While the specific contract value threshold will vary depending on the specific trade treaty, type ofcontract and type of public institutions, public institutions are required to compete the award ofcontracts through open tendering when the estimated value of that contract exceeds the applicabletradetreatythreshold.Bywayofexample,asnotedabove,theAgreementonInternalTradesetsthosevalues for senior level government institutions at $25,000 for goods and $100,000 for services andconstruction.Whilethosethresholdsmaybehigherunderthattradetreatyforpublicinstitutions,theytendtobeconsiderablylowerundertheregionaltradetreatiesreferredtoabove.Thismeansthattheduty to run an open and transparent competitive bidding process and to avoid discrimination asbetweensuppliersappliestoevensmallcontractawardsand,insomeareassuchasconsultingservices,maybeappliedtoallcontractsirrespectiveofthecontactvalue.

These threshold considerations strictly lower the contract value thresholds above which the openprocurementruleswouldapplytoprohibitlocalpreference.


Toenforcetheobligationofopencompetitivebiddingthetradetreatiesalsoexpresslyprohibitpracticessuchascontractsplitting(whereacontractisartificiallydividedintosmallercontractsinordertoavoidthe application of the contract value thresholds and the duty of open competition) and the use ofsubsidiaryinstitutions(wheretheinstitutiondelegatesitsspendingauthoritytoanotherinstitutionthatisnotsubjecttotheprocurementrulesinordertoavoidthoserules).

3.BattlingBigFirmBias:ThePerilsofState-SponsoredMonopoliesThenowfirmlyentrenchedprohibitionsagainstlocalsupplierpreferenceandcontractsplitting,coupledwith theadministrativeconvenienceofmanaging fewersuppliersandwith the increasingpressureonpublic institutions to obtain value-for-money, risks consolidating larger and larger contracts into thehands of fewer and fewer large suppliers. This bias towards bigger contracts and bigger firms, if leftunbridled, can have unintended consequences in the marketplace and adversely impact futurecompetitioninthegovernmentprocurementprocess.

Thissectionprovidesexamplesofsomeoftheunintendedconsequencesofunbridledopencompetitionandthesubsequentsectionexploresopportunitiesforestablishingframeworksforfaircompetitionthatcanenablelocalsupplierswithinthegovernmentprocurementcycle.

A.BiasedSpecificationsCanCutBothWays

While the biasing of specifications and evaluation criteria in favour of local suppliers has led tosignificant issues inpublicprocurement in thepast, recent focushasalsobeendrawn to the issueofbiasing requirements against smaller or local suppliers and in favour of larger entrenched incumbentsuppliers. In either instance, government institutions are under increasing scrutiny to ensure thefairness of their specifications by avoiding scoping decisions that unnecessarily limit competition forgovernmentcontracts.

For example, in its February 2015 decision inAirbus Helicopters Canada Limited v. Canada (AttorneyGeneral),12 theFederalCourtofCanadarejectedthe legalchallengeofasupplierwhoallegedthatthegovernment’sspecificationswerebiasedinfavourofacompetingsupplier.Thecasedealtwithafederalgovernmenttendercallfora$172millionlight-lifthelicopterpurchase.Theapplicant,AirbusHelicopterCanada Ltd., brought a judicial review application after it engaged in pre-bid consultations with thegovernmentbutthenrefusedtobidduetowhatitallegedwerebiasedspecifications.

Asthecourtnoted,thecasewasuniquewhencomparedtomostotherjudicialreviewchallengesinthatthecomplainantneveractuallysubmittedabidinthechallengedprocess.Oneofthekeyissuesinthedecisionwaswhetherthecomplainanthadtherighttoinitiatealegalchallengeinthosecircumstances.The court ultimately concluded that the applicant did have standing to bring the lawsuit since thegovernmenthadengagedinpre-bidconsultationsregardingitsrequirements.Thecourtfoundthatthegovernment was under a duty to develop fair and unbiased specifications and also found that thegovernment’smarket outreach created legitimate expectations that all consulted suppliers would betreatedfairlyduringtheconsultationprocess.

122015FC257.


Notwithstandingtherighttochallengethespecification-settingdecisionandtheprocessthatledtothatdecision, the court ultimately held that the complainant failed to make its case. As the courtdetermined,thefailuretoacceptasupplier’srequesttochangespecificationsinasolicitationdocumentdoesnotautomaticallyequate toanunfairorbiasedprocess. In fact, in this case the court foundnoevidencethatthegovernmenthadoverstateditstechnicalrequirementstobiastheprocessinfavourofthecomplainant’scompetitor.Rather,thecourtfoundthatthegovernmentprovidedampleevidenceastothefairnessandreasonablenessof itstechnicalrequirements.Asthiscase illustrates, inadditiontobeingsubjecttolegalchallengestoitstenderingprocesses,apublicinstitutioncanalsobechallengedonthepre-bidtechnicalstandard-settingdecisionsitmakestocreateistendercalldocuments.Whilethecomplainantultimately failed toprove itsallegationsofbiasedspecifications, thisdecisionservesasasignificantprecedent in the future for supplierswhoseek to impugn theallegedbiasof specificationsestablishedbypublicbodiesintheirbidsolicitationdocuments.

As noted above, the unbridled open competition for larger and larger contracts involving larger andlargersupplierscanhaveanadverse impactonsmallersuppliersandultimatelyanadverse impactoncompetition in the government procurement marketplace. Recent examples are explored belowinvolvingfederalrelocationservices,ethylalcoholacquisitions,airportsecurityequipmentandstudenttransportationservices.

B.CreatingDeFactoMonopolies:TheUnfairIncubationofEntrenchedIncumbencies

In itsApril 2013decision inEnvoyRelocationServices Inc. v.Canada (AttorneyGeneral),13 theOntarioSuperior Court of Justice found the government of Canada liable for having unfairly favoured theincumbent service provider over competing bidders by making inaccurate disclosures of anticipatedworkvolumesinitssolicitationdocument.ThecasedealtwithanRFPissuedin2004fortheprovisionofrelocation services and contemplated two contract awards: the first for the Canadian Forces and thesecondforthegovernmentofCanadaandtheRoyalCanadianMountedPolice.Theincumbentserviceprovider,RoyalLePageRelocationServices(“RLRS”)wonbothcontractawards,valuedatapproximately$1billion.Acompetingbidder,EnvoyRelocationServicesInc.,contestedtheoutcomeandbroughtalostprofitclaim.

Initslengthyaccountoftherelevantbackgroundfacts,thecourtnotedthatthechainofeventsmaterialtothedisputeoverthe2004RFPactuallyaroseduringaprior2002RFPprocessforthesameservices.Aswiththe2004process,RLRSwastheincumbentserviceproviderduringthe2002RFPprocess.AfterRLRSwonthecontractawardresultingfromthe2002process,thegovernmentdiscoveredirregularitiesrelatingtotheconflictofinterestofoneofitsemployeeswhohadattendedaboatcruisewithanRLRSofficial. The government also discovered that the 2002 evaluation process was flawed due to anunreasonablycompressedpostingperiodthatundulyfavouredtheincumbent,aswellasbytheuseofvaguethresholdevaluationcriteriaandflawedscoringformulasthatresulted inthedisqualificationofallbiddersexcepttheincumbent.Thegovernmentdecidedtoterminatethe2002contractearly,whichresultedinthe2004RFPprocess.

Asthecourtobserved,athirdcriticallatentdefectinthe2002process,whichcarriedovertothe2004process, was the government’s failure to accurately disclose the anticipated work volumes for thepropertymanagementservicescomponent(“PMS”)ofthecontract.PMSweretobeprovidedtothose

132013ONSC2034.


relocatedemployeeswho,insteadofsellingtheirhomes,chosetorentthemoutaftermoving.Thepriceevaluation formula in both 2002 and 2004 called for proponents to bid a percentage figure forperformingPMSbasedonanassumednumberofemployeeswhowouldrequirethatservices.However,asthecourtnoted,thepercentageofrelocatingemployeeswhooptedtorentoutratherthanselltheirhomeswasfarlowerthanwhatthegovernmentrepresentedinthe2002and2004RFPs.Thistranslatedintoasignificantunfairadvantagetotheincumbent,whowasprivytotheactuallowhistoricalnumbersforPMSandbidnoadditionalchargeforPMSwhilethecompetingbiddersbidafairmarketvaluebasedon thevolumeofwork setout in theRFPs.As the court concluded, this translated intoa$42millionpricingadvantagetotheincumbentovertheplaintiffEnvoyinthe2002RFPprocessandtoa$48millionadvantage over Envoy in the 2004 process. The court concluded that Envoy was prejudiced by themisleadingPMSvolumesand that thismisrepresentationhadunderminedthe integrityof thebiddingprocess.

Thecourtrejectedthegovernment’sassertionsthatthehiddenflawsintheprocessdidnotconstituteunfairnesssinceallofthetenderswereevaluatedconsistentlyaccordingtothetermssetoutintheRFP.Rather, the court found that the duty of fairness extends beyond the narrow scope of determiningwhethertheevaluationwasconducted inaccordancewiththetermsof theRFPandalso includesthedutytoaccuratelydiscloserelevantperformanceandevaluationconsiderationsuponwhichthebidswillbeevaluated.

ThecourtdeterminedthatEnvoywouldhavewonthetwo2004contractawardshadRLRS’szeroPMScosttenderbeendisqualifiedasnon-compliant.ItconcludedthatEnvoywasentitledtolostprofitsforthe2004contracts,aswellasto50percentofitslostprofitsforthelostextensionperiodsunderthosecontracts.ThecourtawardedEnvoyover$30millioninlostprofits.

Initssubsequentfollow-upjudgmentinMay2013,thecourtincreasedthelostprofitdamagesawardbyapproximately$1millionbasedonrevisedlostprofitcalculations.Italsoawardedover$3millioninpre-judgment interest, as well as legal costs at the full indemnity scale (rather than at a lower partialcompensationscale)whichamountedtoalmost$4.8million.Asthecourtnoted,awardinglegalcostsatthe full indemnity scale is reserved for extreme situations of defendantmisconduct. The court foundthat the government’s conduct in the procurement process and subsequent legal proceedingswarrantedthishigherawardoflegalcostsinfavouroftheplaintiff.

Asthiscaseillustrates,perpetuatingapreviouslyunfairRFPprocessbyusinghiddenfactorsthatunfairlyfavouranincumbentisabreachofapurchasingentity’sdutyoffairnessandcangiverisetosignificantlegalexposurewhencompetingbidderslaunchlegalchallenges.Furthermore,engagingininappropriateconducttoconcealthoseimproprietiesduringtheresultinglitigationonlyservestofurtherunderminethecredibilityofthepurchasingentitybeforethecourtandcompoundlegalliabilities.Inthisinstance,the total damages awarded amounted to almost $40 million, rendering a significant blow to thetaxpayer,andtotaxpayerconfidenceinthegovernment’sprocurementprocesses.

Inafollow-upauditinitsSpring2014report,14theAuditorGeneralofCanadareviewedthesubsequent2009 procurement process conducted by the federal government after the contract awarded in the

14AuditorGeneralofCanada,2014SpringReportoftheAuditorGeneralofCanada,Chapter2:ProcuringRelocationServices,availableonlineathttp://www.oag-bvg.gc.ca/internet/English/parl_oag_201405_e_39319.html.


above-noteddisputewaseventuallyretendered.Bythatpoint,theexistingcontract,andbyextensionthe incumbent, had grown to such a size that there were no viable Canadian suppliers available tocompeteagainst the incumbent. Inotherwords, through itsunfairprocurementpractices, the federalgovernment had succeeded in incubating a de facto state-sponsoredmonopoly for federal relocationservices.While,astheAuditorGeneralnoted,governmentofficialswereawareofa lackofcompetingdomesticsuppliers,theystillchosetoproceedwiththesingleCanada-widecontractratherthansplittingthecontracttoencouragedomesticcompetition.Thegovernmentrationalizedthisapproachbasedonoperational needs and by arguing that a single large contract could attract international suppliers tocompeteagainsttheincumbent.

However,astheSpring2014AuditorGeneral’sreportultimatelyconcluded,whilegovernmentofficialstooksomestepstoattempttoremovebarrierstocompetition,thosestepswerereactive,werelimitedbythetimeconstraints imposedbybeingbehindschedule,andultimatelyfailedtofacilitateaccessorencourage competition. The 2009 RFP received no responses other than from the incumbent serviceprovider.Asthiscase illustrates,whileprocurementrulesmayprohibit theuseofcontractsplittingatthe small endof the contract value spectrum, at theother endof the spectrum, the failure to guardagainst undue contract aggregation through strategic contract splitting can also undermine opencompetitioninthemarketplacebyincubatingunfairdefactomonopolies.

Thepracticeof perpetuatingunfair incumbent advantagehasnotbeen limited in recent years to thefederal relocation services file. Byway of another recent example, in its April 2014 determination inAlcoholCountermeasureSystemsCorp.v.RoyalCanadianMountedPolice,15theCanadianInternationalTrade Tribunal found that the Royal CanadianMounted Police (“RCMP”) breached its open and faircompetition duties under the trade treaties when it failed to provide historical volume usageinformation to competing bidders and created an unfair advantage for the incumbent supplier. Thedispute involved a Request for StandingOffer issued by the RCMP for the supply of ethyl alcohol todetachmentsacrossCanada.Thecomplainantchallengedtheprocess,allegingthatthepricingstructureunfairlyfavouredtheincumbentbyrequiringbidderstoincludefreightchargesintheirfinancialofferswithoutspecifyingthelocationandvolumeofrequiredshipments.

TheRCMParguedthatbidderswereonalevelplayingfieldindeterminingthecostoftheshippingsincethelocationandquantitieswereequallyunknowntoallbiddersatthetimeofbidding.TheTribunaldidnotaccepttheRCMP’sposition,since,asthecomplainantmaintained,historicalusageinformationwasmaterial to predicting future usage across the various RCMP detachments, particularly since thatinformation would indicate which RCMP detachments had already started migrating to new dry gasstandardsforethylalcohol.WhiletheTribunalacknowledgedthatallpotentialsuppliershavetoassumeanelementofriskwhenpreparingbids,theprocuringentityisunderatradetreatydutytodisclosethematerial contract information overwhich it has control. In this case, the historical usage informationwithheld by the RCMP would have assisted bidders in making projections on future use and moreaccuratelycalculatingthecostofshippingtherequiredgoods.Thefailuretoprovidethisinformationtocompetingbiddersgavetheincumbent,whowasprivytothisinformation,anunfairadvantagecontraryto the trade treaties. As a remedy, the Tribunal ordered that the contract awarded pursuant to theunfair tendering process be cancelled and retendered with the required information provided to allprospectivebidders.

15CITTFileNo.PR-2013-041.


More recently, in its April 2015 ruling in Rapiscan Systems Inc. v. Canada (Attorney General),16 theFederalCourtofAppealuphelda February2014FederalCourt trial decision that set asidea contractawardedbytheCanadianAirTransportSecurityAuthority(“CATSA”)afterfindingthatthecontractwasunlawfully awarded to an entrenched incumbent pursuant to an unfair bidding process. The disputearoseovertheprocurementofairportsecurityscreeningequipment.Thecontractwasawardedtotheincumbent equipment provider, Smiths Detection Montreal Inc. A competing supplier of securityscreening equipment, Rapiscan Systems Inc., brought the legal challenge after submitting anunsuccessfulbid.RapiscanallegedthattheprocesswasunfairlybiasedinfavourofSmithsafterCATSAhad previously awarded Smiths sole-source contracts for the provision of similar equipment and hadreliedonhiddenevaluationcriteria.

As the FederalCourtnoted, since its creation in2002,CATSAhadpurchased its screeningequipmentexclusively fromSmiths.WhileCATSAwas criticizedby theAuditorGeneralofCanada inaDecember2006 report for its sole-sourcingpractices, thecourtobserved that in2009,afterconducting informalinternalcomparisonsoftheSmithsandRapiscansecurityscreeningequipment,CATSAawardedanothersole-source contract to Smiths. As the court explained, CATSA officials preferred the new Smithsequipmentsinceitwasabletogeneratebaggageimagesor“views”fromfourdifferentvantagepoints.AccordingtoCATSAofficials,themultipleviewcapturefunctionhelpedexpeditethescreeningprocessforsecuritystaff.TheRapiscanequipment,whileconsiderablylessexpensive,wasonlyabletocaptureviews from two different perspectives. These technical considerations were relied on by CATSAmanagementtoobtainboardapprovalforthe$30millionsole-sourceawardtoSmithsin2009.Underthatcontract,CATSAreplacedthesingleviewequipmentthathadpreviouslybeenprovidedbySmithsthroughapriorsole-sourcedcontract.

In July 2010, CATSA prepared a new plan to competitively procure additional security screeningequipmentatanestimatedcostof$40.5millionandwenttomarketinAugust2010withasolicitationdocumentthatitreferredtoasaRequestforSubmissions(“RFS”).ByOctober2010,CATSAofficialshadsought approval from the board to award a new contract to Smiths. According to the briefing noteprovided to theboard, Smithshadbeen selectedpursuant toaprocess thatwasdesigned to “obtaincompetitiveness,openness,fairness,transparencyandvalueformoney”andtheSmithsequipmenthad“rated highest in each category” of evaluation. The briefing note also indicated that the Rapiscanequipment had not met the requirement of being able to generate at least three views of scannedbaggage. In response to questions by the board, CATSA’s CEO provided assurances that Smith’sequipment “meet the needs required now” and was “the highest performing technology that existstodaywiththemostpotentialforimprovement.”TheboardapprovedtheawardofafiveyearstandingoffertoSmiths,withanoptiontoextendforuptofiveadditionalyears.

Rapiscan brought a legal challenge against this contract award, seeking a court declaration that theaward decision was unlawful and unfair and seeking that the court direct CATSA to conduct a newprocurementprocessthatcompliedwithCATSA’sstatutoryobligationsandcontractingprocedures.ThefactthatCATSA'smanagementhadrunanarbitraryprocessthat lackedthesubstantiveelementsofagenuinecompetition,andhadthenmisledtheboardintobelievingthattheywereawardingacontractbased on an open and fair competition, tipped the scales towards judicial intervention in order toprotecttheintegrityoftheprocurementprocess.

162015FCA96.


CATSAappealedthedecisionbutlostthatappeal.WhiletheFederalCourtofAppealreversedsomeoftheFederalCourt’sfindings,includingthetrialcourt’sfindingofbadfaithonthepartofCATSA,itsApril2015 ruling ultimately upheld the trial court’s decision to strike down the contract award to theincumbent due to the unfair tendering process based on hidden technical specifications that werebiasedinfavouroftheincumbent.

The failure to engage in proper procurement planning and anticipate the adverse impact of supplierconcentration in government contract awards is neither new nor isolated to the Canadian federalsphere. In fact, similar concernsover the creationof state-sponsoredde factomonopolieshavebeenthecauseofotherpastlitigationinareasincludingpilotboatservicesandbustransportationservices.

Forexample,itsJanuary1995decisioninNortheastMarineServicesLtd.v.AtlanticPilotageAuthority,17the Federal Court of Appeal found that the purchasing entity was entitled to reject a bidder due toconcernsoverconflictofinterestandthepotentialcreationofamonopoly.ThecaseinvolvedatendercallissuedbytheAtlanticPilotageAuthorityforpilotboatservicesfortheStraitofCanso.TheAuthoritywas concerned that it would potentially create a conflict of interest and monopoly situation if itawarded the contract to the plaintiff. The Court of Appeal found that the Authority’s concernswerevalid reasons to reject the tender and that the bidder should have disclosed any actual or potentialmonopoly in its tender.While thecasewasultimatelydecided in favourof thepurchasing institution,thelitigationcouldhavebeenavoidedwithamoremeasuredandproactiveapproachtotheallocationofgovernmentcontractawardsacrossasupplierbasetoavoidsituationswhereasinglebiddingprocesscancreateadefactomonopoly.

Bywayofamorerecent internationalexample, in itsDecember2012decision inBaylineGroupLtdv.Secretary of Education,18 the High Court of New Zealand rejected a bid challenge for lack of publicinterestafterfindingthatthegovernment’slowbidbypasswasmadeforvalidcommercialreasons.Thecase dealt with a tender call for school bus services. The plaintiff low bidder was rejected after thegovernment determined that the competing incumbent bidder could abandon the marketplace andundermine future competition if it was denied the contract award. The low bidder launched a legalchallenge,claimingthatithadbeentreatedunfairlyandmaintainingthatifthepublishedcriteriawerefollowed theywould have been successful. The court ultimately concluded that the government hadbypassed the lowbidder forvalid reasonswithaview to sustaining futuremarket competition foranupcoming nationally tendered contract by keeping “more players in themarket.” The legal challengewasthereforerejected.However,asthiscaseillustrates,publicbodiesremainsubjecttoreviewbythecourts for their tenderingdecisions and should therefore ensure that the factors they rely on canbejustifiedonfairnessgroundsincaseoflegalchallenge.Aswiththepriordecision,proactiveplanninginanticipationof creatingde facto state-sponsoredmonopolies isa farbetteralternative toengaging inextrememeasures to deny a bidder a contract award aftermarket conditions have been allowed todevolveintonearmonopolies.

C.DrivingOutSmallOperators:TheOntarioSchoolBusStudy

While the prior section considered examples involving the unfair entrenchment of large incumbentsuppliers, the Ontario student transportation services case study provides an example involving the

17[1995]F.C.J.No.99,[1995]2F.C.132(Fed.C.A.).18[2007]NZHC2063;[2007]NZAR747.


disruptionofsmalllocalincumbentsuppliers.InitsApril2013decisioninF.L.RavinLtd.v.SouthwesternOntario Student Transportation Services,19 theOntario Superior Court of Justice granted an injunctionagainstSouthwesternOntarioStudentTransportationServices(“STS”).ThedisputearoseoverthethirdandfinalRFPissuedbySTSforschoolbustransportationservicesinsouth-westernOntario.Themotionfortheinjunctionwasbroughtbytwoschoolbusoperators,RavinandBadder,whohadformanyyearsprovidedschoolbustransportationservicestoschoolboardsoperatingwithinSTS’sscopeofoperation.STShasassumedresponsibilityforconductingcompetitivebiddingprocessesforschoolbusservicesonbehalfofanumberofschoolboards.TheRFPsinquestionwerepartofabroaderprovinciallymandatedprocess requiring schoolboards toconductopencompetitivebiddingprocesses forbus services sinceprovince-widespendingontheseservicestotalled$1billionannually.

As thecourtnoted, thisnewprovinciallysponsoredopentenderingprogramattractedagreatdealofcriticismfromlocalbusoperatorswhofearedbeingrunoutofbusinessbylargeroperators:

From the beginning of the new process, concerns were expressed from various quartersincluding small bus lines, Chambers of Commerce and others as to the ability of small buslinesthathadhistoricallyprovidedbusservicetostudentsinprimarilyruralareastocompeteunderthenewsystem.InDecember2008,thethenMinisterofEducation,KathleenWynne,senta letter to theconcernedparties,expressingbothanacknowledgmentof theconcernsandacommitmenttoinstituteaprocessthatwouldbefairtoall.(para.11)

However, as the court observed, notwithstanding escalating concerns from small operators over theprovince-wide implementationof thenewcompetitivebiddingprocesses,STS retainedtheservicesofPPI Consulting and proceeded to fast-track its implementation of open tenderingwell aheadofmostother school boards across the province. After being underbid, the plaintiffs questionedwhether STShad properly taken into account the safety concerns initially raised by the Ministry and its externaladvisors:

In the fallof2010, theDeloitteaccounting firmwas retainedby theMinistry tocarryoutareviewof STSandmake recommendationswith respect to the competitiveprocurementofstudent transportation services. Deloitte recommended, among other things, a focus ondetermining local market conditions and advised that in procuring appropriate and safestudent bus services, price should not be the primary factor in entering into contracts fortheseservices.AfterhiringPPIConsultingservicestoprepareanRFP,STSissueditsfirstRFPon January 11, 2011. It is the position of the plaintiffs that this first RFP did not take intoaccountlocalexperienceorconditions.

InMarch2011,theresultsoftheRFPwereannounced.RavinlostasignificantnumberofitsbusroutesasdidanumberofotherlargercompanieswhohadbeenprovidingservicetothecatchmentareaservedbySTS.ItisnotindisputethatthewinningbidsacceptedbySTSwerefor rates approximately 20%belowwhat theDeloitte study for theMinistryhad set as theminimumamountforwhichoperatorscouldprovidesafeandreliableserviceonanongoingbasis.(paras.15-16)

The controversy over safety concerns and over the potentially detrimental impact of large-scale

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tenderingonsmalllocallybasedsuppliersledtheprovincialgovernmenttoannounceasix-monthpre-electionmoratoriumoncompetitivebiddingofschoolbusservices:

TheexperienceofbuscompaniesintheareaservedbySTSwasnotunique.OnJune23,2011,then Minister of Education Dombrowsky announced a six-month moratorium on theprocurement practices and established a Task Force to review the experiences to date ofcompetitive procurement processes, expressing the view that such a review "would bebeneficial to all parties." The management of STS did not welcome this announcement,referring to it during a management meeting as a "curveball", possibly because it mightinterferewiththesuccessfulcompletionof itsfive-yearplantowhichSTShadcommittedinSeptember2010.(para.17)

Asthecourtnoted,oncethemoratoriumwaslifted,STSproceededwithasecondandthenathirdRFP.Theplaintiffslaunchedtheirlast-minuteinjunctionchallengeinafinalattempttostoptheevaluationofthethirdsetofproposals.

In determiningwhether to grant an injunction, the courtheld that the plaintiffs had established thatthere was a serious issue to be tried, particularly since a similar tendering process for school bustransportation services in another part of the province was already the subject of concurrent legalproceedings. The court also determined that the plaintiffs had established that they could sufferirreparableharmifthetenderingprocesswaspermittedtoproceed:

Theplaintiffsarguethatthemanner inwhichthecurrentRFP isstructuredpre-ordainsthattheywillbeunsuccessfuleitherinobtainingroutesorobtainingroutesthatareeconomicallyviable.Ineitherresult,theywillsufferfinancialruin,impactingnotonlyontheirlivelihoodbuton that of their employees as well. The affidavits ofMs. Ravin andMr. Badder set out insignificantdetailtheresultsofthe2011RFP.Giventhatthe2013RFPisstructuredinasimilarwaytothe2011RFP, theplaintiffsarguethat theresultof thecurrentRFP ispre-ordained.Thedisastrous results aremore than speculative. InRJRMacDonald, the SupremeCourt ofCanada recognized that loss ofmarket share can result in irreparable harm. The future ofsmall ruralbus linesand themanner inwhich theyare tied to their individual communitieshas been recognized by Deloitte, the Ministry as well as The Honourable Mr. Osborne incommentsinhisTaskForceReport.(para.42)

After determining that the situation met the necessary elements of the injunction test, the courtgranted the plaintiff’smotion and ordered STS to cease its tendering process until, atminimum, theconclusion of the parallel legal proceedings that were initiated against a similar process in anotherregionoftheprovince.Asthiscaseillustrates,whileinstanceswherethecourtswillgrantaninjunctiontostopatenderingprocessarerare,theyarenotunprecedented.Furthermore,whensuccessful,suchinjunctionscanhaveasignificantimpactongovernmentoperations.Inthiscase,theinjunctionhadtheimpactofeffectively suspendingcompetitivebidding for schoolbus transportationservicesacross theentireprovinceofOntario.

In the aftermath of the court injunction, which saw the escalation of a number of parallel legalproceedingsandwidespreadcriticismfromsmaller localschoolbusserviceprovidersacrossOntario,aStudent TransportationReviewTeamconsistingof TheHon. Colin L. Campbell (Chair), Paul Emanuelli


and Leo Gotlieb was appointed by The Hon. Liz Sandals, Minister of Education for the Province ofOntario, in the fall of2014,with themandate to reviewcompetitiveprocurementpractices in recentstudent transportation services RFPs. The resulting Student Transportation Competitive ProcurementReviewReport20identifiedproblemswitha“one-size-fits-all”approachtoscopinggovernmentcontractsandfoundthatthisapproachhadanadverseimpactonsmallerlocalsuppliers:

FINDINGSANDOBSERVATIONS

TheProblemwithGeneralizations

Ontarioisageographicallylargeanddiverseprovince.Theseattributes,amongothers,impactonmanygovernmentservicesatthepresenttimebutareparticularlyimportantwithrespecttoschooltransportation.

In thenorthof theprovince, includingbotheast andwest, thedistances are large and thepopulations often small and diminishing, as well as scattered. Poor driving weather,particularlyinwinter,isaveryimportantfactorinthedeliveryofschoolbusservices.

Themiddle sectionof the provincehas its ownunique features andpopulations. From thewindyshoresofLakeHuronthroughtoBarrieandontotheOttawaValley,thereareavarietyofrural,suburbanandurbanlandscapes,eachwithadistinctpopulationandneeds.

The Greater Toronto Area (GTA) has the urban crowding that brings its own specificchallengestoschoolbusing.

The north and center of the Province have been served by a large number of small andmedium-sizedoperators,ofwhichmanyhavebeenfamily-runbusinessesforgenerations.

The GTA and other major urban areas tend to be served by large, often multinationalcompanieswithlargefleets,someintothemanyhundredsofbuses.

Thecommentweheard frommanysources,which isoneof theconclusionsofour review,willnotbenewstoanyonefamiliarwithstudenttransportation,namelyONESIZEDOESNOTFITALL.

In the days before the consortia were developed and after school busing was largelyoutsourced, those in charge of transportation (or local boards) dealt with a variety ofoperatorswhom they knewand could count on. Contractswerenegotiatedoftenbetweentheoperatorsasagroupandaboard,basedonaconsensusreachedlocally.

As many of these contracts were not established through open competition, they did notcomplywiththerequirementsintroducedbytheAITandsubsequentlytheBPSPD.

Thechallengefortheindustry,forwhichwehopethefollowingrecommendationsmayassist,is to assure a competitive framework in a viable marketplace compliant with all statutoryrequirementsanddirections.(pp.3-4)

AstheReviewTeamreportnoted,thestrongestoppositiontoopencompetitiveprocurementpractices20TheHon.C.LCampbell,Q.C.,P.Emanuelli,L.Gotlieb,StudentTransportationCompetitiveProcurementReviewReport,availableonlineathttp://www.osba.on.ca/files/Student_Transportation_Competitive_Procurement_Review_Report.pdf.


camefromsmallerlocaloperatorswhowereinmanycasesmostimpactedfromtheseopentenderingpractices:

UnintendedConsequences

Thestrongestvoice inopposition towhat they regardas thedisruptioncreatedby theRFPmodelcomesfromthesmalloperatorsandtheirassociation.

Wehavereceiveddetaileddescriptionsfromaverylargenumberoftheseoperators,whosefamilies have been in the school bus business often for two or more generations, of theproblemstheyhavefacedsinceintroductionofRFPs.

ManyofthoserespondingcomplainedthattheRFPprocesshasputthematadisadvantageintermsofbothassetsat riskand lackof resources, such thatmanyof the family-ownedbusoperationshaveceased,eitherbecausetheyhavebeenforcedtosellduetolossofroutesorbecausetheydidnothavetheassetstocompeteatapricethatwouldbeabovetheircost.

We think it safe to sayandas theOsborneTaskForceconcluded, schoolbusing is to someextentan“artificialmarket” in that there isonlyonebuyer– theboardorconsortia–withmany sellers of service. The intention of the competitive solicitation process should be toenhance,notinhibit,competition,asistheriskasthenumbersofoperatorsdecreases.

Unlikethesupplyofothergoodsorservicestoaconsortiumforschooltransportation,manysellers(thesmalloperators)haveonlyonemarketinwhichtosell.Theyareunabletobidorshift their operations to another region if unsuccessful in their home region. Most wereunpreparedforthelossofasubstantialportionorthetotalityoftheirbusiness.

SmallOperators

There aremany voices amongwhatmay be regarded as small operators. There is no easydefinition of what might be regarded as a small operator. In some regions this will beoperatorswithfewerthan10buses,andinotherregionsthosewithfewerthan50buses.

Competitive procurement changes the way in which these operators conduct business, inmanycasesinwaysforwhichtheywerenotorstillarenotpreparedfor.

Of those who were used to dealing with school board officials directly with very simplenegotiated contracts,manywere unprepared to completewhat they regarded as dauntingandoverwhelmingRFPprocesses(upwardof100pages),evenwiththelimitedassistanceandtrainingavailabletothem.

Severalofthoseassociatedwithconsortiarecognizedthatinanumberofcases,lackofabilitytocompleteacomplexRFP–ratherthannegotiatingprice–ledtolossofbusinessformanysmalloperations.EachofthemembersoftheReviewTeamconcludedthatmanyRFPswereconfusingandvague.

ManyoperatorsassertthattheRFPprocessdoesnotadequatelytake intoaccount, ifatall,theirlocalservicetothecommunityaboveandbeyondthetransportationofstudentstoandfromschool.

Areviewofthemanyoperators’submissionshighlightstheconcernofdistinguishingbetweenthoselegitimateelementsoflocalservice(suchasprovidingback-upforotheroperators)that


may be part of the competitive environment, and those that, while admirable from theviewpointofcommunitysupport,donotformpartofacompetitivecontractingprocess.

Time and again small operators and even their association urged that this Review Teamrecommendapolicyexemptionforschoolbusing,urgingthatsuchanexemptioncouldfindauthorizationinbothintheAITandintheBPSPD.

Earlyoninourdeliberations,weconcludedthatapolicyexemptionfortheentireschoolbussectorwouldnotachievethepurposesoftheBPSPDandwouldpromoteneithercompetitionnortransparencyinthissectorthatcostsOntariotaxpayers$1billionperyear.

Werecognizethat inmanyofthemoreremoteandruralareasoftheprovince,consistencyandavailabilityofservicearenecessaryincircumstancesquitedifferentthanintheurbanizedsouthernportionsoftheprovince.Opencompetitionmaynotberealisticinsomeruralareas.

Therearesmalloperatorsotherthanthoselocatedinruralareas,andinourviewconsortiawillhave tobemindfulof theeffectsonoverall competition should the smalloperatorsbeeliminatedfromtheirmarketsasaresultofaninflexibleRFPprocess.Theideaofcompetitiveprocurementshouldbetoenhance,notdeter,competition.

Competitiveprocurementof schoolbus transportation service isnotonly complexgiven itsinherent need for flexibility, it is quite different from the purchase of other assets in acompetitiveprocess.

Whenasupplierbidsforthesaleofaparticularpieceofequipmenttoagovernmententity,inmost instances that supplier will find other markets in which to participate if it is notsuccessfulinitstender.

Many school bus operators are only equipped to participate in their local area. If they areunsuccessful ina tenderprocess, theirassetsmaywellbestranded.This iswhymanysmalloperators have not been able to continue and have been forced to sell their assets orbusinessesatdistressedvalues.(pp.4-6)

TheReviewTeamreportmadeaseriesofrecommendationsrelevanttosmalleroperators,recognizingtheneedtomaintainasustainable,competitivebaseofsuppliers for futuregovernmentprocurementprocessesbyimplementingmeasureincluding:

• allowingjointventurebidsfromsmallersuppliers

• avoiding the aggregation or bundling of routes in amanner that excludes smaller suppliers frombiddingonthosebusroutes

• eliminatinganyarbitraryapplicationofaveragefleetagerequirementsthatwerenotconnectedtosafetystandards

• staggeringcompetitionsacrossdifferentyearssothatnotallrouteswereputtotenderatthesametimesincesuchaggregationhasthepotentialtofavourlargersuppliersandplacesmallerincumbentsuppliersincatastrophiclosssituationsiftheyloseasingletenderingprocess


• avoiding blanket prohibitions against contract assignment and, provided that serviced deliverycontinuity was maintained, allowing smaller suppliers to sell their businesses or transfer somecontractualobligationswithoutunnecessaryrestrictions

• aligningcontractdurationtotheageoftheassetstominimizestrandedunusedschoolbusesattheendofacontractterm

• avoidingunbalancedcontractualprovisionsthatputunduehardshiponsmallersuppliers,includingunilateral termination and contract amendment rights, and commercially unreasonable overheadobligations such as “deadhead” provisions that did not allow contractors to charge for distancestravelledtoandfromthestartingpointandendingpointofaparticularbusroute

• providingcostoflivingadjustmentstorecognizetheincreaseinsmallsupplieroperatingcostsandavoiding evaluation strategies that put pressure on operators to drive down supplier wages tounsustainablelevels

• phasinginmarketcapstolimitthenumberandsizeofcontractawardsthatwenttolargesuppliersortoanysinglesupplier,asameansofpromotinglong-termcompetitionthroughtheallocationofcontractawardstoablendofsmall,mediumandlargefirms.

• streamliningandstandardizingproceduresandcriteriaforestablishingbasicqualificationsthroughcentralized processes that reduced duplication by eliminating the need to re-qualify for eachcontractassignment

• limitingmandatorypre-bidmeetingstoonlythoseprojectswhere itwasessential tohavebiddersconduct inspections inorder tounderstandthescopeofwork,andotherwiseusing technology toconductremotepre-bidmeetingswhererequired

• in cases where overhead costs (such as fuel for bus transportation) would otherwise form adisproportionateamountof the total contract, excluding thoseoverhead costs from thebidpriceand treating them as pass-through costs instead, since smaller suppliers are disproportionatelyimpactedbyhighoverheadcosts

• avoidingunnecessarily lengthy and complex solicitationdocuments andprocesses,which act as adisproportionatebarriertoentrytosmallersuppliers

• developingtrainingprogramsforsmallsupplierstofamiliarizethemwithgovernmentprocurementprocessandwiththespecificrequirementsoftheirspecializedareas

• establishingindustrycommitteestogivevoicetosmallersuppliersinareasrequiringahighvolumeofgoodsandservicesbythegovernment,andestablishingaparalleldisputeresolutionprocessestoaddresssystemicissuesinthegovernmentprocurementprocess

While the Review Team’s specific recommendations were aimed at the school bus transportationservices sector in Ontario, many of those recommendations are worthy of broader application as ameans of addressing ongoing systemic barriers to small suppliers in the government procurement


systemand,asdiscussedbelow,thoserecommendedmeasurescouldbeimplementedinacoordinatedmannerthroughthestrategicuseofframeworkagreements.

4.BuildingaBetterFrameworkforFairandOpenCompetitionAs recent government procurement audit reviews have shown, there remains a great untappedpotential to consolidate the large volume of small-scale government expenditures that are oftenconductedthroughthedepartment-specificuseofpurchasingcards,orotherwisethroughfragmentedpurchasing, into a more cohesive and organized government procurement system. Through theproactive and strategic developmentof suchopen framework arrangements, public institutions couldaddress an area of widespread inefficiency and waste while also enabling further participation bysmallersupplierswithinthegovernmentprocurementcycle.

Theuntappedpotentialatthelow-dollarvaluebaseofthegovernmentprocurementsystemisawidelyrecognized public policy issue. By way of recent example, in its March 2012 report entitled TheGovernment Procurement Card,21 the UK Comptroller and Auditor General noted that while thegovernmentprocurementcardwasintroducedin1997asaconvenientandcost‑effectivewaytomakelow‑valuepurchasestheuseofprocurementcardshassince“comeunderincreasedpublicandpoliticalscrutiny, followingpressarticleshighlightingapparentmisuseofthecardsandthatsuch“misuserisksfinancial loss and reputational damage fordepartments.” The report found that each centraldepartment set itsownpolicies and controlsover theuseof approximately24,000 cardsusedacrosscentral departments and that “Central data is incomplete and inconsistent, and does not provide anaccuratepictureofGovernmentProcurementCardspendingacrossgovernment”.

In isMarch2013 report onPolice Procurement,22 theUKComptroller andAuditorGeneral also foundthathalf-measureswereimpedingthepropercentralizationofgovernmentprocurement,notingthat43policeforcesinEnglandandWalesprocureawidevarietyofgoodsandservicesrangingfrom“uniformandpolice cars to estate and facilitiesmanagement services.” The report noted that the governmentwasseekingtoaddressthesignificantduplicationandinefficiencyacrossthe43policedepartmentandwanted toend the“cultureofpolice forcesprocuringgoodsandservices inup to43differentways.”Thereportalsoobservedthat“sevenforcesreportedinoursurveythattheydidnothavesufficientstaffandresourcestoundertakeprocurementactivityeffectively”and,withrespecttoduplication,“foundaminimumofnine separate specifications foreachof five common itemsofequipmentusedbypoliceofficers.” The type of duplication noted in the report underscored the impact of poorly planned,decentralized procurement practices in areas of common expenditure, which puts undue burden ongovernmentadministrationandonthesupplierswhomustcompetetoprovidecontractsintheseareas.

Many institutions have attempted to address these issues through the implementation of frameworkagreements,ormulti-uselistsastheyarereferredtoinAustralia.However,asrecentauditreportshaveshown, the use of frameworksmust be carefullymanaged to complywith government procurementstandards. For example, in its June 2014 report on the Establishment and Use of Multi-Use Lists,2321NationalAuditOffice(UK),TheGovernmentProcurementCard,HC1828,Session2010-12(March20,2012),availableonline:https://www.nao.org.uk/wp-content/uploads/2012/03/10121828.pdf.22NationalAuditOffice(UK),PoliceProcurement,HC1048,Session2012-13(March26,2013),https://www.nao.org.uk/wp-content/uploads/2013/03/10092-001-Police-procurement.pdf.23AuditorGeneral(Australia),EstablishmentandUseofMulti-useLists,AuditReportNo.54(2013-14),availableonlineathttps://www.anao.gov.au/sites/g/files/net616/f/AuditReport_2013-2014_54.pdf


Australia’sAuditorGeneral reviewedtheuseofstandingagreementarrangementsacrossgovernmentagencies.Australia’sAuditorGeneral found that “thearrangements applying toMULsarenot sowellunderstoodand,inmostcases,greaterconsiderationneedstobegiventowhetheraMULismostsuitedto an agency’s particular procurement objectives.” The report noted that common areas of non-compliancewithapplicableprocurementrules included instanceswhereagenciesapproachedtoofewsuppliers forcontractawardcompetitions, failedtoprovidesufficienttimeforsupplierstorespondtorequests, or failed to treat suppliers consistently. This resulted in a failure tomeet the government’sobligationsrelatingtoopenandfaircompetitionandvalueformoney.

Similarly, in its May 2014 report entitled A Review of Collaborative Procurement Across the PublicSector,24 the UK National Audit Office and Audit Commission reviewed the use of collaborativepurchasingacrossgovernmentandfoundroomfor improvement.Thereportnoteddeficiencies intheuse of these standing framework arrangements, finding a widespread failure to implement soundcategory management practices in key areas of procurement which was caused by a lack ofprocurement management information, a lack of understanding of end‑user requirements, a lack ofknowledgeofcollaborativepurchasingoptions,anda lackofdocumentedinformationaboutthecostsand benefits of the various procurement options. The report also notes that with respect tocollaborative purchasing, the “public sector procurement landscape is fragmented, with no overallgovernance. Therearenearly50professionalbuyingorganisations, aswell as individualpublicbodiesrunning commercial and procurement functions. Many of these organisations manage frameworkagreements for similar goods and services, for example, stationery.” In sum, the report found thatgovernment bodies were notmaximizing their group purchasing potential and needed to coordinatetheir effortsmore effectively in order to better achieve value formoney for the taxpayer. As notedabove,thislackofcoordinationhasanadverseimpactongovernmentsupplierswhomustcompeteforsmall government assignments by qualifying ontomultiple framework arrangements to sell the samething to different public institutions. While large suppliers may be in a better position to bear thisadministrationoverhead,thistypeofproceduralduplicationputsmanycontractopportunitiesoutsideofthepracticalreachofsmallersupplierswhoarenotabletobearthesametransactionaloverhead.

Infact,initsJune2015decisioninMedicureLtdv.TheMinisterfortheCabinetOffice,25theEnglandandWales High Court of Justice (Technology and Construction Court) considered a claim by a long-termgovernment supplierwhowas being cut out of a new framework arrangement (“FA”) that had beenscopedbeyondthesupplier’sreach.ThedisputedealtwiththeuseofanewFAforhealthservices.ThecomplainantwasinthebusinessofprovidingdoctorstohealthauthoritiesbutitwasunabletoprovidetheadditionalmanagedservicesrequiredunderthenewFA.ThecomplainantallegedthatthescopeofthenewFAonlycoveredthesupplyofmanagedservicesratherthanthedirectprovisionofdoctors.Itchallengedthegovernment’sdirectacquisitionofdoctor’sservicesasfallingoutsidetheproperscopeoftheFA.InreviewingtheFAcontractterms,thecourtnotedthattheagreementwasunnecessarilylongandcomplex,whichundoubtedlycontributedtotheconfusionoveritsproperscope:

IhavebeenthroughtheFA,whichrunstoover500pages.Iquestionthewisdomofcontractsofthislength:nobodyeverreadsthedetailuntilsomethinggoeswrong,andthenthepartiesscrabblearoundtryingtofindbitsandpiecesofthesmallprintthathelptheircase.ItwouldmakethisJudgmentevendullerthanitalreadyisifIincludedwithiniteveryclauseorsection

24NationalAuditOfficeandAuditCommission(UK),AReviewofCollaborativeProcurementAcrossPublicSector,HC1048,Session2012-12(March26,2013),https://www.nao.org.uk/wp-content/uploads/2013/03/10092-001-Police-procurement.pdf.25[2015]EWHC1854(TCC).


oftheFAtowhichIwastaken,orwhichIhaveread.AccordinglythepartiescantakeitthatIhaveconsideredallofthesectionstowhichIwasreferred,butIconfinemyselftosettingoutbelowwhatIconsidertobetheparticularlyrelevantsectionsoftheFA,inordertoexplainmyviewsinthesubsequentsectionsofthisJudgment.(para.35)

Thecourtultimatelydeterminedthatthecomplainant’sinterpretationwasincorrectsincethescopeoftheFAincludedboththedirectprovisionofdoctorsaswellasthesupplyofmanagedservices.However,the court expressed sympathy for the complainant who had been providing doctor’s services togovernmentinstitutionsforeighteenyears.Asthecourtnoted,theexpandedscopeofthenewFAputthesecontractingopportunitiesoutofreachofsmallerfirms:

Althoughitwillbecoldcomfortforthem,Ihavesomesympathywiththeclaimant'sposition.TheyhadsuccessfullysuppliedtheNHSwithlocumdoctorsfor18years.ThenewFrameworkAgreement seems to favour larger organisations (hence the scale ofmarks available underquestion E16, about historic supply) and it legitimately raised a question about themanagement of a supply chainwhich the claimantwas always going to struggle to answersatisfactorily.Allofthatappearstohavemadeitdifficultforasmallerorganisation, liketheclaimant,tocompeteforthisFA.

As this case illustrates, contract scoping decisions can be the subject of significant controversy.Purchasinginstitutionsshouldbecarefultoensurethattheyclearlydefinethescopeoftheircontractsto better ensure their defensibility against out-of-scope allegations. When scoping larger contracts,purchasing institutionsshouldalsobemindfulof the impact that thosescopingdecisionscanhaveonexistingsuppliersandonlongtermcompetitioninthemarketplace.

TheimplementationanduseofframeworkagreementswithintheCanadianandinternationalcontextsisdiscussedingreaterdetailbelow.

A.CanadianContext

ProvincialVendor-of-RecordArrangements(“VORs”)Provincial VORs establishmaster contracts for a broad range of goods and services that can then beusedbyabroadrangeofseparategovernmententitiesfordiscreteassignments.

Provincialvendor-of-record (“VOR”)arrangementswere firstestablishedbytheprovinceofOntario inthe 1990s to create multiple master framework agreements for use by the various provincialgovernmentministries.TheseVORshelpcoordinatecentralpurchasing, reduceduplicationandcreateeconomiesofscale.Manyofthemasteragreementscreatedunderthismodelhaveanexpandedscopebeyondthe“innerring”thatincludesOntariogovernmentministriesandagencies,toan“outerring”ofOntariobroaderpublicsectorMASHentities.26

26MASHistheacronymusedinCanadatodescribemunicipalities(andmunicipalentities),academicinstitutions(theuniversityandcollegesectors),schoolboardsandthehealthsectorentities.Theseinstitutionsareoftenreferredtoas“creaturesoftheprovince”sincetheyarecreatedthroughprovinciallegislation,andwhileconstitutingindependentseparatelegalentities,are


As noted above, these VOR arrangements create standing supplier rosters with common masteragreementtermsforabroadrangeofdifferentgoodsorservices.Thesearrangementscanbebroaderingeographicscopethanthosecreatedbyregionalpurchasingco-opsanddeeperinpenetrationacrossgovernmentsectorsthanthosecreatedbysector-specificgrouppurchasingorganizations.

Onceestablished,VORstypicallyrequiretheinstitutionswithinthedefinedusergrouptorunseparate,invitational,second-stageselectionprocessestoselectspecificsuppliers.Thoseassignmentsareenteredinto pursuant to separate sub-agreements between the selected supplier and selecting institution.Thesesub-agreementssupplementthemasteragreementtermswithassignment-specificdetails.

VORarrangementstendtolimitthemaximumdollarvalueofanyspecificassignmentandrunforafiniteperiodoftime,afterwhichtheVORRFPisretenderedtocreateanewrosterofdefinedsuppliers.TheVORsare centrally administeredbyprovincial government staff buteach institution is responsible forrunningitsownsecondstageprocessandadministeringitsowndiscreteassignments.Evenatthelevelofprovincialgovernmentministriesandagencies,useof themasteragreementscreatedbyProvincialVORstendstobevoluntary,exceptinafewdiscreteareasofmandatoryuseVORs.ThosecategoriesofcompulsoryusedonotextendintotheMASHsector.TheoptionalnatureoftheProvincialVORs,alongwiththesecondstageprocessthatrequiresandcreatesmultiplecontractawardswithineachcategory,tends to dilute the economies of scale that could otherwise be obtained under province-widemulti-sectorarrangements.

Inthemid-2000stheprovinceofOntarioalsoestablishedOntarioBuys,aseparateadministrativeoffice,(originally overseen by the Ministry of Finance and now overseen by the Ministry of GovernmentServices), to establish sector-specific VORs for MASH sector entities. While the previously discussedSector GPOs tend to be non-profit corporations created and owned by group purchasing memberswithinaspecificsector,Ontario’sprovincialinitiativewaslaunchedinatop-downmannerinanattempttopromotegrouppurchasingintheOntariobroaderpublicsector.

The Ontario Education Collaborate Marketplace (“OECM”) is one of the entities created under thisinitiative. As noted on its website, OECM is a relatively new non-profit corporation that promotescollaborativepurchasingforeducationsectorentitiesinOntario:

Ontario Educational CollaborativeMarketplace (OECM)was launched in 2007 as a not-for-profit, Broader Public Sector (BPS) group procurement organization to support Ontario’spubliclyfundededucationinstitutions.

ThegoalofOECMisto:

• establish a Marketplace of products and services, through collaboratively sourcedagreementsalignedwitheducationsectorbusinessneeds

• promotetheadoptionofleadingintegratedsupplychainmanagementpractices

OECM’s collaborative sourcing approach facilitates consistency and generates significantsavings,makingiteasierandlesscostlyforinstitutionstoprocuregoodsandservices.OECM

overseenandregulatedbysector-specificprovincialministries.TheirprocurementpracticesarealsotypicallyregulatedtovaryingdegreesbyprovinciallevelgovernmentsacrossthedifferentCanadianprovinces.


provides opportunities to realize both process and procurement savings, which results inmorefundsbeingavailableforcoreacademicandadministrativeactivities.

Participation inOECM’sMarketplace is voluntaryandourobjective is tobecome financiallyself-sustaining. Our operating costs are partially funded by the Ministry of GovernmentServicesSupplyChainOntarioandcostrecoveryfeesfromOECM’ssupplierpartners.

OECM is a Broader Public Sector (BPS), not-for-profit group procurement organization,offering aMarketplace of competitively-sourced and priced products and services throughcollaborativesourcingagreements.BuyingthroughourMarketplacehelpsOntario’spubliclyfunded education institutions and other publicly funded organizations deliver savings andincreaseefficiencies.Thisisourpurpose–whyweexist.

Asarelativelyyoungorganization,launchedin2007,wehavealreadyhelpedourcustomersachieve significant savings and efficiencies through OECM's Marketplace of Products andServices.27

As with provincial VOR arrangements, OECM’s VOR arrangements are centrally administered bypermanentcentralofficestaff.Inkeepingwiththoseotherarrangements,thespecificinstitutionswithinthe defined purchasing sphere are responsible for conducting their own second stage selectionprocessesandadministeringresultingassignments.LikeprovincialVORs,thereisnoformalmembershiprequiredbythesector-specificentitiesfallingwithinthepurchasinggroup,noristhereanyownershiporformal oversight or governance role played by the purchasing institutions within the sector-specificgroup.

FederalStandingOffers(“SOs”)andSupplyArrangements(“SAs”)Atthefederallevel,grouppurchasinginCanadatendstooperatewithinthefederalgovernmentsphereacross the various federal government departments with some participation by more arms-lengthfederal government entities. The scope of this group purchasing is similar to the “inner-ring” of theprovinceofOntario’sVORs(includingprovincialgovernmentministriesandcertainprovincialagencies),butthefederalgovernmentdoesnothavethesamedepthof“outer-ring”MASH-typeentitiesthatexistintheprovincialbroaderpublicsector.Thistendstolimittheinstitutionaldepthoffederalgovernmentgroup purchasing arrangements. However, given the federal government’s geographic scope andspendingvolumes,grouppurchasingatthefederal levelofferssignificantopportunitiesforeconomiesofscaleforcertaingoodsandserviceswithinthefederalgovernmentsphere.

At the federal level, central purchasing is coordinated through the Department of PublicWorks andGovernmentServicesCanada(“PWGSC”)underwhichumbrellaagreementsarecreatedunderbothSOsandSAs.AswiththeprovinceofOntario,whoseministriesandagenciesoftencreatetheirownVORsfortheirowndiscretepurposes,separatefederalgovernmentdepartmentsalsocreatetheirowndiscreteSOsandSAs.

Thefederalgovernmenthassignificantlyexpandedthecentralmandatoryuseofthesearrangementsinrecentyears.A report releasedbyCanada’sProcurementOmbudsman inMay2010entitledStudyonMethods of Supply: Standing Offers and Supply Arrangements (the “Procurement Ombudsman’s

27OECMwebsite,athttp://oecm.ca/about-us/our-history.


Report”)28 provides some useful background on SOs and SAs, explaining how the expansion of thesearrangements in recent years has been part of the federal government’s attempt to decreaseduplication,increaseefficienciesandachieveeconomiesofscale:

5.1 AccordingtotheTreasuryBoardPurchasingActivityReports, inthelast10years,thevalueof federal governmentprocurementhas increasedbyover40%,while thenumberoftransactions has decreased. The government, therefore, is managing a larger amount ofprocurementof increasingcomplexity.Thegovernmentstrivesto increase itsadministrativeefficiency,buthas tobalance thesemeasuresagainst itscommitment to fairness,opennessandtransparency inprocurement.Supplierswouldbenefitfromthegovernment’seffortstosimplify and streamline procurement practices. It is in everyone’s interest to reduce theburdenofpaperwork,timeandeffort.

5.2 There are two principal methods of supply that are used to streamline theprocurement process for specific types of goods and services. Standing offers (SOs) andsupplyarrangements(SAs)areframeworksforprocurementthataremeantto:

• reduce the cost of common goods and services used on a government-wide basisandpurchasedonarepetitivebasis;

• ensurethatprocurementprocessesaretimely;and

• attaingoodvaluefortaxpayers’dollars.

5.3 A standing offer (SO) is a continuous offer from a supplier to the government thatallowsdepartments and agencies topurchase goodsor services, as requested, through theuseofacall-upprocessincorporatingtheconditionsandpricingofthestandingoffer.SOsareintended for use where the same goods or services are needed within government on arecurringbasisandarecommerciallyavailable.

5.4 WiththeuseofSOs,suppliersthatmeettheevaluationcriteriaandselectionmethodsare pre-qualified and issued an SO. An SO is not a contractual commitment by either thegovernmentor thesupplier.Whengoodsandservicesavailable throughanSOareneeded,departments issue a call-up, the supplier’s acceptance ofwhich constitutes a contract. Thecall-up isdonerelativelyquickly.DepartmentsdonotconductacompetitivebidsolicitationforthegoodsandservicesprocuredunderanSO.

5.5 Asupplyarrangement(SA)servesapurposesimilartothatofanSO.AnSAisanon-binding arrangement between the government and a pre-qualified supplier that allowsdepartments and agencies to award contracts and solicit bids from a pool of pre-qualifiedsuppliers for specific requirements within the scope of the SA. Departments meet theirspecificneedsby issuinganothercall forbids–asubsequent,second-stagesolicitation– toone,someorallofthesuppliersontheSAlist,dependingonthedetailsintheSA.

5.6 With SOs, the terms and conditions, including price, are set as part of the biddingprocess.Butwhencalls forbidsunder theSAare issued to listed suppliers, those suppliershavetheopportunityto includechanges intheirbidstoreflectmarketchanges, innovation,

28OfficeoftheProcurementOmbudsman(Canada),Chapter5:ProcurementPracticesReview,StudeyofMethodsofSupplyandStandingOffersandSupplyArrangements(Ottawa,May2010),availableonlineathttp://opo-boa.gc.ca/documents/praapp-prorev/2009-2010/chptr-5-eng.pdf.


new technology or pricing adjustments. This is beneficial to both the supplier and thegovernment.(pp.ii-iii)

Insummary,thereportnotesthatSOsandSAsaresimilar,inthattheybothestablishmasteragreementtermssimilartotheothergrouppurchasingarrangementsdiscussedabove,witheachinstitutionwithinthepurchasinggroupenteringintoandadministeringitsowndiscretecontactsunderthearrangements.Giventhede-centralizedpurchasing,demandforthegoodorservicescannotbeknowninadvanceand,while estimates are made in good faith, there are no formal contractual commitments to purchasespecificvolumes.

The report also notes some significant distinctions between the two models. SOs tend to be forstandardizedgoodsandservicesthatareknowninadvancewithpre-establishedpricingthatconstitutesalegallybindingoffer(hence“standingoffer”)bythesuppliertoprovidetherequirementondemandtothe institution drawing down on the contract. These arrangements can be entered into with one ormore suppliers and although they are often entered into pursuant to a competitive bidding process,theyarealsoattimesdirectlyawardedtospecificsuppliersandcanencompassthatsupplier’scompletecatalogueofofferings.Incontrast,SAsareestablishedforgoodsandservicesthatarenotfullydefinableat the outset and pricing is, therefore, not completely defined under the umbrella agreement. Thesearrangementsdonotconstitutebindingcontractualcommitmentsbythesuppliers.MuchlikeprovincialVORs, SAs tend to require an invitational second stage competitive process between suppliers in theparticular supply arrangement category to finalize contract terms between suppliers and specificinstitutions.

The Procurement Ombudsman’s Report notes that there have been implementation issues with theexpansionofthefederalgovernment’sSOsandSAsarrangements:

5.8 MostSOsandSAsareputinplacebyPublicWorksandGovernmentServicesCanada(PWGSC).Thedepartmentactsasacommonserviceorganizationandthegovernment’smaincontracting arm. In 2005, the governmentmadea significant change in theuseof SOs andSAs.ItbecamemandatoryforalldepartmentstobuycertainhighvolumegoodsandservicesthroughSOsandSAsmanagedbyPWGSC.

5.9 Thegovernmentsaidthatthesemeasurestostreamlineandconsolidateprocurementwouldensurethatthefederalgovernmentbetterpursuesopportunitiestoreducethecostofitspurchases,byusingthesizeofthefederalgovernmenttogetthebestpossibleprice.

5.10 Conceptually, the idea has merit. In theory, these tools should reduce paperwork,speeduptheprocurementprocessandlowerthecostofgoodsandservices.Aswithanynewinitiative, it has to be subject to a quality management system, where the impact andeffectiveness of the implementation is monitored and its performance assessed againstanticipatedresults.Gapsneedtobeidentified,decisionsmadeandactionstakentoimprovetheprocess.

5.11 Todate, theemphasishasbeenonthedesignand implementationof individualSOsand SAs; the monitoring, quality assurance and corresponding adjustments regime is stillunderdevelopmentaccordingtothePWGSCCommodityManagementFrameworkPlan.


5.12 Last year the Office of the Procurement Ombudsman reported that the use ofmandatorySOshadan impactonsmallandmediumenterprises indoingbusinesswith thegovernment. There is open competition when PWGSC solicits bids to become a qualifiedsupplier. But competition is limited after that. Unsuccessful bidders and new entrants topublic procurement are essentially “out” until the existing SO is renewed or refreshed. Insomecases,theoutcomeofasolicitationmayresultinfewersuccessfulsuppliers.TheOfficealso reported that the government’s evaluation and reporting systemswere inadequate tomeasure whether the use of mandatory SOs and SAs had met the government’s originalobjectivesinmandatingtheuseoftheseprocurementinstruments.PWGSCreportsthatthereare a number of informal means through which Commodity Management Teams andCommodityManagersgatherbusinessintelligenceforuseinthedecisionmakingprocess.

5.13 However, a recent PWGSC Internal Audit Report found that without a coordinateddepartmentalapproachandcollaborationbyallstakeholders,theimpactofstandingoffersasa beneficial method of supply remains unknown. The lack of integrated and meaningfulinformation on standing offers, and amechanism to share this information, means that itcannot be used to support planning, decision making and action, or demonstrate theachievementofthegovernment’ssharedobjectiveofbuyingsmarter,fasterandatareducedcost.(p.iv)

The Procurement Ombudsman’s study of SOs and SAs resulted in a number of findings andrecommendations for improvement.With respect to theadvantageof SOsandSAs, the reportnotedthatthatthesearrangementstendedtoleadtogreatsimplificationandstandardizationwhilereducingduplicationandredtape:

• Procurementisfasterandlesscomplexifsuppliershavebeenpre-qualified.

• Becausestandardtermsandconditionshavebeenpreviouslyagreedto,thereislessriskandcomplexityforboththegovernmentandthesupplier.

• When a department has a requirement that can be procured via a call-up, then itdoes not have to carry out a full competition, and time, effort, and resources arereduced.

• Suppliersbenefit if theyarepre-qualified forSOs.Havingcompetedoncetoobtainan SO, they can generate business without the need to compete again to meetindividualgovernmentrequirements.

• There is more flexibility in the SAs than in SOs as the government can addcustomized technical requirements and suppliers can adjust prices and offerinnovation or the latest technology. Both the government and suppliers thereforebenefitfromdynamiccompetition.(p.v)

However,whileSAsinparticularofferedgreatflexibilitythroughcustomizationofspecificassignments,theyalsocreatedadditionalissuesregardingtheprotocolsforawardingcontracts.AstheProcurementOmbudsman noted, concernswere expressedwith the use of both SOs and SAs, including confusioncaused in some instances by overlapping arrangements. The feedback by federal governmentdepartments also noted that there was a need for greater industry-specific knowledge by PWGCSadministratorswhomanaged thesemaster agreements. That feedback also included concerns over a


lack of clarity and transparency over spending limits and call-up protocols for the award of discreteassignments:

• Insomecases,severaldifferentprocurementvehiclesare inplaceforthepurchaseof the same good or service. This added complexity leads to confusion amongsuppliersanddepartments.

• PWGSC has had limited success in retaining the industry knowledge and expertiserequiredtosuccessfullymanagecommodities.

• PWGSC’srationaleforreducingcertaincontractandcall-uplimitsfromTBapprovedlevelsisnotalwayscleartodepartments.

• PWGSC’s reasons for determining how contractors will be selected at the secondstage (right of first refusal, proportional, lowest cost, etc.) are often not readilyunderstood.(p.vi)

In particular, the Ombudsman’s report raised concerns over the protocols for awarding specificassignments and the creationof additional red tape in theprocesswhere complex second stages areused. Ultimately, the report notes the need to balance accountability, which calls for transparentcompetitivepractices,withtheneedtoenhanceefficiency,whichrequiresresultthatachievebestvalueformoneyinastreamlinedandexpeditedmanner:

SAs–Howisthenumberofpre-qualifiedsuppliersonalistdetermined?

5.90EnsuringaccesstocontractopportunitiesforthesuppliercommunityarguesinfavourofSO/SA lists with many named suppliers, each having the opportunity to win contracts.However,dealingfairlywithalengthylistofsuppliersposesdifficulties.

5.91WithrespecttoSAs,invitingperhapshundredsofsupplierstobidmaybeimpractical:forsuppliers, which are likely to be reluctant to invest the cost in bidding against so manypossibleopponents;andforgovernment,whichcouldincurthetimeandexpenseofhavingtoevaluatehundredsofbids.Conversely,limitingtheSAlisttofewersupplierssothatresultingcallsforbidscanbehandledmoreefficientlybybothsidescouldbeseenaslimitingaccess.

5.92Achievinganappropriatemiddleground,sothatthereisa“win-win”solutionforbuyersandsellers,isadelicatebalancingact.PWGSCstrivestofindthisbalanceonanongoingbasis.Consistentreportingandmonitoringwouldgoalongwaytoverifyingifthisbalancehasbeenachievedinanyparticularprocurementtool.

SAs–Impactofbiddingtwice

5.93Onesupplierhasinformedusthatthecostofrespondingtothesesolicitationsishuge,anditisveryfrustratingandexpensive–notjustfor[suppliers]butalsoforthegovernment–tohavetocontinuouslycompeteforbusinesswhenavalidprocurementtoolalreadyexists.Othershavethesameview.

5.94InordertotakeadvantageofanSA,thesecond-stagesolicitationshouldbesimple,fastand not costly to the industry; otherwise, the value added of using thismethod of supplywouldbequestioned.


Therightapproachfortherightreason

5.95 The SO may be the best approach for commercially available goods and services incommon use across government. Many services are very similar to goods – commerciallyavailable frommultiple suppliers and capable of being divided into standardized categoriesandpricedonaunit-of-workbasis.

5.96Whenthecall-upismade,thetotalcostisknownsincethetwovariablesthatmakeupthecost(unitpriceandquantity)areknown.Sincethequantityisthesameforallsuppliers,itiseasytodeterminewhichsupplieroffersbestvalue.

5.97 However, SOs are now in place for more complex requirements that require thedevelopmentandissueofastatementofworkandassessmentandevaluationcriteriaagainstwhich an SO holder submits a proposal including proposed resources, time lines for workcompletion, and calculations of the likely total cost based on level of effort.When the SOholder has to develop a proposal, and the government has the obligation to evaluate thatproposal,theSOisbeingmanagedasanSAbutwithonlyonesupplier.Thisstartstolooklikea directed contract, compromising the fairness and openness offered by the originalsolicitationforthestandingoffer.(p.13)

Theconcernsoverthetransparencyofthecall-upprotocolsforawardingdiscretecontractassignmentswillbeaddressedinmoredetailbelowunderthediscussionofinternationalstandards.

B.InternationalStandards

The section below briefly describes some international standards which can be drawn from to helpfurtherinformandguidetheimplementationofframeworkagreements.

TheUNModelLawFrameworkProtocolsInDecember2011,theGeneralAssemblyoftheUnitedNationsratifiedthe2011editionoftheUnitedNations Commission on International Trade Law Model Law on Public Procurement (the “UN ModelLaw”).29 The updated UNModel Law replaced the 1994 edition and contains some notable updates,including the recognition of the use of master agreement arrangements. The framework agreementprovisions contain detailed protocols for the creation and use of master agreements with multipleassignments.TheUNModelLawrecognizesbothclosedframeworkagreements(usingalimitednumberofprequalifiedsuppliersforafinitenumberofyears)aswellasopenframeworkagreements(whichareindefinite indurationandthereforerequiremorerobustrefreshprotocolstoallownewsuppliers intothearrangement).SincetheprovincialVORsandfederalSAsandSOsdiscussedabovemorecloselyalignwiththeclosedFrameworkAgreementmodel,theprovisionsthatapplytothosetypesofarrangementsundertheUNModelLawarereproducedbelow.

Article32Conditionsforuseofaframeworkagreementprocedure

1.Aprocuringentitymayengage ina frameworkagreementprocedure inaccordancewithchapterVIIofthisLawwhereitdeterminesthat:

29Onlineathttp://www.uncitral.org/uncitral/en/uncitral_texts/procurement_infrastructure/2011Model.html.


(a)Theneedforthesubjectmatteroftheprocurementisexpectedtoariseonanindefiniteorrepeatedbasisduringagivenperiodoftime;or

(b)Byvirtueofthenatureofthesubjectmatteroftheprocurement,theneedforthatsubjectmattermayariseonanurgentbasisduringagivenperiodoftime.

2. The procuring entity shall include in the record required under article 25 of this Law astatement of the reasons and circumstances upon which it relied to justify the use of aframeworkagreementprocedureandthetypeofframeworkagreementselected.

…

ChapterVII.Frameworkagreementprocedures

Article58Awardofaclosedframeworkagreement

1.Theprocuringentityshallawardaclosedframeworkagreement:

(a)Bymeansofopen-tenderingproceedings, inaccordancewithprovisionsofchapter IIIofthisLaw,excepttotheextentthatthoseprovisionsarederogatedfrominthischapter;or

(b)Bymeansofotherprocurementmethods, inaccordancewith the relevantprovisionsofchapters II, IV andV of this Law, except to the extent that those provisions are derogatedfrominthischapter.

2.TheprovisionsofthisLawregulatingpre-qualificationandthecontentsofthesolicitationinthecontextoftheprocurementmethodsreferredtoinparagraph1ofthisarticleshallapplymutatismutandis to the information to be provided to suppliers or contractors when firstsolicitingtheirparticipationinaclosedframeworkagreementprocedure.Theprocuringentityshallinadditionspecifyatthatstage:

(a)Thattheprocurementwillbeconductedasaframeworkagreementprocedure,leadingtoaclosedframeworkagreement;

(b)Whethertheframeworkagreementistobeconcludedwithoneormorethanonesupplierorcontractor;

(c)Iftheframeworkagreementwillbeconcludedwithmorethanonesupplierorcontractor,anyminimumormaximumlimitonthenumberofsuppliersorcontractorsthatwillbepartiesthereto;

(d)Theform,termsandconditionsoftheframeworkagreementinaccordancewitharticle59ofthisLaw.

3. The provisions of article 22 of this Law shall applymutatismutandis to the award of aclosedframeworkagreement.

Article59Requirementsforclosedframeworkagreements

1.Aclosedframeworkagreementshallbeconcludedinwritingandshallsetout:


(a)Thedurationoftheframeworkagreement,whichshallnotexceedthemaximumdurationestablishedbytheprocurementregulations;

(b) The description of the subject matter of the procurement and all other terms andconditionsoftheprocurementestablishedwhentheframeworkagreementisconcluded;

(c) To the extent that they are known, estimates of the terms and conditions of theprocurement that cannot be established with sufficient precision when the frameworkagreementisconcluded;

(d)Whether, in a closed framework agreement concludedwithmore than one supplier orcontractor,therewillbeasecond-stagecompetitiontoawardaprocurementcontractundertheframeworkagreementand,ifso:

(i)Astatementofthetermsandconditionsoftheprocurementthataretobeestablishedorrefinedthroughsecond-stagecompetition;

(ii)Theprocedures forand theanticipated frequencyofanysecond-stagecompetition,andenvisageddeadlinesforpresentingsecond-stagesubmissions;

(iii)Theproceduresandcriteriatobeappliedduringthesecond-stagecompetition,includingthe relative weight of such criteria and the manner in which they will be applied, inaccordancewitharticles10and11ofthisLaw.Iftherelativeweightsoftheevaluationcriteriamaybevariedduringthesecond-stagecompetition, theframeworkagreementshallspecifythepermissiblerange;

(e)Whethertheawardofaprocurementcontractundertheframeworkagreementwillbetothelowest-pricedortothemostadvantageoussubmission;and

(f)Themannerinwhichtheprocurementcontractwillbeawarded.

2. A closed framework agreement with more than one supplier or contractor shall beconcludedasoneagreementbetweenallpartiesunless:

(a) The procuring entity determines that it is in the interests of a party to the frameworkagreementthataseparateagreementwithanysupplierorcontractorpartybeconcluded;

(b) The procuring entity includes in the record required under article 25 of this Law astatement of the reasons and circumstances onwhich it relied to justify the conclusion ofseparateagreements;and

(c) Any variation in the terms and conditions of the separate agreements for a givenprocurement is minor and concerns only those provisions that justify the conclusion ofseparateagreements.

3.Theframeworkagreementshallcontain,inadditiontoinformationspecifiedelsewhereinthis article, all information necessary to allow the effective operation of the frameworkagreement, including information on how the agreement and notifications of forthcomingprocurement contracts thereunder can be accessed and appropriate information regardingconnection,whereapplicable.

…


Article62Secondstageofaframeworkagreementprocedure

1.Anyprocurementcontractunderaframeworkagreementshallbeawardedinaccordancewiththetermsandconditionsoftheframeworkagreementandtheprovisionsofthisarticle.

2.Aprocurementcontractunderaframeworkagreementmaybeawardedonlytoasupplierorcontractorthatisapartytotheframeworkagreement.

3. The provisions of article 22 of this Law, except for paragraph 2, shall apply to theacceptanceofthesuccessfulsubmissionunderaframeworkagreementwithoutsecond-stagecompetition.

4. In a closed framework agreement with second-stage competition and in an openframeworkagreement, the followingproceduresshallapply to theawardofaprocurementcontract:

(a)Theprocuringentityshallissueawritteninvitationtopresentsubmissions,simultaneouslyto:

(i)Eachsupplierorcontractorpartytotheframeworkagreement;or

(ii)Onlytothosesuppliersorcontractorspartiestotheframeworkagreementthencapableofmeeting the needs of that procuring entity in the subject matter of the procurement,providedthatatthesametimenoticeofthesecond-stagecompetitionisgiventoallpartiestotheframeworkagreementsothattheyhavetheopportunitytoparticipateinthesecond-stagecompetition;

(b)Theinvitationtopresentsubmissionsshallincludethefollowinginformation:

(i) A restatement of the existing terms and conditions of the framework agreement to beincludedintheanticipatedprocurementcontract,astatementofthetermsandconditionsofthe procurement that are to be subject to second-stage competition and further detailregardingthosetermsandconditions,wherenecessary;

(ii)Arestatementoftheproceduresandcriteriafortheawardoftheanticipatedprocurementcontract,includingtheirrelativeweightandthemanneroftheirapplication;

(iii)Instructionsforpreparingsubmissions;

(iv)Themanner,placeanddeadlineforpresentingsubmissions;

(v) Ifsuppliersorcontractorsarepermittedtopresentsubmissionsforonlyaportionofthesubject matter of the procurement, a description of the portion or portions for whichsubmissionsmaybepresented;

(vi)Themannerinwhichthesubmissionpriceistobeformulatedandexpressed,includingastatement as towhether the price is to cover elements other than the cost of the subjectmatter of the procurement itself, such as any applicable transportation and insurancecharges,customsdutiesandtaxes;

(vii) Reference to this Law, the procurement regulations and other laws and regulationsdirectlypertinenttotheprocurementproceedings,includingthoseapplicabletoprocurement


involving classified information, and the place where those laws and regulations may befound;

(viii) The name, functional title and address of one or more officers or employees of theprocuring entity who are authorized to communicate directly with and to receivecommunications directly from suppliers or contractors in connectionwith the second-stagecompetitionwithouttheinterventionofanintermediary;

(ix)Noticeoftherightprovidedunderarticle64ofthisLawtochallengeorappealdecisionsor actions taken by the procuring entity that are allegedly not in compliance with theprovisions of this Law, together with information about the duration of the applicablestandstillperiodand,ifnonewillapply,astatementtothateffectandthereasonstherefor;

(x)Anyformalitiesthatwillberequiredonceasuccessfulsubmissionhasbeenacceptedforaprocurement contract to enter into force, including, where applicable, the execution of awrittenprocurementcontractpursuanttoarticle22ofthisLaw;

(xi)Anyother requirementsestablishedby theprocuringentity in conformitywith this Lawandtheprocurementregulationsrelatingtothepreparationandpresentationofsubmissionsandtootheraspectsofthesecond-stagecompetition;

(c)Theprocuringentityshallevaluateallsubmissionsreceivedanddeterminethesuccessfulsubmission in accordance with the evaluation criteria and the procedures set out in theinvitationtopresentsubmissions;

(d)Theprocuringentityshallacceptthesuccessfulsubmissioninaccordancewitharticle22ofthisLaw.

Article63Changesduringtheoperationofaframeworkagreement

During the operation of a framework agreement, no change shall be allowed to thedescriptionofthesubjectmatteroftheprocurement.Changestoothertermsandconditionsof the procurement, including to the criteria (and their relativeweight and themanner oftheirapplication)andproceduresfortheawardoftheanticipatedprocurementcontract,mayoccuronlytotheextentexpresslypermittedintheframeworkagreement.

WhileCanadianpublicinstitutionshavenotformallyadoptedtheUNModelLawframeworkagreementprotocols(althoughthefederalandterritorialSOandSAprotocolscontainprinciplessimilartotheUNModel Law rules), theneighbouringCommonwealth jurisdictionsof theUnitedKingdomand Jamaica,whichshareasimilarcommonlawlegalsystemwithCanada,haveimplementedversionsofframeworkagreementprotocols.Thoserulesarereproducedinthefollowingsections.

UKFrameworkRegulationsThe UK Public Contracts Regulations 200630 contain framework agreement protocols that actuallypredatethe2011UNModelLaw.TheUKprotocolsestablishgoverningrulesforthecreationanduseofframework agreements that contemplate transparent protocols to create and use these master

30SI2006/5.


agreementswhichrequiresecond-stagecompetitionswheremorethanonesupplierisselectedunderaframeworkarrangement:

Frameworkagreements

19. (1)A contracting authority which intends to conclude a framework agreement shallcomplywiththisregulation.

(2)Wherethecontractingauthorityintendstoconcludeaframeworkagreement,itshall—

(a)followoneoftheproceduressetoutinregulation15,16,17or18upto(butnotincluding)the beginning of the procedure for the award of any specific contract set out in thisregulation;and

(b) select an economic operator to be party to a framework agreement by applying awardcriteriasetinaccordancewithregulation30.

(3)Where the contracting authority awards a specific contract based on a frameworkagreement,itshall—

(a)complywiththeproceduressetoutinthisregulation;and

(b)applythoseproceduresonlytotheeconomicoperatorswhicharepartytotheframeworkagreement.

(4)When awarding a specific contract on the basis of a framework agreement neither thecontractingauthoritynortheeconomicoperatorshallincludeinthatcontracttermsthataresubstantiallyamendedfromthetermslaiddowninthatframeworkagreement.

(5)Where the contracting authority concludes a framework agreementwith one economicoperator—

(a) it shall award any specific contract within the limits of the terms laid down in theframeworkagreement;and

(b)inordertoawardaspecificcontract,thecontractingauthoritymayconsultinwritingtheeconomic operator which is party to the framework agreement requesting that economicoperatortosupplementitstenderifnecessary.

(6)Where thecontractingauthorityconcludesa frameworkagreementwithmore thanoneeconomicoperator,theminimumnumberofeconomicoperatorsshallbe3,insofarasthereisasufficientnumberof—

(a)economicoperatorstosatisfytheselectioncriteria;or

(b)admissibletenderswhichmeettheawardcriteria.

(7)Where thecontractingauthorityconcludesa frameworkagreementwithmore thanoneeconomicoperator,aspecificcontractmaybeawarded—

(a) by application of the terms laid down in the framework agreementwithout re-openingcompetition;or


(b) where not all the terms of the proposed contract are laid down in the frameworkagreement,byre-openingcompetitionbetweentheeconomicoperatorswhicharepartiestothat framework agreement andwhich are capable of performing the proposed contract inaccordancewithparagraphs(8)and(9).

(8)Wherethecontractingauthorityisfollowingtheproceduresetoutinparagraph(7)(b), itshall re-open the competition on the basis of the same or, if necessary, more preciselyformulatedterms,andwhereappropriateothertermsreferredtointhecontractdocumentsbasedontheframeworkagreement.

(9)Wherethecontractingauthorityisfollowingtheproceduresetoutinparagraph(7)(b),foreachspecificcontracttobeawardeditshall—

(a)consult inwriting theeconomicoperatorscapableofperforming thecontractand invitethemwithinaspecifiedtimelimittosubmitatenderinwritingforeachspecificcontracttobeawarded;

(b)setatimelimitforthereceiptbyitofthetenderswhichtakesintoaccountfactorssuchasthecomplexityofthesubjectmatterofthecontractandthetimeneededtosendintenders;

(c) keep each tender confidential until the expiry of the time limit for the receipt by it oftenders;and

(d)awardeachcontract to theeconomicoperatorwhichhas submitted thebest tenderonthebasisoftheawardcriteriaspecified inthecontractdocumentsbasedontheframeworkagreement.

(10)Thecontractingauthorityshallnotconcludeaframeworkagreementforaperiodwhichexceeds4yearsexcept inexceptionalcircumstances, inparticular,circumstancesrelatingtothesubjectoftheframeworkagreement.

(11)In this regulation, a “specific contract” means a contract based on the terms of aframeworkagreement.

(12)Thecontractingauthorityshallnotuseaframeworkagreement improperlyor insuchawayastoprevent,restrictordistortcompetition.

TheJamaicanHandbookFrameworkRulesSimilar to the UK provisions, Volume 2 of the Government of Jamaica Handbook of Public SectorProcurement Procedures (passed pursuant The Public Sector Procurement Regulations, 2008)31 alsoestablishes formal rules for the creation and use of framework agreements,which include a detaileddescriptionofdifferentuses for frameworks, theneed for specificity incall-upassignment terms,andfurther explanatory notes on issues including avoiding volume guarantees when providing volumeestimates:

31MinistryofFinanceandPlanning(Jamaica),HandbookofPublicSectorProcurementProcedures,Volume2of4,ProceduresfortheProcurementofGoods,GeneralServices&Works(RevisedMarch2014),onlineathttp://www.mof.gov.jm/documents/documents-publications/document-centre/category/35-revised-handbook-of-public-sector-march-2014.html.


APPENDIX4

FRAMEWORKAGREEMENTS(FAs)

ProcuringEntitiesmayenter intoFrameworkAgreements (FAs).UndertheseAgreements,acontractorcommitstosupplyingthepurchaserwithgoodsandrelatedservices"asandwhen"required and on a pricing basis, according to stated terms and conditions. FrameworkAgreements may be used to supply off-the-shelf, readily available products. A FrameworkAgreementisnotacontract,therefore,quantitiesanddeliverydatescannotbedeterminedinadvance. Any “call-up” made against an FA represents acceptance, by a purchaser, of theterms and conditions. As such, it is the “call-up” which forms the contract that would besubmitted for approval by the Head of the Procuring Entity, NCC or Cabinet, as the valuewarrants.

FrameworkAgreementscanbemadebetween:

(a)asinglecontractorandasinglepurchaser;

(b)asinglecontractorandmultiplepurchasers;

(c)multiplecontractorsandasinglepurchaser;and

(d)multiplecontractorsandmultiplepurchasers.

FrameworkAgreements shouldbeusedwhen theoverall requirementsare known,but thespecific quantity anddelivery date of any particular goodmaynot be known. Bids shall besolicited for theselectionofacontractor toprovide thenecessarygoodsasandwhentheyarerequired.

TheBiddingDocuments shall state that the Procuring Entity does not necessarily intend toenterintoacontract–thatis,currently,orever.Rather,theintentionismerelytoestablishthe best source of a future supply, based upon firm prices and pre-determined conditionsoveraspecifiedvalidityperiod.

NOTE: Care should be taken when providing contractor(s) with an estimated quantity ofgoods and related services. In general, contractors will quote lower prices if there is areasonablepossibilitythatafirmamountwillbeordered.Ifpossible,theBiddingDocumentsshould provide contractors with the minimum estimated quantity which may be ordered.Until anactual call-updocument is issued,NOGUARANTEE shall begiven that anyamountwillbeordered.ThecontractormaywithdrawfromtheFAunderpre-determinedconditions,andwould then have no further obligation to fill orderswhich are issued after the agreedwithdrawaldate.

A4.1CRITERIAFORESTABLISHINGFRAMEWORKAGREEMENTS

ThefollowingcriteriashouldbesatisfiedinordertoestablishaFramework

Agreementwithacontractor:

(a)thegoodsandrelatedservicesshouldbeclearlyidentified;

(b)thegoodsandrelatedservicesshouldbecommerciallyavailable;and


(c)thepricesshouldbepre-determinedandfirm.

A4.2CHARACTERISTICSOFFRAMEWORKAGREEMENTS

FrameworkAgreementsshouldhavethefollowingcharacteristics:

(a)unitpricesestablishedasaresultofaCompetitiveBiddingprocess;

(b)deliverydatesstipulatedintermsofatimeperiodfromthedateofthecall-up;

(c)stipulationsregardingthelimitontotalexpenditure;

(d)stipulatedlimitsonindividualcall-upexpenditure;and

(e) a stipulated validity period - usually, FAs are valid for at least twelve (12)months. Theperiodofvalidityshouldbetheexpirydate,orwhenthelimitontotalexpenditureisreached,whichevercomesfirst.Formulti-yearFAs,theremaybeaclauseallowingforapriceincreaseduetoinflation.

FrameworkAgreementsshallbeconcludedthroughcompetitivetender.

NOTE: Procuring Entities shall obtain approval for Direct Contracting when seeking toestablishaFrameworkAgreementwithonecontractor,whenothercontractorsareavailable.

Whenacall-upagainstaFAisdone,thecall-upshallshowtheexactquantityanddescriptionoftherequiredgoodsandrelatedservices,thepackingandroutinginstructions,thedeliverypoints and dates. The unit price and total price of the callup, including freight, shall beconfirmed;andthecontractorshouldberequestedtoacknowledgereceiptofthecall-up.

GoJmayenter intoFrameworkAgreementsonanannualbasis for thesupplyofcommonlyuseddisposablegoodsandservices,e.g.GoJ’sFrameworkAgreementforthesupplyoffuel.These agreements may be entered into by the Ministry of Finance on behalf of GoJ, andreflected in an annual GoJ Schedule of Framework Agreements (“Schedule”). Contractsawardedwillbeinrespectofgoodsandservicesforthefollowingentities:

(a)CentralGovernmentMinistries;

(b)CentralGovernmentDepartments;and

(c)anyotherProcuringEntity(atitsoption)

ApplicableprocedureswillbecontainedwithintheSchedulethatisdisseminatedtoProcuringEntitiesonemonthpriortothestartofeachfiscalyear.

WhilenotbindingonCanadianpublicsectorentities,theframeworkagreementprotocolscontainedintheUNModel Law, theUK regulations and the Jamaicanhandbook are generally consistentwith thefederalSOandSAprotocolsandcanhelpinformtreaty-compliantimplementationmeasuresfortheuseofframeworkagreements.

Inadditiontotheclosedframeworkagreementformatsdescribedabove,considerationshouldalsobegiven to the use of open framework agreements that are also recognized under theUNModel Law.


Throughtheuseoftechnology,theseopenframeworkagreementsallowforaone-timeprequalificationprocessandthemaintenanceofapermanentsupplier lists thatcanberefreshedover timetoensurethat newentrants arenot blockedoutof futureopportunities. This avoids theduplication associatedwithclosedframeworkagreements,whichrequireorganizationstore-establishtheirrosterattheendofthespecificfinitetermandplacesanunnecessaryburdenonalreadyqualifiedsupplierstorequalify.

C.Conclusion

Byimplementingproactiveandstrategicmeasures,public institutionscanestablishbetterframeworksfor open and fair competition and enable smaller suppliers to compete within the governmentprocurementmarketplace. Public institutions can engage smaller local suppliers in a treaty-compliantmannerby: (i)centralizingandaggregatingprocurement inareaswherecontractawardsarecurrentlyfragmented; (ii) reducing barriers to competition by streamlining and standardizing prequalificationprocesses; and (iii) maintaining competition by establishing protocols for simplified second-stagecompetitions to award work under framework agreements. The mechanisms for enabling smallersuppliersarereadilyavailablewithinthegovernmentprocurementsystem.Publicinstitutionsmustnowfindthewill to implementthosemeasuresbeforeunbridledtradetreatycompetitioneviscerates localsupplier ecosystems and undermines long-term competition in the government procurementmarketplace.

Procurement Office - Building a Better Framework for Open ......procurement for all interested...

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