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Introducing the New Canadian Free Trade Agreement

By Paul Emanuelli (extracted from the fourth edition of Paul Emanuelli’s Government Procurement textbook, forthcoming in 2017).

In April 2017, Canada’s trade ministers formally announced that effective July 1, 2017 the Canadian Free Trade Agreement (“CFTA”) would replace its predecessor, the Agreement on Internal Trade (“AIT”). For the most part, the CFTA carries forward the same open public procurement obligations contained under the AIT and now adds Nunavut to its geographic scope. The carried-forward and new provisions in the CFTA include the following:

  • Legitimate Objectives: Article 501 contains a “notwithstanding clause” that allows the senior level governments that signed the treaty (the “Parties”) to override the open procurement commitments contained in the treaty in pursuit of “legitimate objectives” governed by specific implementation standards for such programs.
  • Duty to Compete: Article 502 carries forward the general commitments to open public procurement.
  • Anti-Avoidance Rules: Article 503 includes the traditional anti-avoidance restriction, including:
    • Valuation: Article 503.1 includes the traditional anti-avoidance restrictions that expressly prohibit attempts to avoiding the rules by methods including contract splitting, diverting funds to institutions not covered by open procurement obligations, or diverting procurements to purchasing groups.
    • Extensions and Changes: Article 503.2 prohibits the use of extension options, cancellations or post-award changes to undermine the open procurement obligations.
    • Local Preference: Article 503.3 prohibits the use of local preference or economic benefits criteria that are designed to favour the goods, services or suppliers of another province or region. This restriction now expressly includes construction contracts.
    • Canadian Content: Article 503.4 carries forward the express permission to favour Canadian value-adds or to limit procurements to Canadian goods, services or suppliers; however, this Article is expressly subject to Canada’s international trade treaty obligations and would therefore be restricted in practice to those procurements that fall under the applicable thresholds of any applicable international trade treaties.
    • Prohibited Practices: Article 503.5 provides a number of expressly prohibited practices that conflict with the open procurement obligations. These include the traditional prohibitions against preference to local goods, services or suppliers; to scheduling events in the tendering process or specifying requirements or delivery schedules that limit the participation of suppliers; to providing selective information to suppliers to create an unfair advantage; or to using registration or qualification systems that create unnecessary obstacles to participating in a procurement process. These protocols now also include new express prohibitions against limiting participation in a procurement process to those suppliers who have supplied the institution in the past or to requiring prior experience that is not essential to meeting the requirements of the procurement.
  • Open Tender Thresholds: Article 504.3 carries forward the prior AIT contract value thresholds for open tendering but now consolidates them all into the main body of the chapter for easier reference, while Article 504.4 now makes those thresholds subject to future adjustments for inflation based on a prescribed formula.
  • Buying Groups: Article 504.5 requires a procurement entity to ensure that any purchases made through a buying group comply with the general open procurement obligations, while Articles 504.6 through 504.9 create further regulatory requirements for using buying groups.
  • P3s: Article 504.10 creates special new rules regulating public-private partnerships (P3s).
  • General Exemptions: Article 504.11 carries forward a series of traditional exemptions for non-application of the open procurement obligations to certain types of contracts, including grants and land transactions, certain types of financial services, all legal and notary services, goods and services financed primarily through donations that contain specific contradicting procurement conditions, procurements with non-profits, international aid, and government-to-government procurement.
  • Small Business Set-Asides: Article 504.13 recognizes a new express exemption for small business set-aside programs, so long as those programs do not discriminate based on place of origin or location within Canada.
  • Valuation: Article 505 regulates the valuation method used to determine whether the contract exceeds the threshold for open public procurement and maintains that the estimated value should be based on anticipated total cost as of the date of the tender notice publication. This Article maintains that the quantification should be based on the maximum total value of the procurement (including awards to different suppliers) and now clarifies that these should also include any extension options.
  • Tender Notices/Single Point of Access: Article 506 regulates tender notices and requires that notices be published on a website designated by the Parties (the senior level governments that signed the treaty). It also recognizes that the Government of Canada will create a new single point of access (SPA) and that all entities will eventually be required to make their opportunities accessible through that SPA. Furthermore, Article 506 requires that all tender notices be made available free of charge and that the content of those notices include the traditional disclosures of key procurement details previously contained in the AIT. Article 506 now also includes the requirement to expressly state whether the procurement method used by the entity in the specific procurement will include negotiations or electronic auctions.
  • Unnecessarily Restrictive Conditions/Debarment: Article 507 contains prohibitions against imposing unnecessarily restrictive conditions on supplier participation in a procurement process and now expressly prohibits the condition of prior experience with the specific procuring entity or prior experience within the territory of the specific entity. However, Article 507 does permit, subject to supporting evidence, the exclusion of suppliers based on past conduct and expressly permits the exclusion of suppliers due to bankruptcy or insolvency, false statements, poor past performance, final judgements of serious crimes or other offences, professional misconduct and the failure to pay taxes.
  • Prequalification Frameworks: Article 508 regulates the prequalification of suppliers and now requires an annual re-posting where supplier prequalification lists will be used for more than three years. It also prescribes general disclosure requirements surrounding the evaluation and use of supplier lists and standing arrangements, including the drawn-down processes for awarding specific work under those frameworks.
  • Restrictive Specifications: The provisions of Articles 509.1 through 509.6 carry forward the traditional regulations against restrictive specifications and call for technical specifications to be stated in accordance with performance and functional requirements, rather than according to design or descriptive characteristics. These Articles contains express restrictions against, amongst other things, the use of trademarks, trade names, patents, or specific origins or suppliers and require that procuring entities expressly accept “equivalent” offerings when using restrictive specifications. This Article now also contains a new provision that expressly precludes the receipt of advice in the preparation of technical specifications from those who may have a commercial interest in the procurement.
  • Disclosure of Requirements and Criteria: Article 509.7 prescribes that tender call documents contain all the necessary information required for suppliers to submit responsive tenders, including detailed evaluation criteria, technical requirements, warranties, transition costs and reasonable delivery times.
  • Tender Amendments: Article 510 regulates the modification of tender call documents, requiring that any new information be made available to all potential bidders in an open, fair and timely manner, and requiring the extension of the bid deadline in instances where new information would require bidders more time to prepare their tenders. Article 511 requires that tender calls remain open for a reasonable amount of time when considering the complexity of the procurement.
  • Recognition of Negotiated RFPs: Article 512 introduces express new protocols for using negotiations during a procurement process. These protocols require the disclosure of the intention to use a negotiation process, require that transparent criteria be used in the elimination of any suppliers during that process, and prohibit unfair or discriminatory treatment of any suppliers during the negotiations. For processes using concurrent negotiations, the protocols require that suppliers be provided with the same deadline to submit their new or revised tenders. For processes using consecutive negotiations, the protocols require that a specific amount of time be specified for a supplier to submit its final offer prior to proceeding to negotiate with the next-ranked supplier. The Article 512 protocols also allow for the use of a negotiation process for tie-breakers when the original evaluation resulted in no clear winning tender.
  • Limited Tendering: Article 513 carries forward the traditional exceptions for limited tendering in situations where no tenders or no compliant tenders were received. It also contains a new provision for limited tendering where a procurement was the subject of collusion. This Article also contains exceptions for the traditional “sole source” procurements involving works of art, restrictions created by intellectual property rights, the absence of competition for technical reasons, statutory monopolies, compatibility, interoperability, warranties, subscriptions, unforeseeable urgency, commodity markets, prototype purchases, bankruptcy purchases, design contests and sensitive information.
  • New Exception for Entrenched Incumbents: Article 513.1(c) creates a new exemption for procurements with existing suppliers involving technical or interoperability restrictions with existing equipment, software, or services even if the procurement goes beyond the original scope of the contract if retendering would cause significant inconvenience or substantial duplication of costs to the procuring entity.
  • Electronic Auctions: Article 514 contains new protocols that expressly recognize the use of electronic auctions and call for the disclosure of relevant competition information to competing suppliers.
  • Tendering Evaluations and Awards: Article 515 regulates the treatment of tenders and contract awards according to fair and impartial procedures. It also includes a new provision that expressly allows for the correction of unintentional errors in form, provided that the same opportunity is made available to all participating suppliers. This Article also states that the contract award should go to the best compliant tender based on the criteria established under the tender call and contains new price verification protocols for situations involving abnormally low bids.
  • Notice of Award and Debrief: Article 516 contains transparency protocols that require an entity to promptly inform suppliers of its contract award decisions. This Article includes new provisions that requires an entity, on the request of a supplier, to provide a losing supplier with an explanation of why it did not win the contract award. This article also contains new protocols requiring that a detailed public disclosure of the contract award, including the name of the supplier and value of the contract, be made within 72 days of the contract award.
  • Confidentiality: Article 517 includes confidentiality protocols that expressly recognize that the open procurement obligations do not require the disclosure of information that would impede law enforcement, prejudice fair competition between suppliers or third party rights (including intellectual property rights) or be contrary to law or to the public interest.
  • Dispute Resolution: Article 518 includes new protocols for dispute resolution that call for the Parties (the senior level governments that signed the treaty) to establish administrative or judicial review authorities and procedures for supplier challenges. Where administrative review processes are established, those processes will require that findings be made within 90 days of a complaint (with extensions of up to 135 days allowable in exceptional circumstances), that the procedural rules be put in writing and be made generally available and that those rules contain complaint limitation periods of no less than ten days from the supplier’s discovery of the reason for the dispute. Where a body other than an independent administrative or judicial review authority initially reviews a complaint, that initial decision will be subject to appeal to an independent administrative or juridical review body. Furthermore, this Article maintains that where an administrative body other than a court is established to hear complaints, its decisions must be subject to judicial review unless the administrative body contains formal trial-like process rules, including document disclosure and discovery protocols, the right to make live submissions to the tribunal, the right to representation, the right to open public proceedings and the right to a timely written decision. Article 518 also requires that each Party establish a new remedy regime that includes rapid interim measures, including the postponement or suspension of a procurement process, along with orders for corrective action or compensation for the loss or damages suffered, which may be limited to bid or complaint costs or both.
  • Bid Complaint Consultations: Article 518.4 also includes new protocols requiring procuring entities to respond to supplier complaints through impartial and timely complaint consultations. These procurement-entity-level consultations are in addition to the administrative or judicial review processes noted more generally in Article 518.
  • Modifications/Exclusions: Article 519 contains protocols for future modifications to the procurement obligations under the Chapter and Article 520 includes a series of express jurisdiction-by-jurisdiction exclusions for institutions and types of procurements that are not covered by the treaty; however, unlike the AIT, which included express inclusions, for the most part the CFTA exclusions are now made by way of a “negative list” that expressly states the exclusions so that entities that were not previously expressly included under the former AIT “positive list” enumeration method would now be covered under the CFTA, unless they are expressly exempted by the new 520 Annex.