The revenue for Ray Patel’s business that, in part, supplies products to the public sector has experienced a significant decline. This decline in revenue could mean the end of a long-term successful family business.
Ray Patel and his family have operated a stationary and office supplies business in a small Canadian city for over 20 years. The business is split equally between local private sector and public sector clients, such as hospitals, school boards and the municipality office. Ray or someone in the business knows every client. Ray employs 30 people fulltime and hires temporary staff for peak buying periods. All of Ray’s employees live in the area. The business sponsors the local food bank and the local junior “B” hockey team.
About two months ago, paper product orders from public sector clients began to decline. Fearing it was a customer service issue, Ray contacted several clients to figure out what was happening. It was at that point he learned that the clients were buying their paper from a federal government supplier under a program called the Canadian Collaborative Procurement Initiative.
This bulletin provides a general overview of the structure of the Canadian Collaborative Procurement Initiative. At the end, we raise several questions and concerns surrounding the implementation and potential (and possibly unintended) impact of any vertical public sector buying vehicle on buyers and suppliers.
The Canadian Collaborative Procurement Initiative
In 2015, Public Services and Procurement Canada (PSPC) received authorization under the Public Works and Government Services Act to extend access to its procurement instruments to other levels of government. The Canadian Collaborative Procurement Initiative (CPPI) was created as one of the mechanisms to execute on this authority.
Described as a federal-provincial-territorial “collaborative procurement initiative”, the CCPI enables provincial and territorial governments, as well as eligible municipalities, schools, universities, colleges, school boards and hospitals (MASH sector) and other entities such as Crown corporations to use select federal procurement instruments to buy dozens of “off-the-shelf” goods.
Between 2019 and 2022, at least 100 identified goods will be made available to public sector buyers through the CCPI using a phased-in approach, on a national or regional basis.
The CCPI is intended to modernize procurement, reduce costs and streamline administrative processes for the Canadian public sector; make it easier for suppliers to sell to multiple levels of government and expand their market share; and advance socio-economic objectives directed towards companies with green and sustainable goods, Aboriginal-owned businesses, small and medium enterprises (SMEs), and underrepresented groups. The Office of Small and Medium Enterprises (OSME) is leading the CCPI implementation at PSPC.
As of December 2019, all provinces and territories, except for British Columbia, Saskatchewan and Quebec, have signed agreements to join the CCPI. Presently, only Standing Offers are covered by the CCPI; however, Supply Arrangements are also identified in the CCPI Newsletter (a link is provided at the end of this Bulletin) as coming under the CCPI in the future.
How the CPPI Works
To be eligible to participate in the CCPI, a province or territory must execute a Master User Agreement (MUA) with PSPC. The CCPI-covered Standing Offer will identify the list of eligible MASH sector and other entities for each province and territory that are permitted to participate under the procurement.
If the province/territory assumes liability for its MASH sector users, the users are included as “Authorized Users”, with full access to the terms, conditions and pricing of the Standing Offer. This approach has been followed by:
- Newfoundland & Labrador
- Nova Scotia
- New Brunswick
- Prince Edward Island
- The Northwest Territories
- The Yukon
If a province/territory does not assume liability for its MASH sector users, these users are considered “Optional Users”. Optional Users are not covered by the terms, conditions or pricing of Standing Offers and do not have full access to the Standing Offer. Optional Users must deal directly with the supplier to negotiate terms, conditions and pricing. This approach has been followed by:
CCPI Goods and Services
Over 100 low-to-medium complexity “off-the-shelf” goods that do not require significant customization will be made available on a regional or national basis through the CCPI between 2019 and 2022 using a phased approach.
Services are not currently part of the CCPI; however, PSPC is working on a pilot project in Western Canada for catering services, to provide businesses employing underrepresented groups with greater opportunity to access the public sector marketplace.
The list for CCPI-covered goods is subject to change. Examples of goods that will be made available under the CCPI in years 1 to 3:
And PSPC Isn’t the Only Department Consolidating Procurement ….
Shared Services Canada (SSC), the department responsible for acquiring all of the IT equipment and infrastructure for the federal government, received similar authorization under the Shared Services Canada Act. As discussed below, SSC has started implementing this option in solicitations, although there is no official program or policy available as yet.And PSPC Isn’t the Only Department Consolidating Procurement ….
Observations and Questions
According to PSPC, public sector procurement in Canada is estimated to be $200 billion annually with approximately 80% taking place at the local or regional levels.
The CCPI has laudable objectives – procurement modernization, cost reduction, socio-economic development and efficiency – and the potential to radically shift the structure of and access to the $160 billion-dollar local and regional public sector market.
Relying on a traditional federal government procurement methodology and heavily focused on consolidation and cost savings, the CCPI favours public sector administrative effort and cost reduction objectives over socio-economic objectives and ease of use for suppliers.
Impact on SMEs
The CCPI’s consolidation approach has a very real risk of negative impact for small and medium-sized businesses, particularly those that do not pursue federal government procurement opportunities because that is not their market focus or, like Ray Patel, do not have the resources required to meet the bidding, qualification and contract management requirement.
The 2018 Report of the Standing Committee on Government Operations and Estimates on Modernizing Federal Procurement for Small and Medium Enterprises, Women-Owned and Indigenous Businesses identified multiple barriers, particularly for SMEs, women and Indigenous-owned businesses, to accessing federal government procurement opportunities. Industry testimony identified barriers, such as:
- Requirements often geared towards large, established vendors
- Overly complex legal terms and conditions (even when buying simple off the shelf goods)
- Unlimited contractor liability
- Onerous administration obligations such as frequent and detailed reporting
A review of recent CCPI-designated Standing Offers confirms these barriers remain; including:
- Obligations to comply with federal government policies, procedures, regulations and law (including the recently amended Government Contract Regulations that apply to every government contract), and any security requirements;
- Unlimited liability; and
Shifting, not Eliminating, Administrative Costs
The administrative burden and cost of public procurement has not been eliminated; rather, it has shifted from the public sector to CCPI suppliers. For example:
- Managing multiple unique administrators: the federal Standing Offer Authority, each provincial/ territorial or MASH sector Contracting Authority, and any Optional User Contracting Authority
- Federal (quarterly and “ad hoc” reports) and sub-federal reporting obligations
- Managing multiple layers of legal terms, conditions and obligations, including:
- Standing Offer terms and conditions (with the federal government)
- Call-up terms and conditions (with the sub-federal purchasers)
- Terms and conditions negotiated with Optional Users
- All buyers, unless exempt, will still have to comply with the policies, procedures, rules, regulations and laws of their own jurisdiction. In Ontario, for example, hospitals, school boards, colleges, universities, community care access centres, children’s aid societies – as well as organizations that receive more than $10 million in funding from the Ontario government in the government’s fiscal year – are subject to the Broader Public Sector Accountability Act, 2010 and the Broader Public Sector Procurement Directive.
Ironically, businesses like Ray Patel’s may now have to compete at the federal level to retain access to their provincial/territorial and MASH sector customers – even if they have no intention of selling to the federal government. At the very least, suppliers must remain vigilant, closely monitoring federal procurements to see what goods and services are moving to the CCPI as the CCPI list is subject to change.
How to monitor SSC is a bit more tricky. SSC has not provided a roadmap or identified the products that could be made available for purchase by sub-federal buyers. At present, SSC seems to be releasing solicitations that indicate they may open up to provincial/territorial and MASH sector buyers, but only after award of the Standing Offer. The problem with this approach is readily apparent – amongst other things, non-federal suppliers will have to marshal resources to monitor SSC solicitations and bid for federal work to avoid the risk of losing customer access in the future; and provincial/territorial and MASH sector buyers to whom the trade agreements apply may be unable to buy off of Standing Offers executed in this manner.
No CCPI Impact Analysis Contemplated
The CCPI has not, as yet, released information with respect to any plan to assess its impact on buyers and suppliers. This raises several questions:
- How are the claimed benefits for suppliers – better customer access and larger market share – being implemented, achieved and measured?
- Is the government collecting and analyzing data to assess the impact on suppliers that only supplied CCPI-covered goods to the provinces/territories and the MASH sector, but were removed as a supplier to this part of the public sector market?
- How are Indigenous, Inuit and Aboriginal businesses outside of Comprehensive Land Claims Agreement (CLCA) areas being supported?
- Are assessments being conducted to determine if there are negative regional-specific impacts for buyers (particularly smaller regional centres)?
Those who are able to meet the federal government’s CCPI qualification requirements-gain uninhibited access to identify and pursue business through the vertical public sector market, including customers of suppliers who did not, or could not, qualify at the federal level.
The CCPI will, by design, eliminate otherwise capable sub-federal public market suppliers from the vertical public sector supply chain. A recent Standing Offer for “office paper” qualified just one supplier for the federal government and eight provinces (New Brunswick, Alberta, Newfoundland & Labrador, Ontario, Prince Edward Island, Nova Scotia and Manitoba).
Even if a supplier only wishes to bid for a regional Standing Offer, the regions are large, typically encompassing an entire province. The proposition that SMEs will be able to join together as a “joint venture” to bid as a regional supplier in this circumstance is an unrealistic expectation and, for direct competitors, an impossible scenario.
Consolidation is oft cited as the way to reduce costs and increase efficiencies. Whether that outcome is ever achieved – and what is lost en route – is afforded a surprising lack of attention. Oligopolies cannot provide public sector buyers with a truly competitive marketplace as there is an insufficient number of qualified suppliers to ensure a broad and robust competitive environment and to encourage innovative solution-finding for the end user customer over the long term.
Trade Agreement & Other Compliance Issues for Buyers
Provinces, territories and MASH sector entities issuing Call-ups under CCPI Standing Offers remain subject to interprovincial, national and international trade agreements for covered goods if the call-up meets the financial thresholds. Buyers must still comply with the trade agreement disciplines, including the obligation to conduct a competitive procurement that is open, fair, transparent and non-discriminatory.
Canada’s national and interprovincial trade agreements take different approaches to the use of buying groups, most of which provide no exception from trade agreement obligations for buyers who are part of buying groups. The Comprehensive Economic and Trade Agreement between Canada and the EU (CETA) that came into effect after the CPPI was launched and encompasses sub-federal entities (including MASH sector entities) provides no compliance exception for buying groups. Taken together, this means that a buyer cannot always abdicate procurement compliance to the CCPI or any other buying group; rather, buyers remain responsible for their own procurement decisions, including whether a buyer can avail itself of a particular procurement process conducted by another organization and whether that process meets treaty rules that apply to the buyer. Relying on the CCPI program approach could present a number of treaty compliance concerns and grounds for bid disputes – for example:
- Can it be said that a procurement met a buyer’s non-discrimination obligations under trade treaties if a supplier’s success in the procurement process hinged on whether it could serve a large geographic area?
- If the CCPI tender notices are not posted on sub-federal buyers’ designated tendering portals in advance of the award of the Standing Offer, can this be said to amount to fair notice to suppliers under interprovincial trade treaties or compliance with CETA’s tender notice rules?
- Buyers who are added to Standing Offers after they are awarded, or who participate as Optional Users, should have significant concern with respect to their trade agreement obligations, given that the market was not put on notice that they were purchasing through that Standing Offer.
- If Supply Arrangements are added to the CCPI, buyers who participate as Authorized or Optional Users will need to consider what steps they must take to ensure they meet their trade agreement obligations with respect to inviting bids from a pre-selected pool in lieu of an open competition.
As the world of public procurement becomes increasingly more complex, all suppliers, including suppliers like Ray Patel, need to work with a legal team that understands public sector procurement, who can assist them to navigate the requirements and rules, develop forward-looking strategic planning and advocate for their interests – before, during and after a procurement is in place.
The 2018 CCPI Newsletter can be accessed here : 2018 Canadian Collaborative Procurement Initiative Newsletter