Ontario’s new procurement law is “protectionist theatre,” says public procurement lawyer

The Ontario government’s proposed legislation aimed at providing companies in the province with greater access to public procurement opportunities is a “centrally rigged protectionist theatre show,” says a prominent procurement lawyer and former Ontario Attorney General counsel.

The Building Ontario Business Initiative (BOBI) is an “ill-conceived scheme that would impose significant new costs, complexities and risks on Ontario public institutions, while potentially causing more harm than benefit to Ontario businesses,” Paul Emanuelli (photo at left), general counsel and managing director of Toronto-based The Procurement Office, said in an article on the company’s website.

Emanuelli gave Research Money permission to cite freely his article, “‘Buy Ontario’ Scheme a Protectionist Pantomime.” He has more than 25 years of experience in public procurement, has trained thousands of procurement professionals from hundreds of institutions across North America, and was recognized by Who’s Who Legal as one of the top 10 public procurement lawyers in the world.

The new law would require all taxpayers and businesses in Ontario to subsidize a scheme that only benefits the select group of Ontario businesses that compete for the province’s public sector contracts, Emanuelli said.

“BOBI could end up costing Ontario jobs when Ontario businesses lose work outside of Ontario due to retaliatory sanctions imposed on them in response to these protectionist practices,” he said.

BOBI has received three readings in the Legislative Assembly. However, the act has yet to come into force, requiring a proclamation by Ontario’s Lieutenant Governor.  

Ontario’s Treasury Board Secretariat declined to comment on Emanuelli’s article or say when the provincial government intends to enact BOBI.

The Ontario government has maintained that BOBI will reduce barriers and provide companies in Ontario with greater access to public procurement opportunities, helping them sell more goods and services, create jobs in their local communities and recover from the economic effects of the COVID-19 pandemic.

“Further, the initiative will strengthen Ontario’s supply chain resiliency and better prepare the province for potential future emergencies,” according to the government.

The government has already passed the Building Ontario Business Initiative Act, which mandates public sector entities to give Ontario businesses preference when conducting procurement for goods and services.

The legislative change will see the government targeting to spend at least $3 billion in contracts awarded to Ontario businesses annually by 2026. The change will apply to the province’s overall procurements, amounting to $29 billion in goods and services annually across all public sector organizations.

A new provincial supply chain agency, Supply Ontario, has been created to operate as a “modern and efficient” single supply chain organization for the Ontario Public Service, the broader public sector and the health sector. The agency’s activities include streamlining and modernizing public sector procurement to improve customer service and make it easier to do business with the Ontario government and the broader public sector.

But Emanuelli argued that BOBI threatens to drown public institutions in reams of new procurement regulations.

“In addition to being ill-conceived in purpose, the new law is also unclear in scope,” he said. BOBI would apply to provincial-level government ministries and agencies, as well as universities, colleges, school boards and hospitals, but it is unclear if it will also be applied to municipalities,” he noted.  

BOBI would never help all Ontario businesses, since it is limited to only helping select Ontario businesses that compete for government contracts, Emanuelli said. “A massive amount of public sector procurement contracts across Ontario could be exposed to complex protectionist preferences based on future regulations centrally mandated by the provincial cabinet.”

New law could make Ontario businesses a target of retaliatory protectionist measures

Emanuelli said if the government really wants to help Ontario businesses, it could:

• reduce individual provincial taxes to make Ontario wages more competitive.
• reduce provincial corporate taxes for small and medium-sized businesses.
• provide a break on the “punitive” Employment Health Tax that imposes new taxes on small businesses when they have modest growth.

BOBI flies in the face of well-established public procurement rules, including those in the Canadian Free Trade Agreement which aligns the Canadian government’s procurement rules with international anti-protectionist standards, Emanuelli said.

He pointed out that treaty enforcement mechanisms include the right of suppliers across Canada, and internationally for larger contracts under similar international treaties, to legally challenge the unlawful imposition of discriminatory barriers against open competition in public sector bidding.

“While awarding to local suppliers may have appeal on a superficial level, jurisdictions across Canada and globally can and will retaliate by imposing their own protectionist policies against Ontario suppliers,” he warned.

“Once Ontario’s misguided local preference train starts rolling, it could derail the entire public procurement system and cause collateral damage across the entire economy,” Emanuelli  said.

Along with BOBI, the Ontario government launched the Industrial Regional Technology Benefit (IRTB) requirement on contracts valued at $10 million and above. IRTB will embed economic development considerations into the procurement process. These considerations would include the amount of investment the winning vendor would make in the province, the jobs created or sustained, or how the procurement could spur research and innovation.

The Canadian Manufacturers & Exporters (CME) industry association, in offering advice on BOBI, said the legislation should establish weighted domestic criteria to embrace value-based procurement. “It should become standard for Ontario public sector organizations to consider the full life cycle of a product or service purchased.”

CME also recommended that a percentage of all requests-for-proposals from publicly funded institutions should be awarded to Ontario manufacturers. Users of products and services purchased should retain a say in procurement processes, said the industry association.

Supply Ontario should have dedicated teams with expertise in the area in which procurement is being conducted (for example, procuring for Ministry of Transportation would have experts in transportation system technologies; teams procuring for health care would have knowledge of value-based health care methodologies, etc.), CME recommended.

The overarching principle should be to maximize preference to local businesses in the most trade compliant way possible, while also preserving the incentive for foreign-based company to establish operations in Ontario, said the association.

More proactive approach to government procurement needed

The Council of Canadian Innovators (CCI) said it supports the Building Ontario Business Initiative, but recommended several changes to the legislation.

CCI is calling for a more engaged, proactive approach to government procurement, Skaidra Puodžiūnas, CCI’s Ontario director of government affairs, said in an email to Research Money.

There should be an evaluative framework that includes things like future growth plans and job creation commitments, along with inclusivity and diversity as well as innovation and investment spillovers, she said.

“The government should be actively and continually assessing companies through this evaluation framework, and if companies are gaming the system, they will be identified,” Puodžiūnas said. “This isn’t a set-it-and-forget-it policy, but a call for ongoing strategic engagement, with policy guardrails to ensure that the government is getting value for money and fairly awarding contracts, while also generating the maximum economic benefit for Ontario companies.”

CCI also is encouraging the Ontario government to take a more nuanced view of what the definition of an Ontario business is under BOBI.

“For example, if an Alberta headquartered company has robust plans to invest, hire and contribute substantially to Ontario’s economy in the near future, we’d like this scenario to be considered. This helps ensure Ontario attracts promising Canadian enterprises and stimulates investment inflow from other provinces,” Puodžiūnas said.

The government has yet to supply a definition of an Ontario business under BOBI, but is contemplating a definition that determines whether a business has a “permanent presence” in Ontario. It will consider such things as the percentage of full-time employees located within Ontario, the percentage of compensation paid in Ontario, and the percentage of the value that the business produced in Ontario.

CCI is calling on Ontario to prioritize Canadian-controlled and Canadian-headquartered companies, Puodžiūnas said. “This approach avoids the deadly pitfalls of foreign direct investment and ensures that government procurement dollars prioritize stimulating the Canadian economy, while also making Ontario a particularly attractive place to invest.”

As for ensuring intellectual property is retained under BOBI by Ontario companies, the CCI isn’t saying it should necessarily be a requirement for procurement contracts, Puodžiūnas said. “But in a world where the Ontario government is aiming to take a more strategic approach to procurement, incentivizing firms to invest in unique intellectual property could be a positive development.”

However, Emanuelli at The Procurement Office – who has listed the “top ten” unanswered questions about BOBI – thinks the legislation should be scrapped. “Unless the government has a rational business case to support it, BOBI is nothing more than superficial protectionist theatre that appeals to emotion over reason,” he said. “This is never the basis for sound public policy.”

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