October 28, 2020
The Perils of COVID Procurement
Written by Paul Emanuelli
Given the ongoing pandemic, many are asking whether Canadian health sector institutions can freely engage in emergency sole-sourcing or limit the purchase of pandemic-related supplies to local Canadian suppliers. The short answer is no.
COVID Purchasing Under the Spotlight
Notwithstanding the ongoing global pandemic, and the assertions of many elected officials, purchasing institutions are not at liberty to use the COVID crisis as cover for widescale sole sourcing and local preference purchasing. As the pandemic crisis has dragged on, the mounting newsreel scandals and public audit reports have already proven beyond a reasonable doubt that purchasing operations are under a spotlight and that using COVID as cover for shady procurement practices will come with future reputational, audit, and potentially legal consequences.
Turning Off the Sole-Sourcing Tap
When it comes sole sourcing, while public institutions can directly award contracts in situations of extreme unforeseen urgency, especially where the contract is required for health and safety reasons, that emergency exception does not apply to a self-created crisis. Even if the urgency exception could have been relied on in the early stages of the COVID-19 pandemic to bypass open procurement rules, public institutions are in an increasingly precarious position in trying to justify ongoing exceptions to their open procurement obligations beyond the original crisis period. Engaging in temporary sole-sourcing from a local supplier for the short-term stockpiling of supplies required to deal with the pandemic may have been justified as an emergency measure back in March 2020. But using the ongoing COVID crisis as an opportunity to award sole source contracts for general non-pandemic medical supplies months later, especially if they result in long-term contracts, is a self-evident overreach that contravenes the open procurement rules.
Local Preference and the Burden of Proof
With respect to applying preferences for local Canadian suppliers, imposing unnecessary restrictions to competition is a breach of the procurement rules, particularly where those restrictions are not directly connected to the contract needs. When restrictive requirements are applied, the procurement rules require the public institution to prove that the restriction is a “legitimate operational requirement”.
For example, case law shows that strict recent experience evaluation criteria were valid for airplane de-icing services and for handling related de-icing chemicals due to health and safety concerns and regulatory requirements. That case also upheld the narrowly defined specifications for the size of the de-icing equipment since that equipment had to be compatible with the size of airplanes.
However, defending restrictive specifications requires evidence to prove the operational need. For example, while it may appear self-evident that aluminum framed golf carts are lighter and therefore create less wear and tear on a golf course than steel-framed golf carts, aluminum golf cart specifications were struck down in a legal challenge when the purchasing institution was unable to provide evidence to prove that the weight difference in the golf carts had an actual material impact on golf course conditions. From a practical perspective, this burden of proof significantly restricts the ability to defensibly rely on restrictive requirements in public purchasing.
In applying these principles to future pandemic planning, while health sector institutions may be justified in seeking domestic suppliers or distributors to source and stockpile supplies to ensure ready access during a pandemic, they would first need to engage in a proactive planning process to: (i) establish their inventory of pandemic-related supplies; and (ii) document their supply chain analysis to show that using Canadian suppliers for those emergency goods would enhance the reliability of supply when compared to sourcing those same supplies globally.
When engaging in the above-noted due diligence exercise, Canadian health sector institutions should ensure that their future arrangements are proportionate to their anticipated future pandemic needs. Stated otherwise, future pandemic planning should not be used as cover for engaging in non-compliant procurement for the acquisition of generally required good and services, or for over purchasing supplies beyond the reasonable needs of a pandemic. To better ensure compliance with the procurement rules, public institutions that are serious about securing reliable domestic supply chains to deal with pandemics risks should be seeking situation-specific advice to better ensure the defensibility of their purchasing decisions.
Paul Emanuelli is the general counsel of the Procurement Law Office. He can be reached at email@example.com