On July 10, 2025, the federal government released Contracting Policy Notice 2025-5 (Reciprocity in Federal Procurement and Amendments to the Canadian International Trade Tribunal Procurement Inquiry Regulations), and the Interim Policy on Reciprocal Procurement1. The Policy is effective as of July 14, 2025. The Regulations (which apply to complaints at the Canadian International Trade Tribunal) are effective June 13, 20252.
Described as a shift from Canada's "open by default" procurement approach, the Policy seeks to ensure equitable market access for Canadian federal suppliers and to prevent "non-reciprocating countries" from benefiting from federal procurement opportunities.
We explain below how this new Policy could change the federal procurement landscape and why it may render some Canadian suppliers not "Canadian enough" for federal procurement opportunities.
Who Is Out and Who Is In as a Federal Supplier?
Unless a Policy exclusion applies, contracting authorities must limit procurements to Canadian suppliers and suppliers of an applicable trading partner or joint ventures consisting of Canadian suppliers and/or suppliers of an applicable trading partner.
- A "Canadian supplier" must have a place of business in Canada "where it conducts business on a permanent basis" that is "clearly identified by name" and "accessible during normal business hours".
- A "supplier of an applicable trading partner" must (i) be from a jurisdiction with a reciprocal trade agreement that has a government procurement chapter that both Canada and the supplier's jurisdiction have signed3, and (ii) have the same business structure (as above vis place of business) in that jurisdiction that Canadian suppliers must meet in Canada.
Suppliers in jurisdictions that do not have a reciprocal trade agreement with Canada (referred to as "suppliers of a non-trading partner") can no longer access federal procurements alone or as part of a joint venture.
Does the Policy Apply to All Federal Procurements?
No, but the exceptions are limited.
Many Policy exceptions reflect those found in trade agreements, or the exceptions from competitive procurement requirements under the Government Contracts Regulations. For example, these include low dollar value procurements (less than $10,000), missions abroad, procurements limited to Indigenous businesses, or delivery of goods or services outside of Canada.
Defence procurements have a broader exception. The Policy does not apply if at least 51% of the estimated value of a contract is for "Defence Goods" or "Defence Services", or a combination of Defence Goods andServices, for the Department of National Defence (DND), the Canadian Coast Guard (CCG), or the Royal Canadian Mounted Police (RCMP)4.
Also, contracting authorities may exclude a procurement from the Policy on a case-by-case basis where "strictly necessary" if:
- the good or service cannot be obtained from a Canadian supplier or a supplier of an applicable trading partner for reasons of non-availability, insufficient quantity, or quality; or
- limiting competition will impact a best value pricing outcome; or
- it is not in the public interest to apply the Policy.
For a best value or public interest exception to apply, the use of the exception must be approved by the applicable internal authority.
The Policy does not apply to solicitations published before the effective date of the Policy (July 14, 2025) or existing contracts, including awarded Supply Arrangements and Standing Offers. However, readers should note that the Policy will apply to Supply Arrangements5 and Standing Offers when they are renewed.
Are Canadian Suppliers Impacted?
Yes, and not in a good way.
The definition of "supplier" uses a "brick and mortar" approach, requiring physical locations with regular business hours. The definition ignores the thousands of small businesses (including those from marginalized groups who already face significant barriers to participation in federal opportunities6) who will not be "Canadian enough" to meet the Canadian supplier definition. Additionally, these suppliers will lose the benefit of participating in procurements with a more established supplier as part of a joint venture (joint ventures are often how smaller suppliers build experience so that they may later compete independently).
Conclusion
In the face of US government disregard for trade agreements, Canada has taken a more measured approach. But the Policy definitions are a bridge too far - failing to consider Canada's social policies for procurement and risking removal of Canadian suppliers from federal procurement opportunities entirely7.
Before bidding for opportunities, Canadian and foreign suppliers, including defence suppliers, will need to assess whether they are able to participate in the procurement if the Policy is applied, and whether any restrictions on their participation (alone or in a joint venture) may breach Canada's trade agreement obligations. This same assessment will need to be applied to the Supply Arrangements or Standing Offers the supplier holds. Suppliers should be contacting the Supply Arrangement/Standing Offer authority to determine if the Policy will be applied or is applicable to their procurement vehicle.
Footnotes
1. Note that this is characterized as a "interim" policy. In a press release issued on July 14, 2025, PSPC advises that Phase 2 (date of release unconfirmed) of the policy will provide that the final policy will determine supplier eligibility based on the origin of goods and services being offered Canada is also looking to maximize the use of Canadian steel and aluminum in government-funded projects. https://www.canada.ca/en/public-services-procurement/news/2025/07/canadas-new-government-implements-interim-reciprocal-procurement-to-protect-canadian-businesses-from-unfair-trade-practices.html.
2. Register here to receive our upcoming bulletin on the Procurement Inquiry Regulations changes here: Procurement | Services | Fasken.
3. Both Canada and the supplier's home country must have signed the government procurement chapter of the applicable trade agreement. For example, Canada did not sign the government procurement chapter of CUSMA, but Canada and the US have signed the Agreement on Government Procurement under the WTO.
4. Many of the listed "Defence Goods" in Annex "A" of the Policy are excluded from coverage under Canada's international trade agreements when purchased for DND, the Canadian Coast Goard, and the RCMP or would be acquired under the National Security Exception (NSE) that removes the procurement from trade agreement coverage. Recent changes to the Procurement Inquiry Regulations and the GCRs provide additional exceptions for defence procurements from competitive procurement requirements. See our bulletin here: https://www.fasken.com/en/knowledge/2025/02/new-federal-regulations-may-significantly-impact-competitive-procurement-processes.
5. Supply Arrangements must all be renewed by July 14, 2026.
6. For example, the federal Policy on Federal Procurement seeks to enable small and disadvantaged suppliers to participate in federal procurement opportunities (many of whom may not have an established "brick and mortar" business set up): https://www.canada.ca/en/public-services-procurement/services/acquisitions/social-procurement/policy.html. If a procurement is not set aside for Indigenous businesses, this may also impact Indigenous Businesses access to federal procurement as a small or medium-sized Indigenous business may not meet the "Canadian supplier" definition.
7. See our bulletin on similar concerns created in Ontario by the Procurement Restriction Policy. Intended to prevent US businesses from bidding for provincial procurements, it also captures Canadian businesses: https://www.fasken.com/en/knowledge/2025/04/ontario-public-sector-prohibited-from-purchasing-from-us-businesses.
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.
