Lee Barter is a partner with Deloitte, where he leads the Sourcing and Procurement Consulting practice.
The Canadian Free-Trade Agreement (CFTA) was announced last week, shedding light on the mechanics for liberalizing domestic trade. While the CFTA ushers in several positive developments, the clauses opening up government procurement – a pot totalling 25 per cent of government spending – require more work to achieve the agreement's ambitions.
The need for improved government procurement rules has assumed greater urgency following the recent approval of the Canada-EU trade agreement (CETA). Without the CFTA, Canadian businesses would have been disadvantaged against European firms outside their home provinces. A provision within CETA requires that Canada create a single point of access for government tenders. This sweeping provision will funnel $100-billion of spending into an online portal for the convenience of European companies that can soon bid for government contracts with the same standing as Canadian companies. The new CFTA stipulates that the forthcoming CETA portal may be adapted to advance domestic goals also.
Viewed by some policy makers as a threat to Canadian firms in the face of rising European competition, the CETA portal had to be good, but not too good (what if EU companies started winning too often?). However, the CFTA appropriately recasts the single point of access in domestic terms and allows policy makers to reimagine how government purchasing can serve Canada's interests, not just comply with international obligations.
If the opportunity is grasped, a national tendering system offers a pathway to modernization. For example, most government bidding is done offline, denying government, businesses and citizens a vast amount of valuable information. In this vacuum, no Canadian government can presently muster the data to define a "local supplier," let alone detail how much spending goes to these businesses (ironic, considering the CFTA was built to eliminate biases favouring these firms).
The value of procurement data goes beyond tallying winners and losers. Digitizing competitions could save money for public agencies, particularly small entities that pay more for goods and services compared with large governments. Digitizing tender packages – time-consuming for buyers and frustrating for suppliers – could lead to greater innovation by sharing best practices and collecting supplier feedback (blunting a spike in bid protests in the process).
The benefits of bringing public buying into the digital age extends to suppliers, particularly innovative startups that are largely shut out of government contracting. The time-consuming process of responding to government tenders systematically tilts the procurement process in favour of large enterprises, including – perhaps inadvertently – European multinationals. Allowing bidders to maintain and reuse a digital profile would reduce paperwork and allow small businesses to compete for – and win – a larger share of government contracts.
Implied by combining CFTA requirements into the CETA portal is that Canadians won't be disadvantaged against Europeans for local contracts. But a true levelling of the playing field would help Canadian firms find and win business abroad. A tiny fraction of Canadian businesses export in spite of hard-won trade concessions to open up foreign markets. A bolder, more courageous approach would promote and support domestic firms bidding for government contracts in Europe and beyond.
The power of the public purse is massive, yet poorly understood. The Organisation for Economic Co-operation and Development estimates that government purchases – from airplanes to paper clips – represent 12 per cent of Canada's GDP. Governments spend money to deliver programs and services to Canadians, but the potential for second-order benefits from the way it is spent, is real.
The cost of our broken procurement system is likewise clear, which is why it is critical that government follows through on the promise and potential of the CFTA. Today, Canada's most dynamic companies look to governments such as Britain or the United States, who are vastly more open to acquiring innovative new products or co-developed solutions. When Canadian businesses can't access local procurement markets, companies miss a vital opportunity to gain a strategic customer and Canadians miss out on better services. The CFTA creates a chance for a more digital and integrated procurement policy to emerge in Canada – we must grasp it.