Hard sell

Summit, Dec 2000 by McIntosh, Gord

The unexplored procurement frontier of Crown corporations

Selling to government departments may be hard, but the rules are generally well-known and fairly consistent. Not so with federal Crown corporations.

Crown corporations are not required to follow Treasury Board guidelines on procurement. Nor are they required to procure under the Public Works and Government Services Act as full government departments are. As a result there are dozens of local rules for suppliers to worry about just as there are dozens of Crown corporations.

"We can think of the Crown corporations and special operating agencies as quasi-independent in procurement terms," says Ottawa procurement consultant David Swift. "Each agency or corporation has been established under its own legislation so it's difficult to point to two as being the same." Swift advises suppliers to take a hard look at that governing legislation and decide what sort of mandate the Crown corporation has. Some have more independence than others.

Canada Post, for example, is the next best thing to a private corporation. Others such as Canada Deposit Insurance Corp. are closer to being government departments. Sometimes things are done out of simple practicality. At the Export Development Corporation (EDC), for example, the process is abbreviated. "Because we are a small entity, we don't have a lot of the infrastructure internally that might support a full-fledged formal tendering process," says purchasing agent Brian McAndrew.

But, until somebody comes up with a consistent protocol for how Crown corporations tender, suppliers are on their own.

However, many suppliers would be surprised to learn that most Crown corporations, just like government departments, must conform to the North American Free Trade Agreement (NAFTA) on procurement procedures, which means their procurement decisions can be reviewed by the Canadian International Trade Tribunal (CITT).

In fact, in early October, Canada Post filed for judicial appeal in the Federal Court of Canada on an important NAFTA complaint by a Canadian supplier. But more on that later.

Other Crown corporations such as the EDC don't come under NAFTA but will come under the federal-provincial Agreement on Internal Trade (AIT) once cabinet enacts the treaty's next set of jurisdictions. Canada Post, meanwhile, is expected to be exempt from the AIT.

Nobody seems sure how much procurement the Crown corporations do in a year - they don't really have to tell anybody. But it is easily in the billions. In fact, Canada Post alone does in excess of $1 billion in procurement in a year, for everything from counter tops to trucks. The EDC procures about $40 million a year, mostly in service contracts.

So, for a government supplier this is too big a market to dismiss. Think of it as the wild west frontier of government procurement. Garth Whyte, senior vice president, national affairs, for the Canadian Federation of Independent Business (CFIB), says he routinely gets an earful from his members about their dealings with Crown corporations on everything from just getting a foot in the door to slow payment of outstanding invoices.

"We've had members who have held back some of their goods to ensure they get paid on time," Whyte says. Consultants on procurement also advise that Crown corporations are more likely to bypass the tendering process altogether and sole-source deals. There is no need to expect niceties like advance contract award notices of sole-source contracts either. "They're less accountable in terms of procurement," Whyte continues. "They act like private sector entities when they're not; they are under less policy diligence. Things are looser."

But they can also be innovative, insists Gilles Courville, general manager of procurement at Canada Post. For example, Canada Post has used a system called performance-based procurement. "We're asking suppliers to give us a product or service that would meet a number of performance criteria as opposed to coming within the details of what we want," Courville says.

This type of procurement, also known as incentive-based contracting, is common in property management and construction. The vendor usually has some sort of stake in the contract such as a cost guarantee. Canada Post is taking things a step further.

The advantage is that suppliers can focus on providing what the customer actually wants without having to worry about whether all the specifications in the request for proposals are covered, Courville says. "We used to buy counters in the traditional way, by listing specs. Now we say we want a counter for this kind of usage and to last for so many years. We say, `You the supplier are the expert. Tell us how it should be done.' "

Courville also sees no need to worry about sole sourcing at Canada Post. He says the Crown corporation will only skip the tendering process under unusual circumstances, like when no other source is available to supply an obscure piece of equipment. "If someone does a sole source they would get in trouble with Mr. Ouellet," he says, referring to Canada Post president Andre Ouellet.