This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
Public sector group purchasing initiatives are proliferating across Canada at a rapid rate. This discussion surveys a broad range of evolving models, ranging from informal information sharing networks, to local and regional purchasing co-operatives, to sector-specific group purchasing organizations, to provincial vendor-of-record arrangements, and federal standing offers and supply arrangements, and explains how these practices are coming under increasing scrutiny due to concerns over a lack of transparency.
- Information Sharing Networks
There are numerous examples of information sharing networks involving public sector purchasing institutions across Canada. Most of these informal networking arrangements are conducted privately without official public profile or formal organizational structure. While many of these networks evolved informally based on geographic proximity, others are supported under the umbrella of procurement industry organizations, such as the Ontario Public Buyers Association and the Atlantic Public Purchasing Association, which are Canadian branches of the US-based National Institute of Government Purchasing, and the Ontario University Purchasing Management Association, which is an independent group of Ontario university purchasing professionals. In these arrangements, group members may collaborate and share transactional information, including sample documents and specifications, but they will typically conduct independent and legally distinct procurement processes for their own institutions.
- Regional Purchasing Co-Operatives
Many public sector entities have expanded their collaborations into more formal, local and regional co-operative purchasing arrangements, also known as Regional Purchasing Co-Ops. These clusters of geographically proximate, but legally separate, institutions tend to focus on common commodity purchases and involve members sharing the workload by taking turns running separate tendering processes on behalf of the group. Members either commit to specific volumes in advance or have the option to buy under resulting master contracts as separate legal entities. Examples of these long-standing arrangements include the Niagara Region Purchasing Co-Operative, which includes the regional government and local municipalities, universities, and colleges within the region, as well as the Education and Municipalities Working Group (originally the University Purchasing Group), which originally included the University of Toronto, York University, Ryerson University, and McMaster University and now also includes the City of Toronto, the City of Hamilton, and the Toronto District School Board. By way of another example, universities in British Columbia recently formed a similar purchasing co-operative under the British Columbia provincial government’s Administrative Service Delivery Transformation Initiative, while school boards in the BC lower mainland have a longer history of conducting co-operative purchasing through education sector co-operatives.
Many of the co-operative purchasing groups in the Canadian public sector have a long-standing history. In fact, a report commissioned by the Ontario Ministry of Education in 2000 entitled Collaboration Among School Boards: Working Together For Better Value noted how school boards in Ontario have a decades-old tradition of collaboration both within the education sector and across other sectors of government:
The most common type of cooperative includes two or more coterminous school boards and a variety of other public agencies such as hospitals, municipal offices, conservation authorities, public libraries, universities, community colleges, and public utility offices. However, we also saw cooperatives or joint departments that were composed only of coterminous school boards; cooperatives that included coterminous and neighbouring school boards, as well as other public sector agencies; and a province-wide cooperative created in January 1998 by the 12 newly formed French-language boards.
The report noted two distinct approaches to the group purchasing arrangements:
Joint tendering: As described by representatives from one cooperative, joint tendering involves centralized strategic planning with decentralized operations. This means that two or more agencies agree on common specifications for a list of goods and services and then develop joint tenders for suppliers to bid on. To participate in a joint tender, each agency is required to “opt in” before the contract is tendered. This requirement guarantees the total volume of goods to be purchased through the contract and allows member agencies take advantage of greater economies of scale.
The outcome of joint tendering is a single contract with a vendor who agrees to supply two or more of the participating agencies with a good or service under a common set of conditions, including price. However, the vendor works separately with the individual purchasing department of each of the agencies. For example, each agency issues its own purchase orders and is billed separately by the vendor.
Piggybacking: In this more informal approach to cooperative purchasing, participating agencies tender individual contracts, but include language in their contracts that enables other public sector agencies to purchase a commodity from the vendor under the same terms and conditions (e.g., price). The piggybacking approach typically involves larger agencies extending the advantages of large volume contracts (i.e. lower prices) to smaller agencies. Because the total volume of potential purchases is not reflected in the original contract, it is possible that agencies using this approach may not receive the lowest unit price possible. Most agencies also include piggybacking language in joint tenders.
These co-operative purchasing arrangements do not typically involve the creation of a separate legal entity or separate administration, but instead rely on ad-hoc, project-specific work-sharing arrangements where committees of member representatives are formed to lead specific procurement projects and each member ultimately contracts separately with selected suppliers under a common master agreement. Subject to some exceptions where contract volume commitments are formally agreed to under the master agreements, the use of these arrangements remains voluntary among the membership group.
- Sector Group Purchasing Organizations
Sector Group Purchasing Organizations, or Sector GPOS, also have a long history in Canada and across North America in both the public and private sectors. As noted in Wikipedia, these organizations tend to be sector-specific in both origin and group composition:
In the United States, a group purchasing organization (GPO) is an entity that is created to leverage the purchasing power of a group of businesses to obtain discounts from vendors based on the collective buying power of the GPO members.
Many GPOs are funded by administrative fees that are paid by the vendors that GPOs oversee. Some GPOs are funded by fees paid by the buying members. Some GPOs are funded by a combination of both of these methods. These fees can be set as a percentage of the purchase or set as an annual flat rate. Some GPOs set mandatory participation levels for their members, while others are completely voluntary. Members participate based on their purchasing needs and their level of confidence in what should be competitive pricing negotiated by their GPOs.
Group purchasing is used in many industries to purchase raw materials and supplies, but it is common practice in the grocery industry, health care, electronics, industrial manufacturing and agricultural industries. In recent years, group purchasing has begun to take root in the non-profit community. Group purchasing amongst non-profits is still relatively new, but is quickly becoming common place as non-profits aim to find ways to reduce overhead expenses. In the healthcare field, GPOs have most commonly been accessed by acute-care organizations, but non-profit Community Clinics and Health Centers throughout the U.S. have also been engaging in group purchasing.
As with Regional Purchasing Co-Ops, Sector GPOs tend to focus on commodity purchases, running joint purchasing initiatives to reduce workload and create economies of scale, however unlike Regional Purchasing Co-Ops, Sector GPOs tend to operate under formal legal structures as non-profit corporations with permanent staff. Sector GPOs also differ from in Regional Purchasing Co-Ops in scope – while Regional Purchasing Co-Ops are sometimes sector-specific, but may also include public institutions from different parts of the broader public sector (such as regional and local municipalities and universities, colleges, school boards, and other public institutions operating within the relevant municipal boundaries), Sector GPOs are typically limited to the sector from which their sector-specific members originate. In this way, Sector GPOs can operate in larger geographic areas than Regional Purchasing Co-Ops and can operate across provincial boundaries. With respect to contracting structures, as with Regional Purchasing Co-Ops, Sector GPO members have the option to buy under resulting master contracts as separate legal entities. The use of the master agreements is typically voluntary among the group members that also often form the ownership group of these non-profit corporations. In general terms, as noted above, North American GPOs tend to be funded by a mix of supplier-paid administration fees tied to the end-transactions and through the funding of the purchasing entities in their ownership group.
- Provincial Vendor-of-Record Arrangements
Similar in result to Regional Purchasing Co-Ops and Sector GPOs, provincial Vendor-of-Record Arrangements, also known as VORs, establish master contracts for a broad range of goods and services that can then be used by a broad range of separate government entities for discrete assignments.
VOR arrangements were first established by the province of Ontario in the 1990s to create multiple master Framework Agreements for use by the various provincial government ministries. These VORs help co-ordinate central purchasing, reduce duplication, and create economies of scale. Many of the master agreements created under this model have an expanded scope beyond the “inner ring” that includes Ontario government ministries and agencies to an “outer ring” of Ontario broader public sector MASH (municipalities, academic institutions, school boards, and health sector) entities.
Once established, VORs typically require the institutions within the defined user group to run separate, invitational, second-stage selection processes to select specific suppliers. Those assignments are entered into pursuant to separate sub-agreements between the selected supplier and selecting institution. These sub-agreements supplement the master agreement terms with assignment-specific details.
VOR arrangements tend to limit the maximum dollar value of any specific assignment and run for a finite period of time, after which a VOR RFP is retendered to create a new roster of defined suppliers. The VORs are centrally administered by provincial government staff, but, similar to Purchasing Co-Ops and Sector GPOs, each institution is responsible for running its own second-stage call-up process and administering its own discrete assignments. Even at the level of provincial government ministries and agencies, use of the master agreements created by provincial VORs tended to be voluntary, except in a few discrete areas of mandatory-use VORs. Those categories of compulsory use do not extend into the MASH sector. The traditional optional nature of the provincial VORs, along with the second-stage process that requires and creates multiple contract awards within each category, tends to dilute the economies of scale that could otherwise be obtained under province-wide multi-sector arrangements. However, in 2019 the Ontario provincial government announced an initiative to further centralize government purchasing across its ministries, agency sector, and parts of its broader public sector, as part of a five-year plan to save $1 billion (CAD) in government procurement expenditures.
- Federal Standing Offers and Supply Arrangements
At the Canadian federal government level, group purchasing tends to operate within the federal government sphere across the various federal government departments with some participation by more arms-length, federal government entities. The scope of this group purchasing is similar to the “inner-ring” of the province of Ontario’s VORs (including provincial government ministries and certain provincial agencies), but the federal government does not oversee the same type of “outer-ring” MASH-type entities that exist in the provincial broader public sector. This tends to limit the institutional depth of federal government group purchasing arrangements. However, given the federal government’s geographic scope and spending volumes, group purchasing at the federal level offers significant opportunities for economies of scale for certain goods and services within the federal government sphere.
At the federal level, central purchasing is co-ordinated through Public Services and Procurement Canada (PSPC) (formerly known as the Department of Public Works and Government Services Canada (PWGSC)), under which umbrella agreements are created under both Standing Offers (SOs) and Supply Arrangements (SAs). As with the province of Ontario, whose ministries and agencies often create their own VORs for their own discrete purposes, separate federal government departments also create their own discrete SOs and SAs.
The federal government has significantly expanded the central mandatory use of these arrangements in recent years. A report released by Canada’s Procurement Ombudsman in May 2010 entitled Study on Methods of Supply: Standing Offers and Supply Arrangements provides some useful background on SOs and SAs, explaining how the expansion of these arrangements in recent years has been part of the federal government’s attempt to decrease duplication, increase efficiencies, and achieve economies of scale:
5.1 According to the Treasury Board Purchasing Activity Reports, in the last 10 years, the value of federal government procurement has increased by over 40%, while the number of transactions has decreased. The government, therefore, is managing a larger amount of procurement of increasing complexity. The government strives to increase its administrative efficiency, but has to balance these measures against its commitment to fairness, openness and transparency in procurement. Suppliers would benefit from the government’s efforts to simplify and streamline procurement practices. It is in everyone’s interest to reduce the burden of paperwork, time and effort.
5.2 There are two principal methods of supply that are used to streamline the procurement process for specific types of goods and services. Standing offers (SOs) and supply arrangements (SAs) are frameworks for procurement that are meant to:
reduce the cost of common goods and services used on a government-wide basis and purchased on a repetitive basis;
ensure that procurement processes are timely; and
attain good value for taxpayers’ dollars.
5.3 A standing offer (SO) is a continuous offer from a supplier to the government that allows departments and agencies to purchase goods or services, as requested, through the use of a call-up process incorporating the conditions and pricing of the standing offer. SOs are intended for use where the same goods or services are needed within government on a recurring basis and are commercially available.
5.4 With the use of SOs, suppliers that meet the evaluation criteria and selection methods are pre-qualified and issued an SO. An SO is not a contractual commitment by either the government or the supplier. When goods and services available through an SO are needed, departments issue a call-up, the supplier’s acceptance of which constitutes a contract. The call-up is done relatively quickly. Departments do not conduct a competitive bid solicitation for the goods and services procured under an SO.
5.5 A supply arrangement (SA) serves a purpose similar to that of an SO. An SA is a non-binding arrangement between the government and a pre-qualified supplier that allows departments and agencies to award contracts and solicit bids from a pool of pre-qualified suppliers for specific requirements within the scope of the SA. Departments meet their specific needs by issuing another call for bids – a subsequent, second-stage solicitation – to one, some or all of the suppliers on the SA list, depending on the details in the SA.
5.6 With SOs, the terms and conditions, including price, are set as part of the bidding process. But when calls for bids under the SA are issued to listed suppliers, those suppliers have the opportunity to include changes in their bids to reflect market changes, innovation, new technology or pricing adjustments. This is beneficial to both the supplier and the government.
In summary, the report notes that SOs and SAs are similar, in that they both establish master agreement terms similar to the other group purchasing arrangements discussed above, with each institution within the purchasing group entering into and administering its own discrete contacts under the arrangements. Given the de-centralized purchasing, demand for the good or service cannot be known in advance and, while estimates are made in good faith, there are no formal contractual commitments to purchase specific volumes.
The report also notes some significant distinctions between the two models. SOs tend to be for standardized goods and services that are known in advance with pre-established pricing that constitutes a legally binding offer (hence “standing offer”) by the supplier to provide the requirement on-demand to the institution that calls on the contract. These arrangements can be entered into with one or more suppliers and although they are often entered into pursuant to a competitive bidding process, they are also at times directly awarded to specific suppliers and can encompass that supplier’s complete catalogue of offerings. In contrast, SAs are established for goods and services that are not fully definable at the outset and pricing is, therefore, not completely defined under the umbrella agreement. These arrangements do not constitute binding contractual commitments by the suppliers. Much like provincial VORs, SAs tend to require an invitational second-stage competitive process between suppliers in the specific supply arrangement category to finalize contract terms between suppliers and specific institutions.
The Procurement Ombudsman’s report notes that there have been implementation issues with the expansion of the federal government’s SOs and SAs arrangements:
5.8 Most SOs and SAs are put in place by Public Works and Government Services Canada (PWGSC). The department acts as a common service organization and the government’s main contracting arm. In 2005, the government made a significant change in the use of SOs and SAs. It became mandatory for all departments to buy certain high volume goods and services through SOs and SAs managed by PWGSC.
5.9 The government said that these measures to streamline and consolidate procurement would ensure that the federal government better pursues opportunities to reduce the cost of its purchases, by using the size of the federal government to get the best possible price.
5.10 Conceptually, the idea has merit. In theory, these tools should reduce paperwork, speed up the procurement process and lower the cost of goods and services. As with any new initiative, it has to be subject to a quality management system, where the impact and effectiveness of the implementation is monitored and its performance assessed against anticipated results. Gaps need to be identified, decisions made and actions taken to improve the process.
5.11 To date, the emphasis has been on the design and implementation of individual SOs and SAs; the monitoring, quality assurance and corresponding adjustments regime is still under development according to the PWGSC Commodity Management Framework Plan.
5.12 Last year the Office of the Procurement Ombudsman reported that the use of mandatory SOs had an impact on small and medium enterprises in doing business with the government. There is open competition when PWGSC solicits bids to become a qualified supplier. But competition is limited after that. Unsuccessful bidders and new entrants to public procurement are essentially “out” until the existing SO is renewed or refreshed. In some cases, the outcome of a solicitation may result in fewer successful suppliers. The Office also reported that the government’s evaluation and reporting systems were inadequate to measure whether the use of mandatory SOs and SAs had met the government’s original objectives in mandating the use of these procurement instruments. PWGSC reports that there are a number of informal means through which Commodity Management Teams and Commodity Managers gather business intelligence for use in the decision making process.
5.13 However, a recent PWGSC Internal Audit Report found that without a coordinated departmental approach and collaboration by all stakeholders, the impact of standing offers as a beneficial method of supply remains unknown. The lack of integrated and meaningful information on standing offers, and a mechanism to share this information, means that it cannot be used to support planning, decision making and action, or demonstrate the achievement of the government’s shared objective of buying smarter, faster and at a reduced cost.
The Procurement Ombudsman’s study of SOs and SAs resulted in multiple findings and recommendations for improvement. With respect to the advantage of SOs and SAs, the report noted that that these arrangements tended to lead to great simplification and standardization while reducing duplication and red tape:
Procurement is faster and less complex if suppliers have been pre-qualified.
Because standard terms and conditions have been previously agreed to, there is less risk and complexity for both the government and the supplier.
When a department has a requirement that can be procured via a call-up, then it does not have to carry out a full competition, and time, effort, and resources are reduced.
Suppliers benefit if they are pre-qualified for SOs. Having competed once to obtain an SO, they can generate business without the need to compete again to meet individual government requirements.
There is more flexibility in the SAs than in SOs as the government can add customized technical requirements and suppliers can adjust prices and offer innovation or the latest technology. Both the government and suppliers therefore benefit from dynamic competition.
However, while SAs in particular offered great flexibility through customization of specific assignments, they also created additional issues regarding the protocols for awarding contracts. As the Procurement Ombudsman noted, concerns were expressed with the use of both SOs and SAs, including confusion caused in some instances by overlapping arrangements. The feedback by federal government departments also noted that there was a need for greater industry-specific knowledge by the administrators who managed these master agreements. That feedback also included concerns over a lack of clarity and transparency over spending limits and call-up protocols for the award of discrete assignments:
In some cases, several different procurement vehicles are in place for the purchase of the same good or service. This added complexity leads to confusion among suppliers and departments.
PWGSC has had limited success in retaining the industry knowledge and expertise required to successfully manage commodities.
PWGSC’s rationale for reducing certain contract and call-up limits from TB approved levels is not always clear to departments.
PWGSC’s reasons for determining how contractors will be selected at the second stage (right of first refusal, proportional, lowest cost, etc.) are often not readily understood.
In particular, the Ombudsman’s report raised concerns over the protocols for awarding specific assignments and the creation of additional red tape in the process where complex second stages are used. Ultimately, the report noted the need to balance accountability, which calls for transparent competitive practices, with the need to enhance efficiency, which requires results that achieve best value-for-money in a streamlined and expedited manner:
SAs – How is the number of pre-qualified suppliers on a list determined?
5.90 Ensuring access to contract opportunities for the supplier community argues in favour of SO/SA lists with many named suppliers, each having the opportunity to win contracts. However, dealing fairly with a lengthy list of suppliers poses difficulties.
5.91 With respect to SAs, inviting perhaps hundreds of suppliers to bid may be impractical: for suppliers, which are likely to be reluctant to invest the cost in bidding against so many possible opponents; and for government, which could incur the time and expense of having to evaluate hundreds of bids. Conversely, limiting the SA list to fewer suppliers so that resulting calls for bids can be handled more efficiently by both sides could be seen as limiting access.
5.92 Achieving an appropriate middle ground, so that there is a “win-win” solution for buyers and sellers, is a delicate balancing act. PWGSC strives to find this balance on an ongoing basis. Consistent reporting and monitoring would go a long way to verifying if this balance has been achieved in any particular procurement tool.
SAs – Impact of bidding twice
5.93 One supplier has informed us that the cost of responding to these solicitations is huge, and it is very frustrating and expensive – not just for [suppliers] but also for the government – to have to continuously compete for business when a valid procurement tool already exists. Others have the same view.
5.94 In order to take advantage of an SA, the second-stage solicitation should be simple, fast and not costly to the industry; otherwise, the value added of using this method of supply would be questioned.
The right approach for the right reason
5.95 The SO may be the best approach for commercially available goods and services in common use across government. Many services are very similar to goods – commercially available from multiple suppliers and capable of being divided into standardized categories and priced on a unit-of-work basis.
5.96 When the call-up is made, the total cost is known since the two variables that make up the cost (unit price and quantity) are known. Since the quantity is the same for all suppliers, it is easy to determine which supplier offers best value.
5.97 However, SOs are now in place for more complex requirements that require the development and issue of a statement of work and assessment and evaluation criteria against which an SO holder submits a proposal including proposed resources, time lines for work completion, and calculations of the likely total cost based on level of effort. When the SO holder has to develop a proposal, and the government has the obligation to evaluate that proposal, the SO is being managed as an SA but with only one supplier. This starts to look like a directed contract, compromising the fairness and openness offered by the original solicitation for the standing offer.
The concerns over the transparency of the call-up protocols for awarding discrete contract assignments have resulted in significant scrutiny over these arrangements in recent years, leading to rule amendments to the Canadian federal Supply Manual, which now contains express provisions acknowledging the application of relevant trade treaty rules, along with protocols that now include a minimum posting period, refresh provisions that would allow new suppliers to prequalify on request, and annual refresh opportunities for new suppliers to prequalify. These federal rules also acknowledge that where individual call-ups for discrete assignments are valued above the trade treaty thresholds, they must comply with trade treaty competitive bidding requirements since those discrete contract awards are potentially challengeable through the Canadian International Trade Tribunal (referred to below as the CITT), the administrative tribunal tasked with reviewing and administering trade treaties at the federal government level:
3.50.5. Applicability of Trade Agreements to Standing Offers and Supply Arrangements
a. Contracting officers must determine whether any or all of the trade agreements apply to each procurement.
b. The applicability of the trade agreements (NAFTA, WTO-AGP or AIT) to standing offers and supply arrangements depends on three factors:
i. if the department for which the standing offer/supply arrangement is intended is subject to the agreements;
ii. if the good or service is subject to the agreements; and,
iii. if the total estimated value of all the call-ups (contracts) against a standing offer or all contracts under a supply arrangement (which determines the total estimated value of the offer or arrangement) is above the NAFTA, WTO-AGP or AIT thresholds.
c. The total estimated value is determined before tendering, at which time it is identified whether or not any of the trade agreements apply. If they do apply, SO s and SA s are solicited in accordance with the agreements.
d. Subsequent individual call-ups/contracts cannot be made under the standing offer/supply arrangement without considering trade agreement applicability, and may be subject to a challenge directed to CITT by suppliers.
e. For more information on trade agreements and the use of supply arrangements, see 18.104.22.168 International Trade Agreements and Use of Supply Arrangements to 22.214.171.124 Ongoing Qualification Process.
126.96.36.199 International Trade Agreements and Use of Supply Arrangements
For bid solicitations and proposed contracts under a supply arrangement (SA), the following applies:
a. Where the estimated value of a proposed contract under the SA is below the applicable North American Free Trade Agreement (NAFTA) threshold and/or the World Trade Organization – Agreement of Government Procurement (WTO-AGP) threshold, these agreements do not apply.
b. Where the estimated value of a proposed contract under the SA is above the applicable NAFTA and/or the WTO-AGP threshold, NAFTA and/or the WTO-AGP applies to the bid solicitation.
c. Where NAFTA and/or WTO-AGP apply to a bid solicitation under a SA, a Notice of Proposed Procurement (NPP) must be published on the Government Electronic Tendering Service (GETS) and suppliers must be given at least 40 calendar days to bid. In addition, a supplier that requests to participate in the bid solicitation under the SA may apply for qualification. If qualified, the supplier must be included in the SA within a reasonable period of time. However, after bid closing, the contracting officer does not have to delay the contract award process in order to allow a supplier to go through the qualification process.
188.8.131.52.1 Ongoing Qualification Process
Pursuant to International Trade Agreements, the existence of a list of qualified suppliers must be published by an invitation to qualify at least once a year on GETS. The invitation to qualify must contain the conditions to be fulfilled by suppliers to qualify. Suppliers must be allowed to apply for qualification at any time.
184.108.40.206 Agreement on Internal Trade and Use of Supply Arrangements
Where the estimated value of a proposed contract under the supply arrangement is above the AIT threshold, AIT applies to the bid solicitation. Otherwise, AIT does not apply to that proposed contract.
Where AIT applies to a bid solicitation under a supply arrangement, the AIT allows the use of source lists without publication of a NPP, provided that all suppliers on the source list be invited to bid and that they be able to apply for qualification at any time. It is PWGSC policy that suppliers must be given at least 15 calendar days to bid.
220.127.116.11 Ongoing Qualification Process
Pursuant to AIT, the existence of a list of qualified suppliers must be published at least once a year by an invitation to qualify on GETS or predetermined newspapers. The invitation to qualify must contain the conditions to be fulfilled by suppliers to qualify. Suppliers must be allowed to apply for qualification at any time.
For example, it should be noted that in its March 1999 determination in Re Polaris Inflatable Boats (Canada) Ltd., the Tribunal confirmed that the duty to compete contract awards under the trade treaties goes beyond the creation of master agreement SOs or SAs and also applies to the discrete call-up assignments made under those master agreements. The case involved the creation of a National Master Standing Offer for the acquisition of rigid-hull inflatable boats, parts, and accessories. The complainant was awarded a master agreement, but took issue with the manner in which the product orders were managed in favour of a competing contractor on the roster. The Tribunal found that the treaty requirements continued to apply beyond the award of the master agreement. For the purposes of the treaty requirements, the Tribunal determined that the procurement process remains alive until the government orders a service or product under the master agreement:
[T]he Tribunal’s jurisdiction over any procurement process in relation to a designated contract extends to any aspect of that procurement’s process, up to and including the award of a contract. It is widely accepted in the procurement community that a standing offer is not a contract. Rather, it is a framework agreement which sets out pre-negotiated terms and conditions against which specific orders (call-ups) can be made by authorized users. It is these call-ups which are the actual contracts.
Though it is correct to say that the procurement process is significantly engaged and performed once a standing offer is issued, it is not correct to conclude, as the Department does, that the procurement process is completed. In the Tribunal’s opinion, the process for the procurement of goods or services, acquired by means of standing offer, and, by way of consequence, the Tribunal’s jurisdiction to receive complaints, conduct inquiries and make determinations, continue until (1) the last call-up against that standing offer is made, and (2) until potential suppliers are satisfied that the last contract has been awarded in accordance with the criteria and essential requirements specified in the tender documents or that the time frame prescribed to file a complaint has expired.
For master agreements that are intended to permit multiple ongoing assignments, the trade treaty obligations would therefore presumably apply for the duration of the master agreement. This re-enforces the concerns raised by the Procurement Ombudsman’s report discussed above regarding the need for transparent call-up procedures for the award of discrete assignments under master agreements.
While most of the scrutiny on improper group purchasing practices in Canada has historically been directed towards the federal government, the trend has changed in recent years, with greater attention being paid to the transparency of provincial and broader public sector (BPS) practices. For example, in its November 2016 report on workstation support services entitled Workstation Support Services Contract: An Audit of Due Diligence, the British Columbia Auditor General found that the provincial government onboarded an additional 50,000 workstations onto a 2004 contract, which was originally valued at $300 million (CAD) over 10 years, thereby adding an additional $395 million(CAD) to the original contract award. The audit found inadequate due diligence and a failure to explore other procurement options for the services in question:
Government is looking for opportunities to onboard (or add) other government organizations, such as schools, universities, colleges, health authorities and Crown corporations to these existing contracts. The aim of onboarding is to capitalize on volume cost savings and the expertise the private sector can offer. But it is not straightforward. These contracts are complex and fraught with significant financial, legal and governance risks…. Overall, we found that government’s analysis didn’t show that adding the health authorities to the contract would result in value for money for taxpayers. Its own preliminary analysis showed unlikely cost savings for the health authorities. Throughout the process, decision makers, especially health authority CEOs, didn’t have enough information to make a fully informed decision. There was no overall business analysis to determine if the benefits outweighed the costs, and the legal, policy and financial analyses were limited and not well documented. For example, the business analysis was fragmented and incomplete, and critical aspects of the legal analysis were not written down.
The report recommended that the government establish better practices to manage any future onboarding initiatives:
We surmise that several contributing factors led to the lack of due diligence: a tight timeline, ministry pressure to onboard the health authorities, unclear responsibilities, and a strong belief in onboarding. This could happen again. There are currently 12 similar contracts reported to be worth over $6 billion, and government is looking for opportunities to expand them. Our recommendations focus on how government could make informed decisions for these contracts to better ensure value for money. Public organizations should be able to demonstrate what they’re doing with taxpayer dollars, and why. We recognize the potential benefits to expanding these contracts, but if you’re going to do it, you’ve got to do it right.
The Auditor General also noted that fragmented purchasing and a lack of proper record-keeping adversely impacted the ability to audit the expenditures:
This audit was challenging and hard to deliver in a timely manner largely due to poor records management and high staff turnover with those we audited. Working with multiple organizations that typically work independently of each other exacerbated the challenges of an already complex topic.
Similarly, recent bid protests under the regional New West Partnership Trade Agreement (NWPTA) have brought greater attention to the sole-sourcing and prequalification practices of Alberta municipalities. In an April 2017 ruling in PMH Insights Inc. v. Parkland County, an arbiter found that Parkland County’s software sole-source breached the NWPTA. The dispute dealt with the direct acquisition of management software. The award was challenged by another software provider. The County maintained that the acquisition fell under the open tendering thresholds, however, the arbiter ruled that the County failed to properly document its expenditure to establish that the award fell below the thresholds. The arbiter found the County in breach of the treaty and ordered the County to pay the complainant $10,000 (CAD) in fees and costs.
Furthermore, in a March 2018 ruling in Parkland Geotechnical Consulting Ltd. v. The City of Red Deer, an arbiter found that the municipality breached the NWPTA by introducing unnecessarily restrictive conditions in a pre-qualification process for land development consulting services. The arbiter ruled that reducing the prequalification list to only five consultants and extending the duration of the closed framework arrangement to five years was too restrictive to competition and was therefore in violation of the trade treaty. The arbiter directed the municipality to rectify the breach and ordered it to pay the complainant $28,000 (CAD) in fees and costs.
As this survey of Canadian group purchasing activities illustrates, a diverse range of organizations and structures have evolved across the Canadian landscape to enable group purchasing and the consolidation of public sector spending. The future challenges will be in focusing those operations towards spending solutions that comply with open competition standards.