Impact of the Canada-EU Comprehensive Economic and Trade Agreement on Government Contracting

Each year Canadian governments purchase over $100 billion in goods and services, and the EU purchases more than $2.7 trillion annually.

The Canada-EU Comprehensive Economic and Trade Agreement (CETA) procurement provisions are significant because they open up procurements by the provinces/territories, municipalities and utilities, which were previously shielded from disciplines under international procurement agreements such as the World Trade Organization Agreement on Government Procurement (WTO) and the North American Free Trade Agreement (NAFTA). Federal procurements will also be subject to the procurement disciplines in CETA, but this is not new because these procurements have always been subject to WTO and NAFTA disciplines.

This means that Canadian companies bidding on large lucrative provincial and municipal procurements will encounter much more competition from EU companies than they have in the past. On the other hand, these same companies ought to have more access to EU government contracts at all levels – so hopefully it will all balance out.

It also means that provincial and municipal government procuring entities and now utilities will have to be more careful about how they draft and conduct their procurements and contract awards. They will have to make sure that their procurement processes and selection and evaluation criteria are consistent with the requirements in the CETA provisions. Sole sourcing will be severely restricted and allowed only under prescribed conditions. Provinces and municipalities will also have to introduce some form of bid review mechanism whereby EU suppliers can challenge the procurement before the contract is awarded and have corrective remedies available. For federal contracts this is done by the Canadian International Trade Tribunal, which is the federal government bid review mechanism under the WTO and NAFTA. In general, most treaties have strict time limits on when a supplier must challenge the procurement process or contract award, and generally it is within 10 working days after the basis of the challenge becomes known to the supplier. This time delay will also likely be included in CETA.

Only procurements by designated entities for designated goods or services above designated threshold values will be subject to CETA’s disciplines on procurement. While we have a general understanding of what these designations are, the devil is in the detail, and we won’t really know what or who is in and what or who is out until the legal text is released in 2014. However, we do know now some general parameters, which are as follows.

The CETA disciplines on procurement will apply only to contracts above a certain designated threshold value. For federal contracts for goods and services this threshold is $205,000. For provincial and municipal contracts for goods and services, this threshold is $315,500. This is also the threshold for academic institutions, school boards and hospitals (also known as the MASH sector). For procurements of goods and services by Crown corporations, the threshold is $560,000. For contracts for goods and services by utilities the threshold is double at $631,000. For construction services purchased by all levels of government, the threshold is $7.8 million across the board.

In general we know that the following sectors are excluded:

  • health services;
  • ports and airports;
  • procurements under $1 million in rural areas in the territories and Atlantic provinces for regional economic development purposes;
  • public-private partnerships;
  • procurements by ports and airports;
  • shipbuilding and repairs; and
  • national security procurements, that is, sensitive goods/services procured by security-mandated entities.

While public transit is subject to the CETA procurement disciplines, Quebec and Ontario will be allowed to retain a 25% Canadian content requirement for procurement of public-transit vehicles. However, as mentioned earlier, utilities and Crown corporations are not excluded and will be subject to the procurement obligations of CETA.

Looking ahead, we can expect that provinces and municipalities as well as utilities and Crown corporations will come under increasing pressure to open up their procurements to U.S. suppliers. Though this has been done in part in regard to provincial procurements, under the Canada-U.S. Agreement on Government Procurement, that agreement is not nearly as intrusive on provincial, municipal, Crown corporation and utility procurement practices as CETA.