Rewiring the supply chain: how the pandemic is shaping government procurement

Torys Quarterly: Rethinking cross-border business

The COVID-19 pandemic will have long-term implications for how governments think about procurement.

An essential government activity that historically has rarely made front page news, government procurement has suddenly become a central focus for citizens around the world. Starting in early 2020, countries raced to secure personal protective equipment (PPE), vaccines, therapeutics and other critical supplies.

The crisis brought pressure to many of the long-standing presumptions underlying government procurement: the strong presumption in favour of competitive procurement and against sole source contracts; the presumption in favour of advance notice and of transparency in costing; and the built-in assumption that leverage would in most circumstances be with the government buyers and not with suppliers. All of these came under intense attack in the face of a life and death emergency where the rule book was being rewritten.

The pandemic also exposed some weaknesses in Canada’s current procurement systems. In a recent report of Ontario’s Long-Term Care COVID-19 Commission, it was noted that in the years leading up to the COVID-19 pandemic, the majority of the province’s stockpile of emergency health supplies, amassed after SARS, had expired and been destroyed. One of the Commission’s recommendations was that Ontario should have a central procurement process for PPE and other necessary supplies that provides clarity about purchasing and supply chain legislation, policies and best practices. This is a logical recommendation, as competition for scarce supplies between front-line healthcare and long-term care facilities within Ontario amid a global pandemic is counterproductive, wasting precious time and resources.

Domestic production in the spotlight

Globally, the idea of increasing support for domestic production has, not surprisingly, become a common theme. The pandemic crisis has revealed some of the perils of a globally integrated supply chain, as nations’ respective domestic health crises forced a prioritizing of domestic concerns, and where the impact of the crisis has been felt hardest by both countries lacking any production and countries whose production of critical supplies is needed globally. Ontario’s Long-Term Care COVID-19 Commission too reflects renewed focus on domestic considerations, recommending that the procurement process should place emphasis on maintaining capacity to manufacture PPE within Ontario.

The shifting attention on domestic production, however, runs counter to many years of expansion of scope in trade treaty procurement rules to covering more goods and services and more government entities. The most recent trade agreements, like the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), expand the scope of government procurement rules beyond federal and provincial governments to the broader public sector, including municipalities, universities, school boards and hospitals. While these broadened trade treaties are beneficial to Canadian companies looking to compete for government work in foreign jurisdictions, they also make it more difficult for the Canadian public sector to favour local suppliers of goods and services.

The achievement of the broader policy objectives for future government procurement will require careful planning within the context of Canada’s international trade commitments.

Emergency exemptions under the trade treaties have been relied on by governments through the acute phase of the pandemic but these are unlikely to be helpful for a long-term focus on developing a domestic supply chain. We expect that governments in Canada and elsewhere may therefore turn to the use of national security exemptions or the use of grants or other financial assistance to promote the development of domestic industry in areas such as PPE, medical equipment and vaccine production that can respond more rapidly to government needs in the next global crisis. Initiatives to promote domestic supply also may not be a popular target of challenge under trade treaties in practice, since most countries are likely to have a similar priority.

With procurement now making headlines, stakeholders are looking to access procurement contracts and reflect on what went right and what went wrong. Laws on procurement, transparency in the procurement process (in view of public dollars being spent on procurement) and procurement contracts are now scrutinized with new perspective. Tensions between Canada’s trade and international obligations and “step-in” rights in national laws, to protect Canada’s citizens, have reared their heads, with stakeholders consistently reaching out for support on legal issues in an area that is now highly charged.

The procurement of vaccines and critical supplies was no easy feat during the pandemic. However, the achievement of the broader policy objectives for future government procurement will require careful planning within the context of Canada’s international trade commitments to ensure a thoughtful approach to procurement in the context of a global supply chain that is evolving in response to rapid and systemic disruption.

Tags:

The Authors

Read More From This Issue
Q3 | Summer 2021: Rethinking cross-border business
The drive to expand global reach and new mandates to advance domestic strategies: we look at these parallel trends for organizations with cross-border interests in the Torys Quarterly.