Think local

From the October 2020 print edition

Given the ongoing pandemic, many are asking whether Canadian health sector institutions can limit the purchase of pandemic-related personal protective equipment or other pandemic-related supplies to Canadian suppliers or to suppliers from a specific province or territory. Based on procurement treaty obligations and case law interpretations, this discussion explains the relevant legal issues.

Public institutions are required by various trade treaties to award contracts valued at over the prescribed thresholds by way of open competitive bidding and are required to avoid unnecessarily restrictive requirements in those bidding opportunities. The ongoing purchase of all supplies, including pandemic supplies, should generally be purchased in accordance with these open procurement standards.

The requirement of open competitive bidding and prohibition against restrictions do not apply if the contract is valued below the applicable thresholds since in those cases the open competition duties do not apply. However, public institutions should avoid artificially splitting their contracting opportunities into smaller contracts to avoid open competition duties. The onus remains on the public institution, if challenged, to establish that the acquisition in question validly fell below the relevant open competition thresholds. The acquisition of pandemic supplies would presumably require larger orders and proper planning to obtain those supplies by open tendering practices so direct awards for small pandemic-related orders would presumably be limited as an effective strategy to deal with future pandemics.

Extreme urgency
The trade treaties allow public institutions to avoid open competitive bidding and directly award contracts in instances of extreme unforeseen urgency, especially where the contract is required for health and safety reasons. However, the urgency exception does not apply to a self-created crisis. The failure to plan does not constitute an emergency where the public institution should have anticipated the urgency and procured in advance by open tendering to secure the supplies needed for a future emergency. While the urgency exception may have reasonably been relied on for the COVID-19 2020 pandemic, public institutions would be in a more difficult position to assert that a subsequent similar pandemic crisis was not foreseeable and self-created due to a failure to engage in appropriate contingency planning. Since their ability to reasonably rely on urgency exceptions will likely be more limited in the face of future similar pandemics, health sector institutions should be engaging in advanced planning to order and stockpile those supplies in accordance with open tendering practices.

Imposing procurement requirements that unnecessarily restrict competition, particularly where those requirements are not rationally connected to the contract and cannot be effectively enforced or verified, is generally prohibited by the procurement rules. As part of their advanced pandemic planning, health sector institutions would arguably be justified in seeking domestic suppliers or distributors to, at minimum, stockpile internationally sourced supplies on behalf of Canadian health sector institutions for the exclusive access of those institutions as legitimate operational objectives. Those Canadian institutions should be proactively establishing those stockpiling and supply arrangements in preparation for future pandemics. However, to be defensible, those local arrangements should be verifiable through the creation of objective local performance standards.

A public institution has the right to defend restrictive requirements and those requirements will not constitute a breach of the neutrality requirements of open competition if the institution can prove that the restrictions to competition were based on legitimate operational requirements. Those Canadian health sector institutions that seek to secure a domestic supply chain in anticipation of a future pandemic should ensure that they are identifying and documenting pandemic supplies that may be subject to shortages in the event of another pandemic. Establishing thorough records of a pandemic-related scope of supplies would help to defend a restrictive domestic supply chain as a legitimate operational requirement against any challenge to those restrictive domestic requirements.

Legitimate and proportionate
The onus remains on the public institution to prove that any restrictive requirements were legitimate operationally, that they did not overly restrict competition, and that those requirements can be verified and enforced. In securing their domestic pandemic-related supply chains through restrictive procurement practices, Canadian health sector entities should be careful that those arrangements are proportionate to the need to respond to a future pandemic and that they do not unnecessarily create barriers to competition for the procurement of generally required goods and services that are not specifically pandemic related.

Public sector decision-makers should be prioritizing their procurement planning to ensure ongoing services to the public and to minimize adverse impacts on the economy. The best way to manage the next crisis is by planning to avoid it.

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