Section V: Procurement

Organizations that are either conducting competitive procurement processes in Canada or seeking business opportunities by participating in competitive procurement processes need to understand some basic principles about how procurement law in Canada differs from other jurisdictions.

The following is a summary of the law of procurement as it applies to all of the common law provinces and territories of Canada, that is, all of the provinces and territories other than Quebec. While some of the common law principles are applicable in Quebec, there are also specific statutory rules with respect to conducting competitive procurement processes and contracting with government.

1. Procurement Law Framework

The law in Canada with respect to competitive procurement/tendering has been in development since 1981 and is based entirely on common law, in other words, there is no single piece of legislation that governs competitive bidding. What is somewhat unique to Canadian law is that competitive procurement processes create two contracts: (i) the bidding contract, which sets out the “rules” that apply up until the completion of the competitive procurement process, and (ii) the substantive contract entered into between the procuring authority and successful bidders. This contractual framework applies to both the public and private sector when issuing or responding to competitive procurement processes.

For the public sector, layered on top of this contractual legal framework is a collection of trade agreements and government guidelines that regulate procurement practices of government and quasi-government entities. These agreements and guidelines generally set out when a public-sector entity is required to conduct an open, competitive procurement process for the acquisition of goods and services, as well as establish certain principles that apply to the procurement processes. A more detailed discussion of these governance obligations is set out below.

1.1 - Case law

There are a number of seminal Supreme Court of Canada (SCC) cases that presently inform the law of competitive procurement in Canada:

The first, and seminal, case is The Queen (Ont.) v. Ron Engineering & Eastern Construction (Eastern) Ltd., where the SCC first articulated the “Contract A/Contract B” analysis. Contract A is the contract that is made when a bidder submits a bid in response to an invitation to tender, or similar document. Contract B is the agreement that will be formed between the procuring authority and the winning bidder. This case established the legal framework for the development of procurement law in Canada.
In M.J.B. Enterprises Ltd. v. Defence Construction (1951) Limited (MJB), the SCC clarified that Contract A can only be formed between a procuring authority and compliant bidders; that is, a procuring authority is contractually obliged through Contract A to accept only compliant bids, and only compliant bidders have legal remedies arising from the procurement process as against a procurement authority. At the same time, the SCC recognized and accepted that procuring authorities are entitled to consider “nuanced” views of price and are therefore not bound as a matter of principle to accept only the lowest of compliant bids.
The third case, Martel Building Ltd. v. Canada (Martel), affirms that there is a duty owed to treat all compliant bidders fairly and equally, but always with regard to the terms of Contract A as set out in the competitive procurement documents, in this case, a tender call. At the same time, the SCC held that competitive procurement requirements where Contract A is created are not negotiable; that procuring authorities have the right to reserve privileges and impose stipulations; and that there is no duty of care owed in respect of the preparation of competitive procurement documents.
The last and most recent seminal case is the 2010 decision in Tercon Contractors Ltd. v. British Columbia (Tercon) in which the SCC refused to enforce a waiver clause with respect to damages arising out of a breach of Contract A. This case required the SCC to face the competing tension between the implied obligation of “fairness” in procurement and the principle that courts should enforce valid contractual terms. It appears that in a conceptual battle between the right to contract and public policy to protect the integrity of fairness in competitive procurement processes, the fairness obligation has prevailed. There were two other important issues dealt with or alluded to in Tercon. First, the SCC left the door open for negotiation within a competitive procurement process, subject to disclosure and a prohibition against changing the fundamental nature of Contract B. Second, the SCC made a brief reference to other administrative law remedies available to a disgruntled bidder, thereby reinforcing the idea that judicial review was an available course of action to challenge public-sector procurement processes.

There are a few other key cases decided by the SCC that are worth mentioning. In Design Services Ltd. v. Canada, the SCC refused to recognize a new cause of action for “negligent procurement,” and, in Double N Earthmovers Ltd. v. Edmonton, the SCC held that a procuring authority is permitted to renegotiate a contract on which a competitive procurement process was based after Contract B is signed. Most recently in Bhasin v. Hrynew, the SCC affirmed the MJB, Martel and Tercon cases, noting that a duty of good faith will be implied in fact in the tendering context and that there is a duty of fairness in considering bids submitted under a tendering process.

While not a SCC case, the recent Federal Court decision in Rapiscan Systems Inc. v. Canada (Attorney General), which was upheld by the Federal Court of Appeal, established that when using flexible formats, public institutions must still follow due process rules or face legal challenges that can result in unfair contract award decisions being struck down by courts through judicial review.

The case law has clearly drawn a distinction between competitive procurement processes that are binding (where Contract A is created) and those that are not intended to be binding (where no Contract A is created). Courts have emphasized that a procuring authority must be clear in its competitive procurement documents as to its intention to create Contract A.

1.2 - Procurement governance

1.2.1 - Understanding an organization’s procurement regulatory framework

A public-sector organization, or an entity that receives the majority of its funding from government, must be conscious of the “procurement regulatory framework” within which it is obliged to function. Each public-sector organization has a unique procurement governance framework and to understand the procurement governance framework of an organization, the following issues should be considered:

Are there any procurement statutes that apply to the organization? For example, in Ontario, the Broader Public Sector Accountability Act prescribes a procurement governance framework for public-sector entities.
What is the legal status of the organization, and does it impact the applicable procurement regulatory framework? For example, in Ontario, is the organization an “agency,” a “ministry,” a “broader public-sector organization,” a “publicly funded organization,” a “designated broader public-sector organization” or a “local board”?
Does the organization have a funding agreement or memorandum of understanding with the provincial or federal government? Does that funding agreement or memorandum of understanding specify procurement obligations?
Does the organization have internal procurement policies that it is obliged to follow?
Are there any trade agreements that apply to the organization? For example, is the organization “listed” as an organization subject to the Canada-European Union Comprehensive Economic and Trade Agreement or the Comprehensive and Progressive Agreement for Trans-Pacific Partnership?
How do the various applicable “regulatory schemes” function as a whole to regulate the organization?
Are there any requirements to obtain authorization to participation in the procurement process? For example, in Quebec there may be requirements to obtain an authorization delivered by the Autorité des Marches Financiers as a condition to participation to certain procurement processes.

An organization’s procurement governance framework dictates when an open, competitive procurement process is to be used; the circumstances under which an open, competitive procurement process is not required; the principles to be applied to a competitive process undertaken by the organization; and how disputes in relation to the competitive process are to be resolved.

A more detailed discussion of trade agreements is set out in Section IV.3, “International Trade Agreements.”

1.2.2 - Procurement obligations in trade agreements

An expanding and important factor in the Canadian procurement context is the requirements imposed by various domestic and international trade treaties. The connection between trade treaties and procurement is a relatively straightforward one: since regulating public-sector and quasi-public-sector purchasing is an important way to encourage the elimination or management of trade barriers, procurement rules to ensure fair and open access to government contracts are a natural consequence. Therefore, all government and public-sector entities must be certain to understand which international and domestic trade treaties, and embedded procurement process requirements, apply to them. See Section IV.3, “International Trade Agreements.”

1.2.3 - Federal government procurement

The specific requirements relating to federal government procurement are established and implemented by Public Services and Procurement Canada (PSPC), formerly referred to as Public Works and Government Services Canada (PWGSC), which publishes standardized procurement and contract documents for use by various federal government departments and agencies. The Supply Manual is the federal government’s procurement policy and contains provisions with respect to when the government will conduct an open, competitive procurement process and when it will not; how a procurement process will be conducted; the terms and conditions of a typical procurement process; and how disputes with the federal government are to be resolved.

A separate body of case law arising out of decisions of the Canadian International Trade Tribunal (CITT) is dominant in the regulation of federal government procurement processes. It is important to note that CITT and federal court cases arising out of appeals from CITT decisions form a second body or “stream” of case law that sets out the legal context within which federal government procurements are to proceed. A bidder’s rights in relation to disputes arising from federal procurement processes will be largely determined by this stream of case law and bidders have the ability to appeal federal government procurement decisions to the CITT, rather than as a civil proceeding.

1.2.4 - Comprehensive Economic and Trade Agreement (CETA)

CETA is an international trade agreement between Canada and the European Union (EU) that entered into force on a provisional basis on September 21, 2017. Under CETA, Canada and the EU have committed to reciprocal non-discrimination in the government procurement context. CETA opens up competition for Canadian and EU suppliers to a wide range of government procurement activities by central government agencies (federal), sub-central government agencies (provincial) and associated agencies (municipalities, school boards, universities and others), with the exception of the excluded entities named in an annex to CETA.

Subject to the financial thresholds and certain exceptions set out under CETA, the procurement of all goods is covered, while the procurement of only specifically identified services is covered.

1.2.5 - Canada-United Kingdom Trade Continuity Agreement (CUTCA)

CUTCA is a bilateral trade agreement between Canada and the United Kingdom that was signed on December 9, 2020 and entered into force on April 1, 2021, after being ratified by both countries. The UK officially left the EU on January 31, 2020 and as a result, CETA ceased to apply to Canada-UK trade on January 1, 2021. CUTCA is an interim agreement that preserves preferential market access for both countries by substantially replicating CETA until negotiations for a more comprehensive free trade agreement are finalized.

CUTCA incorporates obligations regarding government procurement by reference to CETA. Accordingly, both agreements are substantively similar in this regard.

1.2.6 - Canadian Free Trade Agreement (CFTA)

CFTA is a domestic trade agreement among the Canadian provinces, territories, and the federal government that entered into force on July 1, 2017. CFTA replaces the 1995 Agreement on Internal Trade Act (AIT), and while CFTA carries forward similar public procurement principles to those found in the AIT, it also contains some important changes, which are intended to align Canada’s domestic trade arrangements with its international treaties, such as CETA. The entities covered by CFTA are set out in annexes to CFTA, and each province and territory has a different list of covered entities.

Subject to the financial thresholds and certain exceptions set out under CFTA, the procurement of all goods and services is covered.

1.2.7 - Canada-United States-Mexico Agreement (CUSMA)

The CUSMA is an international trade agreement among Canada, the United States and Mexico that was signed on November 30, 2018 and replaces the North American Free Trade Agreement (NAFTA). The CUSMA entered into force on July 1, 2020, after being ratified and adopted as domestic legislation by all three countries. Chapter 13 of the CUSMA covers government procurement, however, it applies only as between the U.S. and Mexico and does not apply to Canada. The WTO Agreement on Government Procurement will govern procurement between Canada and the U.S, and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership will govern procurement between Canada and Mexico.

1.2.8 - Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

The CPTPP is an international trade agreement among Canada and 10 other countries in the Asia-Pacific region: Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The CPTPP entered into force on December 30, 2018 for Canada, Australia, Japan, Mexico, New Zealand, and Singapore, and on January 14, 2019 for Vietnam. The CPTPP is the successor to the Trans-Pacific Partnership (TPP), which was signed on February 4, 2016, but never ratified. The CPTPP incorporates the majority of the TPP provisions by reference, with the exception of certain provisions identified for suspension.

The government procurement provisions in the CPTPP are largely based on the WTO Agreement on Government Procurement (GPA), however, the CPTPP builds on the WTO GPA’s rules regarding non-discrimination, transparency and procedural fairness for covered government procurement activities. The central government agencies (federal), sub-central government agencies (provincial) and other entities (Crown corporations) covered by CPTPP are set out in annexes to CPTPP, and each province and territory has a different list of covered entities.

Subject to the financial thresholds and certain exceptions set out under CPTPP, the procurement of all goods is covered, while the procurement of only specifically identified services is covered.

1.2.9 - Defence Procurement Strategy

The Department of National Defence and Public Works and Government Services launched a Defence Procurement Strategy (DPS) in early 2014. The DPS represented a fundamental change to the government’s approach to defence procurement. In particular, a key component of the DPS is the rating and weighing of “Value Propositions” as part of the bid evaluation process, depending on the value of the procurement.

2. Issues for Organizations Participating in Canadian Procurement Processes

For organizations participating in Canadian procurement processes, there are three fundamental questions to consider when determining the extent and scope of their legal rights and risks in a competitive procurement.

2.1 - What is the procurement governance regime that governs the procuring authority?

This issue is only applicable to public-sector and quasi-public-sector entities, that is, entities that receive the majority or a substantial portion of their funding from public sources.

The answer to this question will determine what procurement obligations the procuring authority is bound by, such as whether the procuring authority is required to conduct an open, fair and transparent process and under what circumstances an entity may obtain goods or services without a competitive process, such as through a single source or sole source.

This will also determine what options are available to a bidder to challenge the procuring authority’s competitive procurement process, its decision about whether or not to conduct a competitive procurement process, or other issues related to the procurement process.

2.2 - Is the competitive procurement process a binding or non-binding process?

Each procurement process, irrespective of the label given to it, is assessed from a Canadian procurement law perspective on whether or not Contract A, the procurement contract, has been validly created. Therefore, the label given to a competitive procurement process is not as important as whether the competitive procurement documents contain the “hallmarks” of the existence of Contract A. The creation of Contract A forms a binding legal agreement between the procuring authority and the bidder, and is referred to as a “binding” procurement process.

The following have been identified in the case law as hallmarks of Contract A:

Submissions/bids are irrevocable for a defined period of time
Bidders provide bid security
Restriction on a bidder’s ability to change its proposal after the submission deadline
Fully formed contract for goods and/or services is attached to the procurement documents and the successful bidder is required to execute the contract in substantially the same form
Pricing, once submitted, is fixed and non-negotiable

2.3 - What are a bidder’s rights in a binding procurement process?

If the procurement process is a binding process, that is, if Contract A is validly formed, then there are certain rights and obligations on the part of both the procuring authority and the bidder that become effective.

2.3.1 - Duty of full disclosure

A procuring authority has the duty to disclose to all bidders the nature of the work, all preferences and biases, evaluation criteria, and the terms and conditions of the tendered contract.

This means that a procuring authority is obligated to disclose information about the tendered contract that could impact a bidder’s decision to bid and pricing.

A procuring authority is required to disclose all evaluation criteria that will be used to evaluate bids, including the relative weighting of each criterion.

2.3.2 - Duty of fairness and good faith

Canadian courts have consistently imposed an implied duty of fairness based on the principle that the integrity of competitive procurement processes must be protected by the courts. This principle applies equally to the public and private sectors.

From a practical perspective, this means that:

All bidders are entitled to equal access to information during a procurement process, which means that a procuring authority cannot selectively withhold information from some bidders
A procuring authority must conduct a transparent evaluation process that follows the rules pre-established in the procurement documents
A procuring authority must avoid conflicts of interest, unfair advantage or the operation of bias throughout the process
A procuring authority must reject non-compliant submissions, that is, bids that do not materially comply with the requirements of the procurement documents
A procuring authority must award the contract to the winning submission, that is, the highest-scored/lowest-priced, compliant proponent

2.4 - Compliance with federal government integrity provisions

Organizations interested in selling goods and services to the federal government or those with existing contracts with the federal government should be aware of recent developments related to “integrity” in procurement. The federal government’s procurement policy includes provisions to ensure that the federal government does business only with businesses and individuals that act with integrity. Businesses or individuals that are bidding on federal government contracts must be aware of the disclosure requirements set out in the integrity provisions or risk having a bid declared unresponsive or having a contract terminated.

A bidder responding to a federal government procurement process must make certain certifications about itself and its “affiliates,” which are broadly defined to include a wide range of related entities and individuals, and its board members. Bidders must provide certifications relating to certain criminal convictions and lobbying activities of bidders, affiliates and the members of the bidder’s board of directors. In addition, bidders, including directors of corporate bidders, must consent to a criminal record check. Disclosure or evidence of certain convictions of a bidder or any board members, particularly relating to fraud or bribery, may preclude that bidder from winning a federal government contract for a period of 10 years.

The integrity provisions have been subject to review and modification over recent years. These revisions resulted in more stringent disclosure requirements reflecting the federal government’s uncompromising position against corruption in government business. Changes in July 2015 involved the implementation of an “Integrity Regime,” which replaces the “Integrity Framework” introduced in 2012. The new Integrity Regime eliminates automatic debarment for the actions of affiliated companies that existed under the Integrity Framework and also allows for a reduction in the 10-year debarment period to five years for companies that undertake appropriate remedial conduct. Further amendments in April 2016 introduced a requirement to provide certifications relating to certain foreign criminal charges and convictions, and created an automatic 10-year determination of ineligibility for a false or misleading certification. In March 2018, the federal government announced enhancements to the Integrity Regime’s Ineligibility And Suspension Policy, including introducing more flexibility in debarment decisions, increasing the number of triggers that result in debarment, exploring alternative measures to further mitigate the risk of doing business with organized crime and expanding the scope of business ethics covered under the regime. Although the enhanced Integrity Regime was expected to be effective in early 2019, it is not yet in force.

3. Issues for Organizations Conducting Competitive Procurement Processes in Canada

As an organization conducting a procurement process in Canada, there are three fundamental questions to be answered prior to launching a procurement process:

3.1 - What are the organization’s internal procurement obligations?

For public-sector and quasi-public-sector entities, understanding the organization’s procurement obligations means understanding the applicable procurement governance framework. See Section V.2, “Issues for Organizations Participating in Canadian Procurement Processes.” The procurement governance framework will determine what procurement obligations the procuring authority is bound by, including whether the procuring authority is required to conduct an open, fair and transparent process and under what circumstances an entity may obtain goods or services without a competitive process, such as through a single source or sole source.

For private-sector entities, understanding the organization’s procurement obligations means understanding any internal policies or guidelines with respect to when open, competitive procurement processes are required, or recommended, and with respect to any procedural requirements with respect to the process itself.

3.2 - Does the organization wish to conduct a binding or non-binding competitive procurement process?

As described in Section V.2.2, “Is the competitive procurement process a binding or non-binding process?”, each procurement process is assessed from a Canadian procurement law perspective on whether or not Contract A, the procurement contract, has been validly created. Since the creation of Contract A forms a binding legal agreement between the procuring authority and the bidder, a procuring authority should determine in advance of issuing procurement documents whether it intends to create a binding process or not.

3.3 - What are a procuring authority’s requirements in a binding procurement process?

In a binding procurement process, Canadian courts will imply a set of terms and conditions into the procurement process, which procuring authorities, whether they are public-sector or private-sector entities, must be aware of and which must be followed:

Procuring authorities must at all times adhere to the terms and conditions of Contract A and they cannot accept any non-compliant bids, no matter how attractive they may be.
Procuring authorities must treat all compliant bidders fairly and in good faith, particularly during the evaluation of any bidder’s submission.
Procuring authorities cannot make their ultimate decisions to award or reject submissions based on criteria that are not disclosed in the terms and conditions of the procurement documents.

The law permits procuring authorities to create the terms and conditions of Contract A, or the bidding contract, as they see fit. Thus, privilege clauses that provide the procuring authority with discretionary rights are recognized as fully enforceable and, if properly drafted, allow procuring authorities to reserve to themselves the rights to award contracts to bids that may not be for the lowest price, or not to award contracts at all.