Good morning. Thank you, Mr. Chair and committee members.
My name is Matthew Sreter. I'm the executive director of the strategic policy development and integration directorate for the acquisitions program at Public Services and Procurement Canada, PSPC. Thank you for the opportunity to appear today to discuss public procurement obligations under Canada's trade agreements.
PSPC is committed to fair, open, and transparent procurement that delivers the best value to Canada and, whenever possible, does so in a manner that promotes competition. To maximize benefits for Canada and to provide more opportunities for Canadian suppliers, Canada has negotiated access to foreign government procurement markets through rules-based international trade agreements. These agreements greatly expand the marketplace for Canadian goods and services.
Several of Canada's trade agreements include commitments regarding government procurement. These trade agreements contain obligations for federal procurement activities conducted by PSPC, making compliance with these trade agreement obligations necessarily complex and technical.
Canada and its partners agree to abide by substantive obligations and procedural rules, including obligations to ensure non-discrimination and national treatment, as well as market access commitments. Non-discrimination and national treatment principles essentially require PSPC to treat the goods, services and the suppliers of a party no less favourably than the treatment it provides Canadian goods, services and suppliers. Likewise, other parties must do the same in respect of Canadian suppliers.
The agreements also contain a variety of principles that require a certain level of fairness. Most of our trade agreements contain transparency provisions that call upon governments to make information concerning domestic law, regulations, policies, and administrative procedures readily available to domestic and foreign businesses. These include the requirement for notices and trade documentation regarding individual procurement transactions, the requirement for award information for participating suppliers, with explanations supporting the award, and the obligation that the procurement was conducted fairly, impartially, and in accordance with the agreements.
PSPC ensures that its policies and standard contract clauses, including information related to procurements themselves and procurement awards and statistics, are available and accessible to the public on its website.
While other core obligations do apply, ensuring that regulations and measures taken are transparent and not discriminatory is the simplest way to reduce the risk of trade issues arising.
Other procedural rules designed to enhance transparency and fairness include conditions for participation by suppliers; rules for notices; the content of tender documentation; rules on qualification of suppliers and participation; procedures for treatment of tender documents, contract evaluation, and the awarding of contracts; the circumstances for the use of limited tendering, applicable time periods, and the publication of contract award information, among other things.
For example, under the trade agreements, procuring entities may award a contract without soliciting bids only if one or more of the limited tendering reasons stated in each applicable trade agreement can be applied (e.g. in the absence of tenders in response to an open or selective tender, or when the tenders submitted have been collusive), provided that limited tendering is not used to avoid maximum possible competition or in a manner which would constitute a means of discrimination.
Technical specifications ensure that procuring entities publish information on their procurement opportunities and provide prospective suppliers with all the information necessary to prepare and submit bids. This includes a description of the good or service, conditions for participation, evaluation criteria, performance requirements, etc. PSPC does this via its Buyandsell website.
PSPC must also notify participating suppliers of contract award decisions and, upon request, provide an explanation to an unsuccessful supplier for the reasons it was not selected. Provisions pertaining to the qualification of suppliers permit parties to maintain supplier registration systems for use during procurement processes in order to reduce time needed to complete the procurement process. There are also provisions requiring us to provide suppliers with sufficient time to prepare and submit requests for participation and responsive tenders. Usually this is no less than 40 days, with some exceptions provided in the agreements.
While these obligations are rigorous, they also ensure procedural fairness by providing a clear set of rules to which parties need to comply, and reinforce PSPC's core values of openness, fairness and transparency.
However, the rules do not automatically apply to all procurement activities of each party. Rather, coverage schedules play a critical role in determining whether a procurement activity is covered by an agreement or not. Coverage schedules vary by agreement.
For all trade agreements, PSPC is required to comply with the specific procedures of each applicable trade agreement when completing certain procurements. Therefore, a decision must be made as to whether or not the procurement is subject to a particular agreement or to a combination of agreements.
To determine whether a particular agreement is applicable, the agreement must be consulted. When the procurement is covered by more than one agreement, all agreements must be complied with. Compliance with these obligations is ensured by provisions for recourse and dispute settlement between parties and domestically. At the federal level, the Canadian International Trade Tribunal acts as the main bid challenge authority for Canada. Canadian suppliers can also take any of their challenges to federal or superior courts.
As you can see, the rules and market access commitments of trade agreements place limitations on how government procurement can be used. For instance, international trade agreements limit the ability to use government procurement to promote Canadian industries and also prohibit domestic content requirements to procurements when the trade agreements apply.
However, trade agreements do provide opportunities for parties to leverage procurement spending to pursue government priorities and encourage social and economic development opportunities. As long as procurement requirements comply with non-discrimination and national treatment as well as other obligations of the agreements, procurement spending can be leveraged for social and economic development opportunities.
For procurements covered by trade agreements, it is possible, under certain circumstances, to remove them from coverage, such as use of the National Security Exception, and set-asides. As well, there are many procurements under threshold or relating to goods or services not covered by the agreements, which would therefore also not be subject to the procedural obligations.
I will briefly explain how PSPC uses these provisions.
The national security exception, which I understand this committee has previously reviewed, allows Canada to exclude a procurement from some or all of the obligations of the applicable trade agreements. The invocation of an NSE, or national security exception, is not intended to restrict competition—quite the opposite. For PSPC, over the past three fiscal years, 65% of contracts awarded under a national security exception were competitive. This represents 86% of the total value of all contracts awarded under the national security exception.
Another provision of trade agreements is the set-asides. Currently all trade agreements, with the exception of Canada-European Union Comprehensive Economic and Trade Agreement, allow set-asides for small or minority businesses, including indigenous businesses. However, the Canada-European Union Comprehensive Economic and Trade Agreement, or CETA, allows for set-asides for indigenous businesses. If a set-aside provision is invoked, the procurement is removed, i.e. set aside, and therefore is not subject to the obligations of the trade agreement.
With the introduction of the Canadian Free Trade Agreement, which entered into force this summer on July 1, 2017, small business set-asides are now permitted, provided that they are part of a small business set-aside program and that they are fair, open, and transparent. All Canada's trade agreements allow set-asides for aboriginal businesses. Therefore, procurements that are set aside for aboriginal businesses under the procurement strategy for aboriginal business, PSAB, are excluded from trade agreements, making the obligations non-applicable.
Canada can also leverage procurement spending to pursue government priorities and encourage economic development opportunities when goods and services are not covered by trade agreements or when procurements fall under the monetary applicable thresholds. In these instances, Canada is able to apply criteria that would not be allowed under the trade agreements, such as domestic preference criteria.
Some initiatives that give preference to Canadian businesses include the Canadian Content Policy and the Build in Canada Innovation Program. The Canadian Content Policy encourages industrial development by requiring domestic content in procurements not covered by trade agreements, for example, defence-related procurement or procurements under threshold.
PSPC's Build in Canada innovation program helps Canadian businesses bring their innovative products and services to market. As BCIP relates to research and development services, it is not subject to the obligations of trade agreements.
My name is Ana Renart. I'm the director general of the market access bureau in the trade policy and negotiations branch of Global Affairs Canada. I am joined today by Pierre Marier, who is the director of the government procurement, trade, and environment division of Global Affairs Canada.
The trade policy and negotiations branch is responsible for negotiating international trade agreements both in a multilateral context, such as at the World Trade Organization, the WTO, and in a bilateral or regional context, such as NAFTA or the Canada-European Union Comprehensive Economic and Trade Agreement, the CETA. We do this with the help of experts in other government departments.
As part of Canada's international trade agreements, we seek to secure new market access opportunities for Canadian businesses in a broad range of areas, one of which is government procurement.
As mentioned, we work very closely with other departments when negotiating trade agreements. With regard to GP—government procurement—we work closely with our colleagues at Public Services and Procurement Canada, for example, as well as the Treasury Board Secretariat.
Today, I will provide an overview of Canada's government procurement commitments in its international trade agreements highlighting in particular those obligations of relevance to small and minority-owned businesses.
Canada is a founding party to the WTO agreement on government procurement, the GPA, which first entered into force in 1981 and was revised several times since. The most recent revision took effect in 2014. Today, the GPA includes 47 WTO members, including major economies such as the United States, the European Union, Japan and Korea. The rules set forth in the GPA serve as the basis of Canada's government procurement obligations in regional and bilateral free trade agreements.
Most of Canada's regional and bilateral trade agreements include commitments on government procurement. Such commitments are included in Canada's agreements with the United States and Mexico, Chile, Peru, Colombia, Panama, Honduras, Korea, Ukraine and the European Union.
The primary objective of negotiating free trade agreements, including government procurement commitments, is to provide Canadian businesses, including small and medium-sized enterprises, with increased opportunities, including access to government procurement in foreign markets.
Canada's approach to government procurement in trade agreements is based on four key principles: non-discrimination, transparency, impartiality, and accountability. These principles are reflected in the procedural rules in all of Canada's international trade agreements with government procurement obligations.
Provisions on non-discrimination ensure that the treatment granted by a procuring entity towards foreign suppliers is no less favourable than the treatment granted towards domestic suppliers. Transparency provisions require the publication of certain laws, regulations, and policies, as well as information on contracting notices, tender documentation, and award notices. Impartiality-related requirements stipulate that all participants in the procurement process must be treated fairly, and accountability provisions ensure that participants have access to bid challenge mechanisms in the event of a dispute.
The opportunities created by government procurement commitments in FTAs are significant. Under the WTO's Agreement on Government Procurement, for example, Canadian suppliers have preferential access to procurement activities worth an estimated $2.2 trillion annually. Under CETA, Canada has secured access to over $450 billion worth of procurement activities. Under Canada's agreements with the U.S., Canada has preferential access to an estimated $1.1 trillion worth of procurement activity. In other words, FTAs with GP commitments, general procurement commitments, allow Canadian companies the ability to compete for many more opportunities than just those available in Canada, and they allow this in a fair and predictable way.
While seeking increased market access for Canadian suppliers into foreign government procurement markets, these trade agreements are also subject to a number of exceptions that provide flexibility for Canada to carry out certain domestic policies or achieve socio-economic objectives. For example, Canada is not prevented from undertaking procurement policies that it considers necessary for the protection of its essential security interests, even if these would otherwise contravene the trade agreements. Also, Canada's international procurement obligations do not prevent Canada from applying specifications related to the good or service being procured that promote the conservation of natural resources or the protection of the environment, or socio-economic development opportunities for socially or economically disadvantaged people, so long as this is not done in a discriminatory fashion or as a disguised restriction on international trade.
In addition, certain sectors are excluded from Canada's international government procurement obligations, including health and other public services, research and development, shipbuilding, and culture. Furthermore, essentially all of Canada's international trade agreements include provisions that allow procurements to be set aside, as described by my friend Matthew, for small and minority-owned businesses.
Without exception, all of Canada's international trade agreements with procurement obligations include provisions that would allow domestic procurements to be set aside for aboriginal businesses. These provisions allow Canada the flexibility to carry out the procurement strategy for aboriginal business, which was launched in 1996 and aims to foster aboriginal business development through the use of federal procurement contracts, while remaining consistent with international trade obligations.
With respect to exceptions that are specific to SMEs, only the Canada-EU CETA does not include an exception for set-asides for Canadian SMEs. However, at over $200,000, the CETA thresholds for goods and services are the highest that Canada has in any of its international trade agreements.
Contracts that fall below this threshold are not subject to CETA procurement obligations, so procuring entities have full flexibility to carry out procurements in a manner that helps to achieve domestic policy objectives, including facilitating SME participation in procurement, should they desire.
In the context of current trade negotiations, Canada is pursuing progressive provisions that recognize the importance of international trade's contribution to broader economic, social and environmental policy priorities. This includes progressive provisions in the area of government procurement.
Thank you for your time, and we would be happy to answer any questions you may have regarding Canada's government procurement obligations in its international free trade agreements.
Thank you, Mr. Chairman.
I have prepared remarks, but I will attempt to avoid repetition as I go through, so I will go a bit more slowly.
Thank you for this opportunity to appear before the committee today.
My name is Peter Burn. I am one of the seven members of the Canadian International Trade Tribunal. We are supported by a secretariat of approximately 50 professionals: lawyers, economists, financial analysts, registry and editing officials, and the like. One of them is here with me today. Joining me from the CITT secretariat is Mr. Eric Wildhaber. That's Swiss French, not Swiss German, I believe. If you're from the north, it would be pronounced differently. Eric is senior counsel in the administrative tribunals support service of Canada. He is one of Canada's foremost experts in the field of procurement review law.
We are available to answer questions in both languages, but I will ask Eric to be the lead in French, because he is fluently bilingual.
I am pleased to provide the committee with some context for its deliberations on small and indigenous business set-asides.
First, let me describe who we are and describe our mandate. The CITT is an independent, quasi-judicial body with the powers of a superior court, which reports to Parliament through the Minister of Finance. We are mandated to act in five areas.
First, we are mandated to inquire into and decide whether dumped and/or subsidized imports have caused, or are threatening to cause, material injury to a domestic industry. The CITT conducts the injury inquiry, and the CBSA—the Canada Border Services Agency—determines the existence and level of dumping and/or subsidization. Our American counterpart for this mandate is the International Trade Commission, the ITC.
The second concerns safeguard inquiries, which is, again, an ITC function in the States. Here, we inquire to determine if goods are being imported into Canada in such increased quantities and under such conditions as to be a principal cause of serious injury or threat to the domestic producers of like goods.
The third mandate concerns inquiries into economic and tariff matters as referred to us by the GIC or the Minister of Finance.
The fourth involves customs and excise appeals. We hear and decide appeals of decisions of the CBSA made under the Customs Act and SIMA, the Special Import Measures Act, and of the Minister of National Revenue made under the Excise Tax Act. Here, our American counterpart is the Court of International Trade in New York City.
Finally, we come to our fifth mandate, which is why we are here today—our role as the designated reviewing authority for certain federal procurements pursuant to the various trade agreements that were named earlier. For this mandate, our U.S. counterpart is the Government Accountability Office, or GAO.
You'll note I said “certain procurements”. That's because our review power covers only those federal government contracts that qualify as “designated contracts”—that is, contracts above a certain value, issued by a listed entity of the federal government, and involving a listed good or service. In other words, there are many lower-value federal contracts outside of CITT's jurisdiction and beyond the disciplines of trade agreements. The Office of the Procurement Ombudsman has certain responsibilities for those under the CFTA, formerly known as the AIT, the Agreement on Internal Trade.
Beyond our jurisdiction as well are procurements by subnational governments. You will know that the provinces have taken on procurement obligations in both CETA and the CFTA. As a party to CETA, Canada has committed to ensuring that our subnational governments respect their CETA commitments and has agreed to create one or more procurement review authorities. We'll have to see how that develops, whether we have one or 11, or how that goes.
Under CITT's procurement mandate, we receive complaints from companies and individuals dealing with the federal government who feel that they have been improperly or unfairly treated during the course of a procurement process. We receive about 70 procurement complaints annually, and we endeavour to provide a fast, cost-effective, fair, and transparent review. It's a file hearing; nobody has to come to Ottawa. Those are reviewed for both domestic and foreign suppliers, many of whom are small and medium-sized businesses.
When we determine that a complaint is valid, we recommend to the government one of a range of remedies as we consider appropriate, and we can also provide the deputy head with comments and observations on the process. By legislation, recommendations are to be implemented to the greatest extent possible.
On the issue today, small and indigenous businesses, an annex in NAFTA explicitly states that the procurement chapter does not apply to procurements in respect of “set-asides for small and minority businesses”. Those are practices that began in the United States well before NAFTA, the small business set-aside back in the 1950s and the minority program for businesses owned by African Americans and Native Americans in the amended statute in the 1970s.
The Small Business Act in the U.S. states that small businesses should receive a “fair proportion” of federal contracts, and that small businesses and small minority-owned businesses should have the “maximum practicable opportunity”, so there is lots of scope. The small business set-aside provides that opportunity by requiring most contracts with an estimated value of more than $25,000 and less than $150,000 to be awarded to small businesses, with “small” defined in relative terms within each sector. I don't know what a small oil company is.
In addition, contracts of larger size can be set aside if the contract officer thinks there are at least two small businesses that can do the job, so the discussion is down at the contracting authority, and I don't know how that happens. Furthermore, larger contracts awarded to larger businesses must have small business subcontracting plans.
Those are the three ways in which the small businesses are scaled up in the U.S.
In Canada, there is no sweeping federal procurement program in place that's similar to that. I cannot speak for today and I don't want to, but I was involved way back in the Canada-U.S. Free Trade Agreement days. I think it's safe to say that our objective was to help more firms develop competitive scale and capacity. We were looking to blow open markets in the United States, and we weren't looking to show the Americans in any way that we were undermining Canadian firms' access at the time. We were never really looking to actually implement the small business set-aside; we were trying to get into their market. However, we're a much bigger economy today, so things could be different.
We also realized way back that a large Canadian business was actually equal to a small American business, so we didn't know what a small Canadian business was for purposes of procurement. That was back then.
To date, successive governments have chosen to implement a wide range of other measures and not a small business set-aside. In the NAFTA procurement chapter, there was the creation of a committee on small business with the United States, which was intended to promote government procurement opportunities for small businesses in a variety of ways. I would recommend reading that.
Small business set-asides have been attempted at the provincial level. As was noted earlier, article 504.13 of the CFTA allows for small business set-aside programs, provided the program is fair, open, transparent, and does not discriminate on the basis of the origin or location within Canada from where the goods or services are supplied. In other words, small versus large is okay, but not local versus others.
There is also a very interesting CETA annex that I recommend to the committee. It lays out the acceptable limits on local preferences supporting development in the non-urban areas of certain have-not provinces. It essentially says that—not Ontario, because I think Ontario has left that category again—the normal, the other have-not provinces, are allowed 10 procurements a year to develop outside the urban areas—that is, outside Halifax, Moncton, etc.—of less than $1 million. This is one to watch. I don't understand how that works in to the others. We'll have to wait and see.
We have much more explicit indigenous set-asides. In all, it's moved from “minority” set-asides, when we said that's what “minority” meant for Canada. Now there are quite clear, quite broad indigenous set-asides. Suffice it to say that because of those, the tribunal has ruled that when such provisions are invoked, the tribunal does not have jurisdiction and will not conduct an inquiry. Instead, as stated in the Government of Canada's supply manual, “Bid challenges [by suppliers for the procurement strategy for aboriginal businesses] should be dealt with according to established internal supplier complaint response procedures for procurements not subject to trade agreements”, so on the indigenous side, it's quite clear.
That concludes my remarks. I hope I caught everything without being too duplicative.
We track a lot of things, but surprisingly, we don't track the activity before us by small and medium-sized enterprises, and I think it's simply because we never have been asked. However, in preparation for today and in going on, I'm going to recommend that the secretariat keep numbers on that, only so that we would be able to answer the question the next time we come here.
I had a look. Yesterday I asked my articling student to go through the caseload that we had last year. We had 70 cases last year. It was the highest volume of procurement review ever to come to us; it was in the order of $5 billion. There were a couple of big-ticket items there, but usually it's about $1 billion to $3 billion.
We did realize yesterday, from using the Industry Canada definition of what a small business is and for those businesses that we could confirm just by looking at them—a quick web search—to see that they were indeed small businesses, that we can safely say anecdotally, from last year at least, that more than half—up to 45 of the 70 complaints—came from what looks like small and medium-sized enterprises. They come to us a lot.
The last part of your question asked what the usual things are that come to us. Well, there are a variety, but one regular one would be an undisclosed criterion. According to the system, you're supposed to disclose your criteria in your solicitation documents. Essentially, the suppliers have to know what the rules of the game are before they invest the time and money to put together these bids and to answer these calls for tenders, but sometimes things are not well defined, or things can creep in, and at the evaluation stage you'll have an undisclosed criterion that seeps its way in. Then you'll have a bidder who says, “Hold on; I didn't get this, and what's the reason?” They're told what the reason is, and they don't like it, because they realize that they didn't read that in the solicitation documents. They'll try to resolve it, and if not, then go to the tribunal, or they can go to the tribunal directly.
That's a big source of activity, I would say.
Perhaps I'll take a stab at this, and then we can look over to my colleagues.
We are already witness to something very similar to what you've described, in the context of defence procurement under the industrial and technical benefits policy. It's the use of the value proposition.
Within that policy and the use of the value proposition, you have there technical, as well as financial, and then you have the use of the value proposition. One of the benchmarks that they're using is a 10% weighting for value proposition elements. There they're looking at, for example, sustainment of defence industry, bolstering the supplier base, proliferation of export potential, and so on and so forth, as part of their criteria.
Therefore, you have an example already, outside of the context of trade agreements. It is a good example. It is working very well. We currently have in the tens of billions of dollars under that particular policy, and 100% of those dollars is going to Canadian businesses.
In the frame of what is covered under trade agreements, then, if you're looking at what is covered under trade agreements, part of our procurement modernization efforts over at PSPC is to do just that: to look at exactly how we can operate under trade agreement obligations to employ socio-economic criteria, whatever those may be. We have to make sure they're objective, we have to make sure they're quantifiable, and we also have to make sure they're agnostic to local development—domestic content, for example—and that they adhere to our trade agreement obligations.
This is what we're looking at presently and where hoping to move forward in the coming months.
Maybe I'll field that one.
In terms of how it works for PSPC, PSPC is a common service provider. A client department comes to us with its requirement. That's the first stage. That requirement, though, can be clear as mud, or it can be clear. PSPC works with that department to clarify what the requirement is. There may have to be, and it is encouraged that there be, industry engagement to look at capacity within the industry. It's also encouraged to look, early on, at whether trade agreements apply and, if so, what trade agreements would apply.
The first question we ask ourselves is about coverage. We look at the requirement and we look at the good or service. We ask ourselves whether that good or service is covered by any of the applicable trade agreements or multiple trade agreements. Then we look at contract value. We look at the threshold and whether the thresholds apply or not. Then we look at the entity that's actually purchasing the goods, and whether they are covered under the schedules or not. Then we look at whether one of the exceptions applies. Is it under the procurement strategy for aboriginal business? Is it a national security exception, depending on the requirement? That attends to the coverage elements.
From there, in terms of the boilerplate you mentioned, I wouldn't call them “boilerplate”. They are customized within PSPC for each and every single procurement with the client department. We do have standard acquisition clauses and templates that we employ, depending on low-, medium-, or high-risk complexity, that will govern what standard contract clauses are first incorporated, and then they are further tweaked. Those standard clauses basically ensure that government is on the right side of the trade agreement obligations procedurally, from a fairness perspective and from a transparency perspective.
It's a loaded question. The questions are very good.
First of all, yes, of course Public Services Procurement Canada does work with Indigenous and Northern Affairs Canada. We do work closely on a number of fronts, not to mention the outreach efforts that we have, not only regionally through our OSME offices, the office of the Office of Small and Medium Enterprises, but also through our counterparts over at INAC, who do outreach efforts into the aboriginal communities themselves. Part of that is ensuring that government procurement is part of those outreach efforts, that they understand what government procurement opportunities there are, how PSAB could apply, and so forth.
We do have to be a little bit careful, though, in some of those outreach efforts, because we also have comprehensive land claim agreements in place in respect of certain geographic locations. I believe there are 20-something land claim agreements in place, so we do have to make sure our interactions are measured, but of course we do conduct those outreach activities.
Could we do more? I think we could always do more in terms of trying to make sure that we understand government business and how it works, and to promote indigenous businesses. We're working with INAC to develop a plan on how to move forward in that regard.
In terms of the reference levels that you've stated, it comes down to your technical specifications for qualifying suppliers and ensuring that those suppliers are eligible to perform the work you're asking of them. The more complex the work, the more risk there is to the work. It's an interaction between PSPC as the contracting authority, the common service provider, and the client department to identify what those procurement requirements truly are and what that client department needs in terms of eligibility for a qualified supplier. Yes, inherent within that there could be possible barriers to SMEs, so part of our effort is to look at reducing those barriers and at how we can reduce them as part of our procurement modernization efforts.