Canada: Post AIT: CFTA And NWPTA Impacts On Municipalities

Last Updated: April 24 2018
Article by Lindsay Parcells

The Canadian Free Trade Agreement ("CFTA") is an intergovernmental agreement between the federal government and the each of the provincial and territorial governments of Canada to promote more liberalized trade in goods, services, labour, investment and procurement within Canada. CFTA came into force on July 1, 2017. CFTA replaces the former Agreement on Internal Trade ("AIT") and it is generally acknowledged that CFTA is a superior free trade agreement in terms of scope and coverage, detailed rules and enforcement mechanisms. Notably, CFTA does not replace the New West Partnership Trade Agreement between Alberta, British Columbia and Saskatchewan ("NWPTA") and local governments in those provinces remain bound by the terms of NWPTA as well as CFTA. The stated objective of CFTA is set out in Article 101 "to reduce and eliminate, to the extent possible, barriers to the free movement of persons, goods, services, and investments within Canada and to establish an open, efficient, and stable domestic market." Local governments are brought within the requirements of CFTA by Article 103 which provides that each provincial or territorial government is responsible for compliance by its "regional, local, district, and other forms of municipal government".

Overview of CFTA

CFTA is a 345 page document that is divided into seven parts with each part divided into chapters and articles. In addition to the objectives of CFTA stated above, Part I confirms that the agreement applies to trade, investment, and labour mobility within Canada and that the parties are guided by, among other things, the need to eliminate and avoid barriers to trade, investment, and labour mobility within Canada and by the need to ensure non-discriminatory treatment of persons, goods, services, and investments, irrespective of where they originate in Canada. Part II sets out general rules of trade that apply to all parties including to ensure non-discrimination and transparency in all measures related to trade while Part III of CFTA prescribes more specific free trade requirements including those with respect to goods, services and investment (Chapter Three), government procurement (Chapter Five) and labour mobility (Chapter Seven). Part IV provides exceptions to the general rules found in Parts II and III while the remainder of CFTA consists of administrative provisions, including dispute resolution (Chapter Ten) in Part V, definitions in Part VI and the specific exceptions to the free trade rules for each government in Part VII.

Rules Governing Procurement

In general terms, the most important provisions of CFTA for local governments are in respect of the rules governing procurement which are set out in Chapter Five of Part III. Under Article 502, each party is required to provide open, transparent, and non-discriminatory access to covered procurement by its procuring entities. Procuring entities include local governments. Further, each party is required to accord to the goods and services of any other party, including goods and services included in construction contracts, treatment that is no less favourable than the best treatment the party accords to its own goods and services. The same requirement of most favourable treatment also applies to the suppliers of goods and services of any other party, including those goods and services included in construction contracts.

There are a number of words and phrases in Article 502 that merit further attention. The phrase "open, transparent and non-discriminatory access" is not defined in CFTA but widely understood in its everyday meaning. As well, CFTA provides specific examples of what does and what does not constitute open, transparent and non-discriminatory access in the specific rules set out in Articles 503, 506 through 517. For instance, in paragraph 5 of Article 503, the following are examples of procurement practices that would breach CFTA:

  • according a preference for local goods, services, or suppliers;
  • scheduling events in the tendering process in order to prevent suppliers from submitting tenders;
  • specifying quantities of, or delivery schedules for, the goods or services to be supplied in order to prevent suppliers from meeting the requirements of the procurement;
  • using price discounts or preferential margins in order to favour particular suppliers;
  • limiting participation in a procurement only to suppliers that have previously been awarded one or more contracts by a procuring entity;
  • requiring prior experience if not essential to meet the requirements of the procurement;
  • providing information to one supplier in order to give that supplier an advantage over other suppliers; and
  • adopting or applying any registration system or qualification procedure with the purpose or the effect of creating unnecessary obstacles to the participation of suppliers of any other Party in its procurement.

Additional rules governing how procurements must be conducted are set out in Articles 506 through 517. Under Article 506, rules are prescribed for the publication and contents of tender notices. Article 507 provides that a local government must limit its restrictions on participation in a procurement to only those that are essential to ensure that a supplier has the legal and financial capacities, and the commercial and technical abilities, to undertake the relevant procurement. Article 508 permits a local government to limit tenders to prequalified suppliers provided that the prequalification process is consistent with Chapter Five and it is not done in a way so as to circumvent the rules for an open, transparent and non-discriminatory process. Similarly, Article 509 permits a local government to prepare, adopt, and apply any technical specification for the procurement, provided they are not done so for the purpose of creating unnecessary obstacles to trade. Under Article 510, a procuring entity is required to make available to all suppliers any new information or clarification of the original information set out in the tender documentation provided in response to questions from one or more suppliers, in an open, fair, and timely manner. Article 511 requires a procuring entity to establish reasonable time periods for suppliers to prepare and submit responsive tenders.

Article 512 permits procuring entities to conduct negotiations with suppliers, provided the procuring entity has indicated its intent to conduct negotiations in the tender notice or it appears from the evaluation that no tender is obviously the most advantageous in terms of the specific evaluation criteria set out in the tender documentation. As well, Article 513 permits limited tendering in the circumstances described in paragraph 1 provided the limited tendering is not used for the purpose of avoiding competition among suppliers or in a manner that discriminates against, or protects, certain suppliers. Article 514 also permits local governments to conduct a procurement by using an electronic auction, provided the rules in Article 514 are followed.

Articles 515 through 517 round out the specific rules for procurement. Under Article 515, a local government must receive, open, and treat all tenders under procedures that guarantee the fairness and impartiality of the procurement process, and the confidentiality of tenders. Article 516 requires a local government to promptly inform participating suppliers of its contract award decisions, and, on the request of a supplier, do so in writing. Subject to Article 517, a local government must also, on request, provide an unsuccessful supplier with an explanation of the reasons why the procuring entity did not select its tender. The exceptions in Article 517 include any supplier information that might prejudice fair competition or any disclosure of information that would: impede law enforcement; prejudice the legitimate commercial interests of third persons, including the protection of intellectual property; be contrary to the public interest; or that would be exempt from, or contravene, the Freedom of Information and Protection of Privacy Act, or other applicable enactments.

"Covered Procurements" and Threshold Amounts

Article 502 also provides that only a "covered procurement" is subject to the procurement rules under CFTA. To determine what constitutes "covered procurement", reference must be had to Article 504 which prescribes the rules concerning scope and coverage of CFTA in respect of procurement. Under paragraph 2 of Article 504, "covered procurement" is defined as

"procurement for governmental purposes by a procuring entity of a good, service, or any combination thereof, by any contractual means, including purchase, lease, and rental, with or without an option to buy.

Also, to be a "covered procurement", the value of the procurement must equal or exceed the relevant thresholds set out in paragraph 3 of Article 504. The thresholds in paragraph 3 of Article 504 for local governments are $100,000 or greater for goods or services, excluding construction and $250,000 or greater for construction. These thresholds are greater than those found in NWPTA (which are $75,000 for goods and services and $200,000 for construction) and so compliance with the thresholds in NWPTA will also mean compliance with CFTA. The CFTA thresholds will also be adjusted for inflation under paragraph 4 of Article 504 and so they will gradually increase over time.

The rules for valuation of a procurement for threshold purposes are set out in Article 505. Under paragraph 1 of Article 505, a local government must estimate what the value of the procurement would be as of the date the tender notice will be published the estimate must include the estimated maximum total value of the procurement over its entire duration, whether awarded to one or more suppliers, taking into account all forms of remuneration under the procurement contracts. If the procurement is for construction, the procuring entity must include in its valuation the value of all goods and services to be supplied by the supplier in connection with the construction.

Exceptions to the Procurement Rules

A covered procurement having a value that equals or exceeds the thresholds under Chapter Five may nevertheless be exempt from the normal procurement rules. Article 520 provides that a covered procurement is subject to the exceptions set out in a party's Schedule to Annex 520.1. The federal government and each province and territory has its own schedule with various exceptions to the general procurement rules listed. British Columbia's Schedule limits its procurement rules exceptions to circumstances where another government or province has imposed procurement exceptions under their respective schedules and then only to the extent of the exception provided for by the other party. It remains to be seen if the developing trade war between Alberta and British Columbia arising from the Kinder Morgan Pipeline controversy may lead to procurement exceptions being imposed against Alberta suppliers. Other limited exceptions are also permitted in the circumstances detailed in paragraphs 2 through 4 of Article 520.

Dispute Resolution

Chapter Ten of CFTA sets out the rules for dispute resolution in cases where a party has, or is alleged to have, breached the agreement. Dispute resolution may consist of government to government dispute resolution between the provinces, territories or federal government under Part A of Chapter Ten or dispute resolution between a private party and a government under Part B. Under Article 1000, parties undertake to resolve disputes in a "conciliatory, cooperative, and harmonious manner"; however, if governments are unable to do so, Part A of Chapter Ten provides for monetary penalties or the imposition of tariff costs. Dispute resolution under Part A is prescribed for the federal, provincial and territorial governments and so a local government breach of CFTA would be resolved by the province assuming responsibility for the matter on behalf of the local government. Crucially for local governments, under Article 1001, private party –government disputes do not apply to local governments; however, it remains to be seen whether a private party could launch a civil action against a local government outside the dispute resolution process provided by CFTA for breaching its CFTA obligations.

Best Practices for Local Governments

Local governments should ensure that their procurement policies align with the requirements of CFTA, provided that thresholds for public procurements should be set at the more stringent levels prescribed by NWFTA ($75,000 for goods and services and $200,000 for construction) to ensure compliance with both NWPTA and CFTA. CFTA provides detailed requirements that if followed, will enable local governments to provide free, open and transparent procurements and help ensure that citizens receive good value for the goods and services their local governments provide.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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