Introduction

Responding to increasing concerns regarding procurement practices in the public sector, together with intensive media scrutiny of same, in April 2009 the Ministry of Finance issued the BPS Supply Chain Guideline ("Guideline"). In response, we issued the Health Law Bulletin "Understanding the PPP: The BPS Supply Chain Guideline" that contrasted the procurement requirements under the Guideline with Annex 502.4 to the Agreement on Internal Trade"[1] and the Management Board of Cabinet Procurement Directive (July 2009).

Notwithstanding that the Guideline was only issued in 2009, and organizations are still in the process of understanding the implications of the Guideline on their procurement practices, the Guideline has now been replaced by the Broader Public Sector Procurement Directive (the "Directive")[2], available as of February 1, 2011 on the Ministry of Finance website and effective on April 1, 2011, pursuant to the Broader Public Sector Accountability Act, 2010 (the "Act").[3]

In this Bulletin, we outline the more significant differences between the Directive and the Guideline, in particular to assist those organizations which have already implemented policies to comply with the Guideline, to determine what, if any, changes need now be made to such policies.

Background

On October 20, 2010, the Auditor General of Ontario released a Special Report entitled, "Consultant Use in Selected Health Organizations" identifying concerns related to the use of consultants and procurement practices by the Ministry of Health and Long-Term Care, Local Health Integration Networks ("LHINs"), and Ontario's hospitals.[4] In response to these concerns, Bill 122, now the Act, was concurrently released and given Royal Assent on December 8, 2010.

As detailed in this Bulletin, the Act is directed at improving compliance with BPS procurement directives and introduces new mandatory rules to increase financial accountability in the BPS. It also amends the Freedom of Information and Protection of Privacy Act[5] ("FIPPA") by extending its application to Ontario hospitals (private and public) as of January 1, 2012. In addition, the Act (a) requires hospitals and LHINs to prepare and report on their use of consultants annually, and to disclose information relating to expense claims on their public websites, (b) prohibits organizations funded by the Ontario government from using public funds to hire external lobbyists,[6] and (c) empowers the Management Board of Cabinet to issue directives governing the procurement of goods and services by certain designated BPS and publicly funded organizations, including hospitals. The Management Board of Cabinet has now taken advantage of its designated authority to release the new Directive.

Purpose and Scope of the Directive

The purpose of the Directive is to ensure that BPS organizations acquire publicly funded goods and services, including construction, consulting services, and information technology, through a process that is "open, fair, and transparent" and to provide consistently managed procurement practices among the BPS.[7] The Directive also sets out the responsibilities of BPS organizations throughout each stage of the procurement process.[8]

As we detail below, the new Directive builds on and strengthens the procurement policies and procedures ("PPP") of the Guideline by introducing mandatory requirements related to: (1) competitive acquisition of consulting services regardless of dollar value, (2) the approval authority framework for consulting services, and (3) effective BPS contract management.[9] The Supply Chain Code of Ethics (the "Code") within the Directive remains relatively unchanged from its predecessor and organizations, if they have not already done so, must formally adopt the Code in accordance with their government processes and supply chain activities.[10] The Code, however, is not meant to supersede an organization's own code of ethics but rather, to supplement it with supply-chain specific standards of practice.[11] The PPP and Code are the crux of the new Directive based on five overarching principles: accountability, transparency, value for money, quality service delivery and process standardization.[12]

The Directive has changed in scope (including its exemptions) and extended in application. The Directive applies to all designated BPS organizations and sector groups specified under Part I of the Act, including Ontario:

  • hospitals (including private hospitals that received funds in the previous fiscal year from the Government of Ontario)[13];
  • school boards;
  • universities, colleges of applied arts and technology and post-secondary institutions;
  • approved agencies designated as a children's aid society;
  • community care access corporations;
  • corporations controlled by one or more designated BPS organization(s) that exist solely or primarily for the purpose of purchasing goods or services for the designated BPS organization(s)[14] (e.g. shared services organizations); and
  • publicly funded organizations that received public funds of 10 million dollars or more in the previous fiscal year from the Government of Ontario.[15]

All of the above, with the exception of publicly funded organizations that received funds of 10 million dollars or more, must comply with the Directive as of April 1, 2011. The Directive will be mandatory for the latter BPS category as of January 1, 2012.

Entities that are exempt from the Directive's application include: municipalities, local boards and boards of health as defined in the Act, long-term care homes, organizations that undertake their activities for the purpose of profit to its shareholders, and public bodies under the Public Service of Ontario Act, 2006.[16]

Changes to and New PPP Mandatory Requirements of the Directive

While most of the mandatory requirements have remained largely the same in principle (23 out of 25 in total), language has been removed from, added and/or updated for almost every requirement. We highlight below both (a) those changes which in substance consist of new or almost entirely new additions to what pre-existed in the Guideline, and (b) those changes which are more discrete but nevertheless have some significance.[17]

  1. New Requirements

Consultants - Approval Authority (Mandatory Requirement (or "MR") #2): While the requirement to have a delegation of authority schedule, and to seek necessary approval for all procurements, was included in the Guideline, the following new approval framework, specifically, for the procurement of consulting services, has now been prescribed[18].  

Please click here to view table.

  • Consultants – Must Competitively Procure (MR #3): The competitive procurement thresholds, like the Guidelines, are based on the value and time of goods and services that are procured by BPS organizations. For goods, non-consulting services and construction, the requirement remains the same; an open competitive procurement must be conducted where the estimated total value is $100,000 or more. For consulting services, however, BPS organizations must competitively procure irrespective of value.[19] The recommended means of competitive procurement will be open where the value is $100,000 or more but less than this, invitational or open will suffice. Any exemptions must be in accordance with applicable trade agreements and this applies to all types of goods and services.[20]
  • Evaluation Criteria (MR#9) and Evaluation Process Disclosure(MR#10): Again, these mandatory requirements were included in the Guideline, but their content has been significantly expanded in the Directive. The new content includes the requirements for mandatory criteria to be kept to a minimum; to allocate maximum justifiable weighting to the price/cost component of the evaluation criteria; and to expressly disclose to proponents that submissions not meeting mandatory criteria will be disqualified.[21]
  • Contract Management (MR#22): This is an entirely new mandatory requirement. Its title is somewhat misleading, in that only part of the content relates to contract management per se: the rest of the requirement sets out minimum content for the contract itself. More specifically:
    • with respect to contract management, organizations are required to manage procurements and the resulting contracts responsibly and effectively; all overpayments must be recovered in a timely manner; supplier performance must be managed and documented and any performance issues addressed; and all expenses must be claimed and reimbursed in accordance with the BPS Expenses Directive (as set out in Section 10 of the Act); and
    • with respect to contract content, effectively the mandatory requirement obligates each organization to ensure that the contract (a) requires that each invoice be reasonably detailed; that each assignment be properly documented; and that supplier performance be documented and deficiencies addressed; (b) includes, for services: objectives, background, scope, constraints, staff responsibilities, deliverables, timing, progress reporting, approval requirements and knowledge transfer requirements; (c) includes a dispute resolution process; and (d) includes provisions with respect to the reimbursement of expenses which are compliant with the BPS Expenses Directive.[22]
  1. Changes to Existing Requirements

The following, more discrete, changes are also notable:

  • Posting Competitive Procurement Documents (MR#6): The Guideline permitted calls for competitive procurements of construction contracts between $100,000 and $250,000 to be made, through an electronic tendering system, but also through publication in a daily newspaper easily accessible to all Canadian supplies, or through the use of source lists, such as vendors-of-record ("VOR") or preferred suppliers lists. The Directive has now eliminated those two other alternatives to electronic tendering.
  • Duration of Response Times (MR#7): Previously, the Guideline set out that, at a minimum, the response time for posting competitive procurements should be 15 calendar days for goods and services valued at $100,000 or more. However, it also suggested that (a) each organization consider providing response times longer than 15 days in order to ensure that suppliers had a reasonable period of time to submit a bid, and (b) the timeline should also take into account the complexity of the procurement and the time needed by the organization to properly disseminate the information. The Directive is more specific in this regard, in that it states that organizations should also consider providing suppliers with a minimum response time of 30 calendar days when procurements are highly complex, and taking into account the risk and/or dollar value of the procurement(s).[23]
  • Non-Discrimination (MR#14): The Guideline had permitted discrimination or preferential treatment in awarding a contract to a preferred supplier pursuant to a competitive procurement process, where justifiable pursuant to limited set of criteria. Such discrimination is no longer permitted.
  • Executing the Contract (MR#15): Previously, the Guideline contemplated that where there was an immediate need for goods or services, and the organization and the supplier were unable to finalize the contract, a letter of intent, memorandum of understanding or an interim purchase order could be used. The Directive now only provides for an interim purchase order to be used in that circumstance.
  • Establishing the Contract (MR#15): One of the most significant requirements of the Guideline was the obligation to finalize the contract using the form of agreement that was released with the procurement documents. This required each organization to include a draft agreement with each RFP, for example, and provided the tendering organization with better leverage with the successful proponent (in contrast to negotiating the contract post-selection of the proponent). In a change which, in our view, was poorly chosen, the Directive now also contemplates "an alternative procurement strategy" wherein a form of agreement is not released with the procurement document. We would emphasize that, notwithstanding that the Directive now permits such an alternative procurement strategy, it is still very much best practice to attach the template document to the procurement document. While it requires the upfront investment of time and resources, in the long term attaching the agreement will both eliminate, or at the very least shorten, the negotiation cycle post-selection of the successful proponent, and ensure that the contract will optimally address the needs of the procuring organization.
  • Records Retention (MR#23): The Guideline requires that the BPS organization have a process that defines how confidential information is to be stored and the location of the storage. Interestingly, the Directive has changed the emphasis: it now states that organizations must have a written policy for handling, storing and maintaining the suppliers' confidential and commercially sensitive information.
  • Bid Dispute Resolution (MR#25): Finally, there is the following change to the requirement that the competitive procurement documents include bid dispute resolution procedures, which comply with the applicable trade agreements[24]: In addition to the requirement in the Guideline that the process ensure that disputes are handed in a reasonable and timely fashion, each organization should now also ensure that the process be ethical and fair.

Conclusion: The Need for a Procurement Policy

While most of the mandatory requirements have not changed substantially, there are a sufficient number of changes to warrant BPS organizations which have implemented procurement policies reviewing and revising those policies to reflect these new/changed requirements. The Directive also serves as a timely reminder that, for those BPS organizations which have not yet enacted a procurement policy, they need to do so. As a final note, an Implementation Guide Book is expected to be available for distribution in March of 2011, which will contain additional details as to the above requirements. Expect an update on the Guide Book to follow.