State of compliance

From the October 2022 print edition

Five years after the adoption of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and domestic Canadian Free Trade Agreement (CFTA), Canadian public institutions face significant challenges in meeting the global governance standards contained in those trade treaties. This article highlights a series of recent compliance issues from across the Canadian public sector.

Paul Emanuelli is the general council of the Procurement Law office. Paul can be reached at [email protected]

Starting at the federal level, in its March 2021 ruling in Ocalink Technologies Inc. v. Department of Public Works and Government Services, the Canadian International Trade Tribunal found that a 2019 federal statutory amendment breached international legal standards by removing the transparency requirements that previously applied to national security sole-sourcing. To make matters worse, the Tribunal also found that the federal government misused that now-shrouded national security exception to engage in pandemic-related sole-sourcing that did not properly fall under the national security exception. More recently, the federal government also failed to meet its five-year CETA deadline for creating a national posting portal for all Canadian bidding opportunities at federal, provincial and local levels.

Turning to Ontario, the provincial government has also engaged in statutory reforms that run contrary to its treaty commitments. In March 2022 the provincial government enacted the Building Ontario Business Initiative Act, which will require Ontario public institutions to apply preferential treatment, as mandated by future provincial cabinet regulations, to Ontario companies in public sector contract awards. This new statute flies in the face of well-established public procurement rules. Non-discrimination, a core global standard in public procurement, was originally adopted by Canada’s federal, provincial, and territorial governments in the 1990s and was confirmed again under CETA and the CFTA in 2017. By mandating local preference by Cabinet fiat, the new local preference scheme would expose Ontario public institutions at all levels to legal challenges for treaty violations.

In fact, successful challenges against local preferences have already begun. In its June 2022 ruling in Thales DIS Canada Inc. v. Ontario, the Ontario Superior Court of Justice – Divisional Court struck down an Ontario driver’s licence and health card RFP due to domestic production requirements that breached CETA’s open competition rules. In that case, a European bidder with card production facilities in Poland brought a successful legal challenge against Ontario’s made-in-Canada requirements. The Court struck down the RFP for breaching Ontario’s international trade treaty duties after finding that the government failed to justify its domestic production restrictions under security or privacy grounds.

The Court also struck down Ontario’s prior decision to reject the complaint under the government’s bid protest mechanism. Two judges ruled that decision invalid due to a lack of evidence supporting the government’s position, with the third concurring judge stating that Ontario “properly concedes” that its bid protest decision was not independent or impartial and stating that Ontario failed to comply with Article 19.17.4 of CETA. This case casts a major shadow over the validity of future procurements that rely on flawed bid protest procedures.

Western Canada
Unlike Ontario, Western Canada has established an independent treaty arbitration process for bid protests. From improper sole-sourcing to restrictive supplier rosters to anti-competitive local warranty requirements, those arbitrations have resulted in multiple non-compliance rulings across Alberta’s municipal sector.

Local bid protests have recently spread beyond Alberta’s borders. In a recent decision, an arbiter found that the Saskatchewan government used CFTA-violating local labour requirements under a “community benefits” scheme to award highway maintenance work to a Saskatchewan company. Rather than accepting that decision, Saskatchewan went to court in an unsuccessful attempt to overturn the ruling. In its February 2022 decision in The Ministry of Highways for the Province of Saskatchewan v. West-Can Seal Coating Inc., the Queen’s Bench for Saskatchewan dismissed the government’s application after finding no grounds to overturn the arbiter’s decision.

Alberta also faces treaty compliance issues at the provincial level. In its June 2022 report entitled Alberta Infrastructure – Procurement Practices, Alberta’s Auditor General found multiple treaty infractions at the provincial infrastructure agency. The audit, which included a four-year sampling from $4.5 billion in construction projects for schools, hospitals, and other government facilities, found rushed bidding deadlines that breached treaty standards, as well as the failure to properly screen for conflicts of interest or secure confidential bidder information. The audit also found inconsistent bid evaluation practices and the failure to maintain proper evaluation records, both of which could undermine the defensibility of any resulting contract awards if losing bidders chose to challenge those results.

As these recent examples show, treaty compliance continues to be a widespread problem across the Canadian public sector. Public institutions need to work towards updating their procurement practices or risk becoming the next non-compliance case study.