Introduction

Hospitals’ procurement practices in the past have generally been governed by the Agreement on Internal Trade1 (the “AIT”)2. The AIT sought to reduce barriers to the movement of persons, goods, services and investments within Canada, and in doing so provided certain procurement rules for government purchasing. Annex 502.4 (Procurement - Provisions for municipalities, municipal organizations, school boards and publicly-funded academic, health and social service entities) (the “Annex”) is the Annex which specifically applies to hospitals and other publicly-funded health entities.

The Annex, while providing the core parameters for a health sector entity’s procurement policy, leaves many questions unanswered. The BPS Supply Chain Guideline (April 2009) (the “Guideline”), targeted at the “broader public sector” (or “BPS”), helps address those gaps. The Guideline was drafted in response to a March 2008 direction from the Ontario’s Treasury Board of Cabinet that a supply chain guideline be prepared and, as of April 1, 2009, be incorporated into the funding agreements of BPS organizations receiving more than $10 million per fiscal year from the Ministries of Health and Long-Term Care, Education and Training, Colleges and Universities (“In-Scope Recipients.”3) The Guideline is also mandatory for shared service organizations (SSOs) owned or funded by In-Scope Recipients.

The first edition of the Guideline, available as of the date of publication of this Bulletin, includes two essential Principles towards the goal of supply chain excellence: a Code of Ethics and a Procurement Policies and Procedures (“PPP”) standard. It is the latter PPP standard - which governs how the organization conducts sourcing, contracting and purchasing activities, including approval segregation and limits, competitive and non-competitive procurement purchasing, contract awarding, conflict of interest and bid protest procedures – which is the focus of this Bulletin. We emphasize that the Guideline is an extensive document, and thus we have highlighted below only some of the more significant PPP requirements set out in that Guideline.

Finally, we note that the Guideline has been issued roughly concurrent with the new Management Board of Cabinet Procurement Directive (July 2009) (the “Procurement Directive”). The Procurement Directive applies to two specific groups of entities (“Ministries”4 and “Other Included Entities”5) which generally do not encompass hospitals; however, the content of the Procurement Directive and the Guideline are nevertheless very similar, and – as we indicate below – the Procurement Directive can assist in providing further guidance in the application of the Guideline.

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Thresholds for Competitive Procurements

The Guideline does appear to raise the level of obligation to competitively procure from that set out in the Annex. We have highlighted below the different thresholds between the Annex, the Guideline, and also - for comparative purpose - the Procurement Directive (Ministries) and the Procurement Directive (Other Included Entities).

In summary, there are two significant changes of note between the thresholds set out in the AIT and the Guideline. First, the higher threshold for construction which previously existed has been eliminated such that it is now treated the same as any other service9. Second, the more oblique reference to “tendering process” which was set out in the AIT has been replaced with a more express requirement for, as applicable, an “invitational” or an “open” competitive procurement, in parallel with similar requirements in the Procurement Directive.

Two other differences are also worthy of note. While the standard of obligation is higher for Ministries under the Procurement Directive, the standard of obligation for the BPS is in fact greater than that for Other Included Entities under the Procurement Directive. Further, while the procurement of consulting services is treated as a separate category and therefore clearly of particular concern for the Management Board (again, being reflective of the concerns raised by certain of the recent procurement issues in the Ontario health sector), the Guideline does highlight consulting services as being deserving of special attention.

Exceptions to the Thresholds

As with the Annex and the Procurement Directive, the Guideline sets out certain exceptions to the requirement to competitively procure goods or services – i.e. so to allow for “single”10 or “sole”11 sourcing. Most of these exceptions set out in the Annex, the Guideline and Procurement Directive directly parallel each other. For example, such an exception exists where an unforeseen situation of urgency exists, and the goods/services cannot be obtained by means of a competitive procurement. However, it is noteworthy that, unlike the Annex and the Guideline, the Procurement Directive expressly clarifies that such an unforeseen situation of urgency does not occur where the entity has failed to allow sufficient time to conduct a competitive procurement – in other words, entities will not be permitted, either willfully or through negligence, to “create” such a situation of urgency in order to avoid their obligation to competitively procure.

The Guideline requires that where a BPS organization bypasses the competitive process, formal documentation must be completed to support and justify the decision, which documentation must then be approved by the appropriate authority levels within the organization and may be used as supporting documentation in the case of a competitive dispute12. The Guideline references a sample non-competitive process bypass template which will be provided in a future version of the Guideline, but has not yet been included. The Procurement Directive is helpful in addressing this current gap in the Guideline: it expressly sets out certain written documentation requirements for each Ministry where the entity elects to make a noncompetitive procurement, which include the requirement to document the applicable exception; the rationale for relying on such exception; whether the selected vendor was previously awarded a contract within the past five years for the same or closely-related requirements; a description of the potential pool of vendors that might have responded to competitive procurement; an assessment of all potential vendor complaints and how the entity would respond to those complaints; a description of any alternatives considered; and a description of the impact on the business requirements if the noncompetitive procurement were not to be approved. Adopting such a process in a hospital’s procurement policy imposes a helpful discipline each time the hospital relies upon such an exception for a noncompetitive procurement.

Restrictions on Use of Information Solicitation Documents

The Guideline describes the role of different information-gathering mechanisms, such as Requests for Information (“RFIs”), Requests for Expressions of Interest (“RFEIs”) and Requests for Supplier Qualifications (“RFSQs”), in assisting the BPS organization to plan a fair and cost-effective procurement process, define the requirements for the procurement documents, or identify whether there are qualified and/or interested suppliers.

However, like the Procurement Directive13, the Guideline emphasizes that RFIs and RFEIs are not competitions meant to result in the award of work, and that therefore, a correctly executed information solicitation process should not result in a legal contract with a proponent. In-Scope Recipients should also note the Guideline requirement that RFIs and RFEIs not ask for proprietary information from suppliers.

Bid Response Times

In order to ensure that each bidder receives sufficient time to prepare a reasonable response for the competitive process, purchasing BPS organizations are required to provide suppliers with a minimum response time of 15 calendar days for procurements valued at $100,000 or more.14 Further, the Guidelines advise that BPS organizations consider providing response times longer than 15 days to ensure that suppliers have a reasonable period of time to submit a bid, and that in any case the permitted response time should also take into account the complexity of the procurement and the time needed by the organization to properly disseminate the information. For example, the Procurement Directive requires that Ministries provide vendors with a minimum of 30 calendar days for complex/high risk procurements.

Form of Contract

Both the Guideline15 and the Procurement Directive16 require that the final contract with the vendor be finalized using the form of agreement/contract that was released with the procurement document, a requirement which is any case consistent with existing best practices.

Conclusion

Both the Guideline and the Procurement Directive are lengthy and comprehensive documents which we would suggest warrant further study. In addition to setting out the requirements of the new procurement landscape in Ontario, they together provide an invaluable resource for hospitals seeking to develop and implement a new, or update their existing, competitive procurement policy.